424B3 1 glacstis3pros424b3.txt GLAC STI CLASSIC THE STI CLASSIC 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 STI Classic 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 and Annuity Company Variable Annuity Account ("VARIABLE ACCOUNT"). Each Variable Sub-Account invests exclusively in shares of one of the portfolios ("PORTFOLIOS") of the following underlying mutual funds ("FUNDS")
AIM VARIABLE INSURANCE FUNDS MFS(R) VARIABLE INSURANCE TRUST/SM/ FEDERATED INSURANCE SERIES OPPENHEIMER VARIABLE ACCOUNT FUNDS FIDELITY VARIABLE INSURANCE PRODUCTS FUND PUTNAM VARIABLE TRUST (CLASS IB) FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST STI CLASSIC VARIABLE TRUST
: 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 52 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 PROSPECTUS 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 13 -------------------------------------------------------------------------------- Purchases 14 -------------------------------------------------------------------------------- Contract Value 15 -------------------------------------------------------------------------------- Investment Alternatives 16 -------------------------------------------------------------------------------- The Variable Sub-Accounts 16 -------------------------------------------------------------------------------- The Fixed Account Options 18 -------------------------------------------------------------------------------- Transfers 20 -------------------------------------------------------------------------------- Expenses 22 -------------------------------------------------------------------------------- Access To Your Money 23 -------------------------------------------------------------------------------- Income Payments 24 -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- Death Benefits 26 -------------------------------------------------------------------------------- OTHER INFORMATION -------------------------------------------------------------------------------- More Information: 29 -------------------------------------------------------------------------------- Glenbrook Life 29 -------------------------------------------------------------------------------- The Variable Account 30 -------------------------------------------------------------------------------- The Portfolios 30 -------------------------------------------------------------------------------- The Contract 31 -------------------------------------------------------------------------------- Qualified Plans 31 -------------------------------------------------------------------------------- Legal Matters 31 -------------------------------------------------------------------------------- Taxes 32 -------------------------------------------------------------------------------- Annual Reports and Other Documents 37 -------------------------------------------------------------------------------- Performance Information 37 -------------------------------------------------------------------------------- Experts 38 -------------------------------------------------------------------------------- APPENDIX A- ACCUMULATION UNIT VALUES 39 -------------------------------------------------------------------------------- APPENDIX B- MARKET VALUE ADJUSTMENT 50 -------------------------------------------------------------------------------- 2 PROSPECTUS 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 15 -------------------------------------------------------------------------------- Accumulation Unit Value 15 -------------------------------------------------------------------------------- Anniversary Values 27 -------------------------------------------------------------------------------- Annuitant 13 -------------------------------------------------------------------------------- Automatic Additions Program 14 -------------------------------------------------------------------------------- Automatic Portfolio Rebalancing Program 21 -------------------------------------------------------------------------------- Beneficiary 13 -------------------------------------------------------------------------------- Cancellation Period 15 -------------------------------------------------------------------------------- Contract 4 -------------------------------------------------------------------------------- Contract Anniversary 5 -------------------------------------------------------------------------------- Contract Owner ("You") 13 -------------------------------------------------------------------------------- Contract Value 15 -------------------------------------------------------------------------------- Contract Year 4 -------------------------------------------------------------------------------- Death Benefit Anniversary 26 -------------------------------------------------------------------------------- Dollar Cost Averaging Program 21 -------------------------------------------------------------------------------- Due Proof of Death 26 -------------------------------------------------------------------------------- Enhanced Death Benefit Rider 27 -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- Fixed Account Options 18 -------------------------------------------------------------------------------- Free Withdrawal Amount 22 -------------------------------------------------------------------------------- GLENBROOK LIFE ("We" or "Us") 29 -------------------------------------------------------------------------------- Guarantee Periods 18 -------------------------------------------------------------------------------- Income Plan 24 -------------------------------------------------------------------------------- Investment Alternatives 16 -------------------------------------------------------------------------------- Issue Date 6 -------------------------------------------------------------------------------- Market Value Adjustment 20 -------------------------------------------------------------------------------- Payout Phase 6 -------------------------------------------------------------------------------- Payout Start Date 24 -------------------------------------------------------------------------------- Portfolios 30 -------------------------------------------------------------------------------- SEC 1 -------------------------------------------------------------------------------- Settlement Value 27 -------------------------------------------------------------------------------- Systematic Withdrawal Program 24 -------------------------------------------------------------------------------- Valuation Date 15 -------------------------------------------------------------------------------- Variable Account 30 -------------------------------------------------------------------------------- Variable Sub-Account 16 -------------------------------------------------------------------------------- 3 PROSPECTUS 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 your state may require ("CANCELLATION PERIOD"). Upon cancellation, we will return your purchase payments adjusted, to the extent applicable law permits, to reflect the investment experience of any amounts allocated to the Variable Account, including the deduction of mortality and expense risk charges and administrative expense charges. ------------------------------------------------------------------------------- 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 $30 (with certain exceptions) .Withdrawal charges ranging from 0% to 7% of payment withdrawn (with certain exceptions) .Transfer fee of $10 after 12th transfer in any CONTRACT YEAR (fee currently waived) . State premium tax (if your state imposes one) In addition, each 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 investment advisers: . A I M Advisors, Inc. . Federated Investment Management Company . Fidelity Management & Research Company . Franklin Advisers, Inc. . MFS Investment Management(R) . Oppenheimer Funds, Inc. . Putnam Investment Management, Inc. . Templeton Global Advisors Limited . Trusco Capital Management, Inc. 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 ADDITIONS PROGRAM . AUTOMATIC PORTFOLIO REBALANCING PROGRAM . DOLLAR COST AVERAGING PROGRAM . SYSTEMATIC WITHDRAWAL PROGRAM ------------------------------------------------------------------------------- 4 PROSPECTUS INCOME PAYMENTS You can choose fixed income payments, variable income payments, or a combination of the two. You can receive your income payments in one of the following ways: . life income with guaranteed payments .a "joint and survivor" life income with guaranteed payments .guaranteed payments for a specified period (5 to 30 years) ------------------------------------------------------------------------------- DEATH BENEFITS If you die before the PAYOUT START DATE we will pay the death benefit described in the Contract. We offer an Enhanced Death Benefit Rider to owners of Contracts issued on or after May 1, 1997. ------------------------------------------------------------------------------- TRANSFERS Before the Payout Start Date you may transfer your Contract value ("CONTRACT VALUE") among the investment alternatives, with certain restrictions. No minimum applies to the amount you transfer. We do not currently impose a fee upon transfers. However, we reserve the right to charge $10 per transfer after the 12th transfer in each "Contract Year," which we measure from the date we issue your Contract or a Contract anniversary ("CONTRACT ANNIVERSARY"). ------------------------------------------------------------------------------- WITHDRAWALS You may withdraw some or all of your Contract Value at anytime during the Accumulation Phase. Full or partial withdrawals are available under limited circumstances on or after the Payout Start Date. In general, you must withdraw at least $50 at a time. 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 PROSPECTUS 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 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 ("INCOME PLANS") described on page 24. You receive income payments during 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.
Issue Payout Start Date Accumulation Phase Date Payout Phase ------------------------------------------------------------------------------------------------------------> You buy You save for retirement You elect to receive You can recieve Or you can receive a Contract income payments or income payments income payments receive a lump sum for a set period for life payment
As the Contract Owner, you exercise all of the rights and privileges provided by the Contract. If you die, any surviving Contract Owner or, if there is none, the BENEFICIARY will exercise the rights and privileges provided by the Contract. See "The Contract." In addition, if you die before the Payout Start Date, we will pay a death benefit to any surviving Contract Owner or, if there is none, to your Beneficiary. See "Death Benefits." Please call us at 1-800-755-5275 if you have any question about how the Contract works. 6 PROSPECTUS 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 Portfolios. CONTRACT OWNER TRANSACTION EXPENSES Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years Since We Received Payment 0 1 2 3 4 5 6 7+ Being Withdrawn ------------------------------------------------------------------------------------------------- Applicable Charge 7% 6% 5% 4% 3% 2% 1% 0% ------------------------------------------------------------------------------------------------- Annual Contract Maintenance Charge $30.00** ------------------------------------------------------------------------------------------------- Transfer Fee $10.00*** -------------------------------------------------------------------------------------------------
* Each Contract Year, you may withdraw up to 10% of the Contract Value on the date of the first withdrawal that Year without incurring a withdrawal charge. However, any applicable Market Value Adjustment determined as of the date of withdrawal will apply. ** We will waive this charge in certain cases. See "Expenses." *** Applies solely to the thirteenth and subsequent transfers within a Contract Year. We are currently waiving the transfer fee. VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSET VALUE DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT)
Mortality and Expense Risk Charge 1.25% ------------------------------------------------------------------------------- Administrative Expense Charge 0.10% ------------------------------------------------------------------------------- Total Variable Account Annual Expense 1.35% -------------------------------------------------------------------------------
WITH THE ENHANCED DEATH BENEFIT*
Mortality and Expense Risk Charge 1.35% ------------------------------------------------------------------------------- Administrative Expense Charge 0.10% ------------------------------------------------------------------------------- Total Variable Account Annual Expense 1.45% -------------------------------------------------------------------------------
* The Enhanced Death Benefit Rider became available to purchasers after May 1, 1997. 7 PROSPECTUS PORTFOLIO ANNUAL EXPENSES (After Voluntary Reductions and Reimbursements for certain Portfolios) (as a percentage of Portfolio average daily net assets)(1)
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 I 0.61% N/A 0.24% 0.85% ------------------------------------------------------------------------------------------------------- AIM V.I. Core Equity Fund - Series I (2) 0.61% N/A 0.21% 0.82% ------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund - Series I 0.62% N/A 0.26% 0.88% ------------------------------------------------------------------------------------------------------- AIM V.I. High Yield - Series I 0.63% N/A 0.66% 1.29% ------------------------------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund - Series I (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(R) Portfolio - Initial Class 0.58% N/A 0.10% 0.68% (5) ------------------------------------------------------------------------------------------------------- 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% NA 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% NA 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 Divesified Income Fund - Class IB (10) 0.68% 0.25% 0.11% 1.04% ------------------------------------------------------------------------------------------------------- Putnam VT Growth and Income Fund - Class IB (10) 0.46% 0.25% 0.05% 0.76% ------------------------------------------------------------------------------------------------------- Putnam VT Growth Opportunities Fund - Class IB (10) 0.70% 0.25% 0.15% 1.10% ------------------------------------------------------------------------------------------------------- Putnam VT Health Sciences Fund - Class IB (10) 0.70% 0.25% 0.09% 1.04% ------------------------------------------------------------------------------------------------------- Putnam VT New Value Fund - Class IB (10) 0.70% 0.25% 0.09% 1.04% ------------------------------------------------------------------------------------------------------- Putnam VT Voyager Fund II - Class IB (10) 0.70% 0.25% 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. 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. 8 PROSPECTUS 3. "Management Fees" include a shareholder services fee of 0.25%. 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 ay 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% ------------------------------------------------------------------------------- 9 PROSPECTUS Total Portfolio Management Rule 12b-1 Other Annual Portfolio Fees Fees Expenses Expenses ------------------------------------------------------------------------------- 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% -------------------------------------------------------------------------------
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. 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.
Variable Sub-Account 1Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------- AIM V.I. Balanced $82 $121 $163 $306 ------------------------------------------------------------------------------- AIM V.I. Capital Appreciation $79 $113 $149 $279 ------------------------------------------------------------------------------- AIM V.I. Core Equity $79 $112 $148 $276 ------------------------------------------------------------------------------- AIM V.I. Growth $79 $114 $151 $282 ------------------------------------------------------------------------------- AIM V.I. High Yield $83 $126 $172 $323 ------------------------------------------------------------------------------- AIM V.I. Premier Equity $79 $113 $149 $279 ------------------------------------------------------------------------------- Federated Prime Money Fund II $80 $115 $152 $285 ------------------------------------------------------------------------------- Fidelity VIP Contrafund (R) $77 $107 $140 $262 ------------------------------------------------------------------------------- Fidelity VIP Equity-Income $76 $104 $135 $251 ------------------------------------------------------------------------------- Fidelity VIP Growth $77 $107 $140 $262 ------------------------------------------------------------------------------- Fidelity VIP High Income $77 $108 $142 $265 ------------------------------------------------------------------------------- Fidelity VIP Index 500 $74 $ 97 $123 $227 ------------------------------------------------------------------------------- Fidelity VIP Overseas $80 $115 $153 $286 ------------------------------------------------------------------------------- MFS Emerging Growth $79 $113 $150 $281 ------------------------------------------------------------------------------- MFS Investors Trust $79 $114 $152 $284 ------------------------------------------------------------------------------- MFS New Discovery $81 $119 $160 $300 ------------------------------------------------------------------------------- MFS Research $79 $114 $152 $284 ------------------------------------------------------------------------------- MFS Utilities $80 $115 $153 $287 ------------------------------------------------------------------------------- Oppenheimer Aggressive Growth $77 $107 $140 $262 ------------------------------------------------------------------------------- Oppenheimer Capital Appreciation $77 $107 $140 $262 ------------------------------------------------------------------------------- Oppenheimer Global Securities $77 $108 $141 $264 ------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income $78 $109 $143 $267 ------------------------------------------------------------------------------- Oppenheimer Multiple Strategies $78 $110 $144 $270 ------------------------------------------------------------------------------- 10 PROSPECTUS Variable Sub-Account 1Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------- Oppenheimer Strategic Bond $78 $111 $146 $273 ------------------------------------------------------------------------------- Putnam VT Diversified Income $81 $119 $159 $298 ------------------------------------------------------------------------------- Putnam VT Growth and Income $78 $110 $144 $270 ------------------------------------------------------------------------------- Putnam VT Growth Opportunities $81 $120 $162 $304 ------------------------------------------------------------------------------- Putnam VT Health Sciences $81 $119 $159 $298 ------------------------------------------------------------------------------- Putnam VT New Value $81 $119 $159 $298 ------------------------------------------------------------------------------- Punam VT Voyager II $89 $144 $200 $378 ------------------------------------------------------------------------------- STI Capital Appreciation $85 $131 $179 $338 ------------------------------------------------------------------------------- STI Growth and Income $83 $123 $167 $314 ------------------------------------------------------------------------------- STI International Equity $94 $157 $222 $419 ------------------------------------------------------------------------------- STI Investment Grade Bond $84 $127 $173 $326 ------------------------------------------------------------------------------- STI Mid-Cap Equity $87 $138 $190 $359 ------------------------------------------------------------------------------- STI Quality Growth Stock $84 $127 $172 $324 ------------------------------------------------------------------------------- STI Small Cap Value Equity $90 $145 $202 $382 ------------------------------------------------------------------------------- STI Value Income Stock $82 $121 $163 $306 ------------------------------------------------------------------------------- Templeton Global Income Securities $80 $116 $155 $290 ------------------------------------------------------------------------------- Templeton Growth Securities $81 $120 $162 $304 -------------------------------------------------------------------------------
EXAMPLE 2 Same assumptions as Example 1 above, except that you decide not to surrender your Contract or you began receiving income payments at the end of each period.
Variable Sub-Account 1Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------------------------------------------ AIM V.I. Balanced $28 $ 85 $145 $306 ------------------------------------------------------------------------------------------------------------------ AIM V.I. Capital Appreciation $25 $ 77 $131 $279 ------------------------------------------------------------------------------------------------------------------ AIM V.I. Core Equity $25 $ 76 $130 $276 ------------------------------------------------------------------------------------------------------------------ AIM V.I. Growth $25 $ 78 $133 $282 ------------------------------------------------------------------------------------------------------------------ AIM V.I. High Yield $30 $ 90 $154 $323 ------------------------------------------------------------------------------------------------------------------ AIM V.I. Premier Equity $25 $ 77 $131 $279 ------------------------------------------------------------------------------------------------------------------ Federated Prime Money Fund II $26 $ 79 $134 $285 ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Contrafund (R) $23 $ 72 $123 $262 ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Equity-Income $22 $ 69 $117 $251 ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Growth $23 $ 72 $123 $262 ------------------------------------------------------------------------------------------------------------------ Fidelity VIP High Income $24 $ 73 $124 $265 ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Index 500 $20 $ 62 $105 $227 ------------------------------------------------------------------------------------------------------------------ Fidelity VIP Overseas $26 $ 79 $135 $286 ------------------------------------------------------------------------------------------------------------------ MFS Emerging Growth $25 $ 78 $132 $281 ------------------------------------------------------------------------------------------------------------------ MFS Investors Trust $26 $ 79 $134 $284 ------------------------------------------------------------------------------------------------------------------ MFS New Discovery $27 $ 83 $142 $300 ------------------------------------------------------------------------------------------------------------------ MFS Research $26 $ 79 $134 $284 ------------------------------------------------------------------------------------------------------------------ MFS Utilities $26 $ 79 $135 $287 ------------------------------------------------------------------------------------------------------------------ Oppenheimer Aggressive Growth $23 $ 72 $123 $262 ------------------------------------------------------------------------------------------------------------------ Oppenheimer Capital Appreciation $23 $ 72 $123 $262 ------------------------------------------------------------------------------------------------------------------ Oppenheimer Global Securities $24 $ 72 $124 $264 ------------------------------------------------------------------------------------------------------------------ Oppenheimer Main Street Growth & Income $24 $ 73 $125 $267 ------------------------------------------------------------------------------------------------------------------ Oppenheimer Multiple Strategies $24 $ 74 $127 $270 ------------------------------------------------------------------------------------------------------------------ Oppenheimer Strategic Bond $24 $ 75 $128 $273 ------------------------------------------------------------------------------------------------------------------ Putnam VT Diversified Income $27 $ 83 $141 $298 ------------------------------------------------------------------------------------------------------------------ Putnam VT Growth and Income $24 $ 74 $127 $270 ------------------------------------------------------------------------------------------------------------------ Putnam VT Growth Opportunities $28 $ 85 $144 $304 ------------------------------------------------------------------------------------------------------------------ 11 PROSPECTUS Variable Sub-Account 1Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------------------------------------------ Putnam VT Health Sciences $27 $ 83 $141 $298 ------------------------------------------------------------------------------------------------------------------ Putnam VT New Value $27 $ 83 $141 $298 ------------------------------------------------------------------------------------------------------------------ Punam VT Voyager II $36 $108 $183 $378 ------------------------------------------------------------------------------------------------------------------ STI Capital Appreciation $31 $ 95 $161 $338 ------------------------------------------------------------------------------------------------------------------ STI Growth and Income $29 $ 88 $149 $314 ------------------------------------------------------------------------------------------------------------------ STI International Equity $40 $122 $205 $419 ------------------------------------------------------------------------------------------------------------------ STI Investment Grade Bond $30 $ 91 $155 $326 ------------------------------------------------------------------------------------------------------------------ STI Mid-Cap Equity $33 $102 $172 $359 ------------------------------------------------------------------------------------------------------------------ STI Quality Growth Stock $30 $ 91 $154 $324 ------------------------------------------------------------------------------------------------------------------ STI Small Cap Value Equity $36 $109 $185 $382 ------------------------------------------------------------------------------------------------------------------ STI Value Income Stock $28 $ 85 $145 $306 ------------------------------------------------------------------------------------------------------------------ Templeton Global Income Securities $26 $ 80 $137 $290 ------------------------------------------------------------------------------------------------------------------ Templeton Growth Securities $28 $ 85 $144 $304 ------------------------------------------------------------------------------------------------------------------
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE LOWER OR GREATER THAN THOSE SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAYBE LOWER OR GREATER THAN 5%, WHICH IS NOT GUARANTEED. THE EXAMPLES ARE BASED ON THE EXPENSES SHOWN IN THE PORTFOLIO ANNUAL EXPENSES TABLE, WHICH REFLECTS CERTAIN WAIVER AND EIMBURSEMENT ARRANGEMENTS AS EXPLAINED IN THE FOOTNOTES TO THE TABLE. THE EXAMPLES ASSUME THOSE ARRANGEMENTS REMAIN IN EFFECT FOR THE PERIODS PRESENTED. THE ABOVE EXAMPLES ASSUME THE ELECTION OF THE ENHANCED DEATH BENEFIT RIDER WITH A MORTALITY AND EXPENSE RISK CHARGE OF 1.35% RATHER THAN 1.25%. 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 $51,637. 12 PROSPECTUS FINANCIAL INFORMATION -------------------------------------------------------------------------------- To measure the value of your investment in the Variable Sub-Accounts during the Accumulation Phase, we use a unit of measure we call the "ACCUMULATION UNIT." Each Variable Sub-Account has a separate value for its Accumulation Units we call "ACCUMULATION UNIT VALUE." Accumulation Unit Value is analogous to, but not the same as, the share price of a mutual fund. Attached as Appendix A to this prospectus are tables showing the Accumulation Unit Values of each Variable Sub-Account since its inception. To obtain a fuller picture of each Variable Sub-Account's finances, please refer to the Variable Account's financial statements contained in the Statement of Additional Information. The financial statements of GLENBROOK LIFE also appear in the Statement of Additional Information. THE CONTRACT -------------------------------------------------------------------------------- CONTRACT OWNER The STI Classic 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 Owner is a Grantor Trust, the Owner will be considered a non-natural person for purposes of the Death of Owner and Death of Annuitant provisions of your Conract. The maximum age of the oldest Contract Owner and Annuitant cannot exceed 85 as of the date we receive the completed application. 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. You can use the Contract with or without a qualified plan. A qualified plan is a 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 31. ANNUITANT The Annuitant is the individual whose age determines the latest Payout Start Date and whose life determines the amount and duration of income payments (other than under Income Plans with guaranteed payments for a specified period). You initially designate an Annuitant in your application. The Annuitant must be a natural person. If the Contract Owner is a natural person, you may change the Annuitant at any time prior to the Payout Start Date. You may designate a joint Annuitant, prior to the Payout Start Date, who is a second person on whose life income payments depend. 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 selected by the Contract Owner to receive the death benefit or become the new Contract Owner, subject to the "Death of Owner" section of the Contract, 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 Beneficiaries 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 Beneficiary(ies) who is first entitled to receive benefits under the Contract upon the death of the sole surviving Contract Owner. The contingent Beneficiary is the Beneficiary(ies) entitled to receive benefits under the Contract when all primary Beneficiaries predecease 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 13 PROSPECTUS effective as of the date you signed the form. 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 no named Beneficiary is a natural person or if you did not name a Beneficiary, the Beneficiary will be: .. your spouse or, if he or she is no longer living, .. your surviving children equally, or if you have no surviving children, .. your estate. If there is more than one Beneficiary and one of the Beneficiaries is a corporation or other type of non-natural person, all Beneficiaries will be considered to be non-natural persons for the above purposes. Unless you have provided directions to the contrary, the Beneficiaries will take equal shares. If there is more than one Beneficiary in a class and one of the Beneficiaries predeceases you (the Annuitant if the Contract owner is not a natural person), the remaining Beneficiaries in that class will divide the deceased Beneficiary's share in proportion to the original share of the remaining Beneficiaries. If more than one Beneficiary shares in the death benefit, each Beneficiary will be treated as a separate and independent owner of his or her respective proceeds. Each Beneficiary will exercise all rights related to his or her share, including the sole right to select an Income Plan, 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 Income Plan chosen by the original Beneficiary. MODIFICATION OF THE CONTRACT Only a Glenbrook officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law. ASSIGNMENT No owner has a right to asign 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 YOUR 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 earlier of the Payout Start Date or your 86th birthday. 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. Please call or write us for an enrollment form. ALLOCATION OF PURCHASE PAYMENTS At the time you apply for a Contract, you must decide how to credit your purchase payments among the investment alternatives. The allocation you specify on your application will be effective immediately. All allocations must be in whole percentages that total 100% or in whole dollars. You can change your allocations by notifying us in writing. We reserve the right to limit 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 use the term "BUSINESS DAY" to refer to each day Monday through Friday that the New York Stock Exchange is open for business. We also refer to these days 14 PROSPECTUS as "VALUATION DATES." Our business day closes when the New York Stock Exchange closes, usually 4 p.m. Eastern Time (3 p.m. Central Time). If we receive your purchase payment after 3 p.m. Central Time on any Valuation Date, we will credit your purchase payment using the Accumulation Unit Values computed on the next Valuation Date. RIGHT TO CANCEL You may cancel 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 applicable federal or state law permits, to reflect investment gain or loss, including the deduction of mortality and expense risk charges and administrative expense charges, that occurred from the date of allocation through the date of cancellation. Some states may require us to return a greater amount to you. If this 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 Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. ACCUMULATION UNIT VALUE As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect: .. changes in the share price of the 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 the Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we compute Accumulation Unit Value, please refer to the Statement of Additional Information. We determine a separate Accumulation Unit Value for each Variable Sub-Account on each Valuation Date. We also determine a separate set of Accumulation Unit Values reflecting the cost of the Enhanced Death Benefit Rider described on 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. 15 PROSPECTUS 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 prospectus for the Portfolio. 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 To achieve as high a total return as possible, consistent with preservation of capital ------------------------------------------------------- AIM V.I. Capital Growth of capital Appreciation Fund A I M 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 income ------------------------ ------------------------------------------------------- AIM V.I. Premier Long-term growth of capital; Equity Fund*** Income is a secondary objective ------------------------------------------------------- FEDERATED INSURANCE SERIES ------------------------------------------------------------------------------- Federated VIP Prime Current income consistent FEDERATED INVESTMENT Money Fund II with the Federated stability MANAGEMENT COMPANY of principal and liquidity ------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND ------------------------------------------------------------------------------- Fidelity VIP Long-term capital Contrafund(R) appreciation Portfolio ------------------------------------------------------- Fidelity VIP Reasonable income Equity-Income Portfolio ------------------------------------------------------- Fidelity VIP Growth Capital appreciation FIDELITY MANAGEMENT & 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 ------------------------------------------------------------------------------- Templeton Global High current income. Fund FRANKLIN ADVISERS, INC. Income Securities appreciation is a secondary TEMPLETON GLOBAL consideration. ADVISORS LIMITED ------------------------------------------------------- Templeton Growth Long-term capital growth Securities Fund ------------------------ ------------------------------------------------------- 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 ------------------------------------------------------- MFS Utilities Series Capital growth and current income ------------------------------------------------------------------------------- 16 PROSPECTUS PORTFOLIO: EACH PORTFOLIO SEEKS: INVESTMENT ADVISOR: ------------------------------------------------------------------------------- OPPENHEIMER VARIABLE ACCOUNT FUNDS ------------------------------------------------------------------------------- Oppenheimer Aggressive Capital appreciation Growth Fund/VA ------------------------------------------------------- Oppenheimer Capital Capital appreciation Appreciation Fund/VA ------------------------------------------------------- Oppenheimer Global Long-term capital Securities Fund/VA appreciation -------------------------------------------------------OPPENHEIMER FUNDS, INC. 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 TRUST ------------------------------------------------------- Putnam VT Diversified High current income Income Fund - Class IB consistent with capital preservation ------------------------------------------------------- Putnam VT Growth and Capital growth and current Income Fund - Class IB income ------------------------------------------------------- Putnam VT Growth Capital appreciation PUTNAM INVESTMENT Opportunities Fund - MANAGEMENT, INC. Class IB ------------------------------------------------------- Putnam VT Health Capital appreciation Sciences Fund - Class IB ------------------------------------------------------- Putnam VT New Value Long-term capital Fund - Class IB appreciation ------------------------------------------------------- Putnam VT Voyager Fund Long-term growth of capital II - Class IB ------------------------------------------------------------------------------- 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 CAPITAL STI Investment Grade High total return through MANAGEMENT, 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. 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 retail mutual funds. 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. 17 PROSPECTUS INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT OPTIONS -------------------------------------------------------------------------------- You may allocate all or a portion of your purchase payments to the Fixed Account. You may choose from among 3 Fixed Account Options, including a Standard Fixed Account Option, a Dollar Cost Averaging Fixed Account 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 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. STANDARD FIXED ACCOUNT OPTION AND DOLLAR COST AVERAGING FIXED ACCOUNT OPTION STANDARD FIXED ACCOUNT OPTION. Purchase payments and transfers that you allocate to the Standard 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 effective 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 12 months for each payment or transfer. Each payment or transfer you allocate to this Option must be at least $50. DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. You may establish a Dollar Cost Averaging Program by allocating purchase payments to the Dollar Cost Averaging Fixed Account Option ("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. Each purchase payment you allocate to the DCA Fixed Account Option must be at least $500.00. We reserve the right to reduce the minimum allocation amount. For each purchase payment, the first transfer from the DCA Fixed Account Option must occur within one month of the date of payment. If we do not receive an allocation instruction from you when the payment is received, each monthly installment will be transferred to the money market Variable Sub-Account in substantially equal monthly installments. Transferring Contract 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 21. We will follow your instructions in transferring amounts monthly from the DCA Fixed Account Option to one or more Variable Sub-Accounts. However, you may not choose monthly installments of less than 3 or more than 12. Further, you must transfer each purchase payment and all its earnings out of this Option to one or more Variable Sub-Accounts by means of dollar cost averaging within the selected program period. At the end of the transfer period, any nominal amounts remaining in the DCA Fixed Account will be allocated to the Federated Prime Money Fund II Variable Sub-Account. If you discontinue the 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. We bear the investment risk for all amounts allocated to the Standard Fixed Account Option and the 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 Standard Fixed Account Option and the DCA Fixed Account Option. For current interest rate information, please contact your representative or GLENBROOK LIFE 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 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. 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 interest rates based on investment returns available at the time of the determination. In addition, we may consider various other factors in determining 18 PROSPECTUS 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. The annual interest rate will never be less than the minimum guaranteed rate stated in the Contract. HOW WE CREDIT INTEREST. We will credit interest daily to each amount allocated to a Guarantee Period at a rate that compounds to the 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 Guarantee 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 might be required to pay a withdrawal charge. In addition, the amount withdrawn might be increased or decreased by a Market Value Adjustment that reflects changes in interest rates since the time you invested the amount withdrawn. The hypothetical interest rate is for illustrative purposes only and is not intended to predict future interest rates to be declared under the Contract. Actual interest rates declared for any given Guarantee Period may be more or less than shown above but will never be less than the guaranteed minimum rate stated in the Contract. RENEWALS. At the end of each Guarantee Period, we will mail you a notice asking you what to do with the relevant amount, 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 your money to the Standard Fixed Account Option. Your allocation will be effective on the day the previous Guarantee Period ends; or 4) 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 5) Withdraw all or a portion of your money. You may be 19 PROSPECTUS required to pay a withdrawal charge, but we will not adjust the amount withdrawn to include a Market Value Adjustment. The amount withdrawn will be deemed to have been withdrawn on the day the Guarantee Period ends. Amounts not withdrawn will be applied to a new Guarantee Period of the same length as the previous Guarantee Period. The new Guarantee Period will begin on the day the previous Guarantee Period ends with current interest credited from the date the Guarantee Period expired. 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 applies upon payment of a death benefit under Contracts issued before May 1, 1997, 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 apply the Market Value Adjustment to reflect changes in interest rates from the time the amount being withdrawn or transferred was allocated to a Guarantee Period to the time of its withdrawal, transfer, or application to an Income Plan. As such, you bear some investment risk on amounts you allocate to any Guarantee Period. The Market Value Adjustment may be positive or negative, depending on changes in interest rates. If interest rates increase significantly from the time you make a purchase payment, the Market Value Adjustment, withdrawal charge, premium taxes, and income tax withholding (if applicable) could reduce the amount you receive upon full withdrawal of your Contract Value to an amount that is less than the purchase payment plus interest at the minimum guaranteed interest rate under the Contract. Generally, if the effective annual interest rate for the Guarantee Period is lower than the applicable current effective annual interest rate for a period equal to the time remaining in the Guarantee Period, then the Market Value Adjustment will result in a lower amount payable to you or transferred. Similarly, if the effective annual interest rate for the Guarantee Period is higher than the applicable current effective annual interest rate, then the Market Value Adjustment will result in a higher amount payable to you or transferred. For example, assume that you purchase a Contract and select an initial Guarantee Period of 5 years that has an effective annual rate of 4.50%. Assume that at the end of 3 years, you make a partial withdrawal. If, at that later time, the current interest rate for a 2 year Guarantee Period is 4.00%, then the Market Value Adjustment will be positive, which will result in an increase in the amount payable to you. Conversely, if the current interest rate for the 2 year Guarantee Period is 5.00%, then the Market Value Adjustment will be negative, which will result in a decrease in the amount payable to 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 request transfers in writing or by telephone according to the procedure described below. There is no minimum transfer amount. We currently do not assess, but reserve the right to assess, a $10 charge on each transfer in excess of 12 per Contract Year. All transfers to or from more than one Portfolio on a given day count as one transfer. We will process transfer requests that we receive before 3:00 p.m. Central Time on any Valuation Date using the Accumulation Unit Values for that Date. We will process requests completed after 3:00 p.m. on any Valuation Date using the Accumulation Unit Values for the next Valuation Date. The Contract permits us to defer transfers from the Fixed Account Options for up to 6 months from the date we receive your request. If we decide to postpone transfers from any Fixed Account Option for 30 days or more, we will pay interest as required by applicable law. Any interest would be payable from the date we receive the transfer request to the date we make the transfer. We limit the amount you may transfer from the Standard Fixed Account Option to any other investment alternative in any Contract Year to the greater of: 1) 25% of the value in the Standard Fixed Account Option as of the most recent Contract Anniversary (if this amount is less than $1,000, then up to $1,000 may be transferred); or 2) 25% of the sum of all purchase payments and transfers to the Standard Fixed Account Option as of the most recent Contract Anniversary. If you transfer an amount from the Guaranteed Maturity Fixed Account Option other than during the 30 day period after a Guarantee Period expires, we will increase or decrease the amount by a Market Value Adjustment. You may not transfer Contract Value into the DCA Fixed Account Option. We reserve the right to waive any transfer restrictions. TRANSFERS DURING THE PAYOUT PHASE During the Payout Phase, you may make transfers among 20 PROSPECTUS 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. 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, if you first send us a completed authorization form. 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 any Variable Sub-Account, the Standard Fixed Account Option or the Dollar Cost Averaging Fixed Account Option, to any other Variable Sub-Account. You may not use the Dollar Cost Averaging Program to transfer amounts to a Fixed Account Option. 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 Sub-Account may cause a shift in the percentage you allocated to each 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. Money allocated to the Fixed Account Options will not be included in the rebalancing. We will rebalance your account monthly, quarterly, semi-annually or annually, 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 two Variable Sub-Accounts. You want 40% to be in the STI Investment Grade Bond Variable Sub-Account and 60% to be in the STI Capital Appreciation 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 STI Investment Grade Bond 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 STI Investment Grade Bond Variable Sub-Account and use the money to buy more units in the STI Capital Appreciation 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. 21 PROSPECTUS 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 $30 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. During the Payout Phase, we will deduct the charge proportionately from each income payment. The charge is to compensate us for the cost of administering 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: .. total purchase payments equal $25,000 or more as of a Contract Anniversary or upon full withdrawal, or .. all of your money is allocated to the Fixed Account Options on a Contract Anniversary. 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, available to purchasers after May 1, 1997). 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 benefit), 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 0.10% for the Enhanced Death Benefit Rider to compensate us for the additional risk that we accept by providing the rider. 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. 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 7% of the purchase payment(s) you withdraw. The charge declines annually to 0% over a 7 year period that begins on the day we receive your purchase payment. A schedule showing how the charge declines appears on page 7. During each Contract Year, you can withdraw up to 10% of the Contract Value on the date of the first withdrawal in that Contract Year without paying the charge. Unused portions of this 10% "FREE WITHDRWAL AMOUNT" are not carried forward to future Contract Years. We will deduct --- withdrawal charges, if applicable, from the amount paid. For purposes of the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings in the Contract. Thus, for tax purposes, earnings are considered to come out first, which means you pay taxes on the earnings portion of your withdrawal. We do not apply a withdrawal charge in the following situations: .. on the Payout Start Date; .. withdrawals taken to satisfy IRS minimum distribution rules for this Contract, or .. withdrawals that qualify for one of the waivers described below. We use the amounts obtained from the withdrawal charge to pay sales commissions and other promotional or distribution expenses associated with marketing the Contracts. To the extent that the withdrawal charge does not cover all sales commissions and other promotional or distribution expenses, we may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or any other charges or fee described above, to make up any difference. Withdrawals may be subject to tax penalties or income tax and a Market Value Adjustment. You should consult your own tax counsel or other tax advisers regarding any withdrawals. CONFINEMENT WAIVER. We will waive the withdrawal charge on all withdrawals taken prior to the Payout Start Date under your Contract if the following conditions are 22 PROSPECTUS satisfied: 1. you or the Annuitant, if the Contract is owned by a company or other legal entity, are confined to a long term care facility or a hospital (as defined in the Contract) for at least 90 consecutive days. You or the Annuitant must enter the long term care facility or hospital (as defined in the Contract) at least 30 days after the Issue Date; 2. you must 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 (as defined in the Contract); and 3. a physician must have prescribed the stay and the stay must be medically necessary (as defined in the Contract). You may not claim this benefit if you or the Annuitant, or a member of your or the Annuitant's immediate family, 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 on one partial or a full withdrawal 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 diagnosed by a physician (we may require a second opinion) 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 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) have been granted unemployment compensation for at least 30 consecutive days as a result of that unemployment and we receive due proof thereof (as defined in the Contract) prior to the time of the withdrawal request; and 3. you exercise this benefit within 180 days of your initial receipt of unemployment compensation. You may exercise this benefit once during the life of your Contract. Please refer to your Contract for more detailed information about the terms and conditions of these waivers. The laws of your state may limit the availability of these waivers and may also change certain terms and/or benefits available under the waivers. You should consult your Contract for further details on these variations. Also, even if you do not need to pay our withdrawal charge because of these waivers, you still may be required to pay taxes or tax penalties on the amount withdrawn. You should consult your tax adviser to determine the effect of a withdrawal on your taxes. PREMIUM TAXES Some states and other governmental entities (e.g., municipalities) charge premium taxes or similar taxes. We are responsible for paying these taxes and will deduct them from your Contract Value. Some of these taxes are due when the Contract is issued, others are due when income payments begin or upon surrender. Our current practice is not to charge anyone for these taxes until income payments begin or when a total withdrawal occurs, including payment upon death. 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, we deduct the applicable charge for premium taxes from each investment alternative in the proportion that the Contract Owner's value in the investment alternative bears to the total Contract Value. DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES We are not currently maintaining a provision for taxes. In the future, however, we may maintain 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. 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 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. Withdrawals also are available under limited circumstances on or after the Payout Start Date. See "Income Plans" on page 24. The amount payable upon withdrawal is the Contract Value next computed after we receive the request for a withdrawal at our headquarters, adjusted by any Market Value Adjustment, less any withdrawal charges, contract 23 PROSPECTUS maintenance charges, income tax withholding, 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 and/ 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 that you 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 or transfer 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 Dollar Cost Averaging or Automatic Portfolio Rebalancing. 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 591/2, 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. 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. 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. Before terminating any Contract whose value has been reduced by partial 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 Value to the contractual minimum of $2,000. MINIMUM SURRENDER VALUE Certain states may require us to endorse your Contract to provide a minimum surrender value. Please refer to the endorsement for details. INCOME PAYMENTS -------------------------------------------------------------------------------- PAYOUT START DATE You select the Payout Start Date in your application. The Payout Start Date is the day that money is applied to an Income Plan. The Payout Start Date must be 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; 24 PROSPECTUS .. 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. 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. INCOME PLAN 3 - GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD (5 YEAR 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. We will deduct the mortality and expense risk charge from the Variable Account assets supporting these 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 is alive before we make each payment. Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on. Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or part of the Variable Account portion of the income payments at any time and receive a lump sum equal to the present value of the remaining variable payments associated with the amount withdrawn. The minimum amount you may withdraw under this feature is $1,000. We may make other Income Plans available. You must apply at least the Contract Value in the Fixed Account Options on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account Option balance to provide variable income payments, you should plan ahead and transfer that amount to the Variable Sub-Accounts prior to the Payout Start Date. If you do not tell us how to allocate your Contract Value among fixed and variable income payments, we will apply your Contract Value in the Variable Account to variable income payments and your Contract Value in the Fixed Account Options to fixed income payments. We will apply your Contract Value, adjusted by a Market Value Adjustment, less applicable taxes to your Income Plan on the Payout Start Date. If the 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: .. pay you the Contract Value, adjusted by any Market Value Adjustment and less any applicable taxes, in a lump sum instead of the periodic payments you have chosen, or .. reduce the frequency of your payments so that each payment will be at least $20. VARIABLE INCOME PAYMENTS The amount of your variable income payments depends upon the investment results of the Variable Sub-Accounts you select, the premium taxes you pay, the age and sex of the Annuitant, and the Income Plan you choose. We guarantee that the payments will not be affected by (a) actual mortality experience and (b) the amount of our administration expenses. We cannot predict the total amount of your variable income payments. Your variable income payments may be more or less than your total purchase payments because (a) variable income payments vary with the investment results of the underlying 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 25 PROSPECTUS variable income payments. We reserve the right to make other assumed investment rates available. FIXED INCOME PAYMENTS We guarantee income payment amounts derived from any Fixed Account Option for the duration of the Income Plan. We calculate the fixed income payments by: 1. adjusting the portion of the Contract Value in any Fixed Account Option on the Payout Start Date by any applicable Market Value Adjustment; 2. deducting any applicable premium tax; and 3. applying the resulting amount to the greater of (a) the appropriate value from the income payment table in your Contract or (b) such other value as we are offering at that time. We may defer making fixed income payments for a period of up to 6 months or such shorter time period required by law. If we defer payments for 30 days or more, we will pay interest as required by law from the date we receive the withdrawal request to the date we make payment. CERTAIN EMPLOYEE BENEFIT PLANS The Contracts offered by this prospectus contain income payment tables that provide for different payments to men and women of the same age, except in states that require unisex tables. We reserve the right to use income payment tables that do not distinguish on the basis of sex to the extent permitted by law. In certain employment-related situations, employers are required by law to use the same income payment tables for men and women. Accordingly, if the Contract is to be used in connection with an employment-related retirement or benefit plan and we do not offer unisex annuity tables in your state, you should consult with legal counsel as to whether the purchase of a Contract is appropriate. DEATH BENEFITS -------------------------------------------------------------------------------- We will pay a death benefit prior to the Payout Start Date on: a. the death of any Contract Owner or, b. the death of the Annuitant, if the Contract is owned by a non-natural person. We will pay the death benefit to the new Contract owner as determined immediately after the death. The new Contract owner would be a surviving Contract owner or, if none, the Beneficiary(ies). In the case of the death of the Annuitant, we will pay the death benefit to the current Contract Owner. 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 settlement of the death benefit. If we receive a request after 3:00 p.m. Central Time on a Valuation Date, we will process the request as of the end of the following Valuation Date. A complete request for settlement of the death benefit must include Due Proof of Death. We will accept the following documentation as "Due Proof of Death:" - a certified copy of a death certificate, - a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or - any other proof acceptable to us. CONTRACTS ISSUED BEFORE MAY 1, 1997 DEATH BENEFIT AMOUNT Prior to the Payout Start Date, the death benefit before any Market Value Adjustment is equal to the greater of: 1. the Contract Value as of the date we receive a complete request for settlement of the death benefit, or 2. for each previous DEATH BENEFIT ANNIVERSARY, the Contract Value at that Anniversary; plus any purchase payments made since that anniversary; minus any amounts we paid the Contract Owner (including income tax we withheld from you) since that Anniversary. A "Death Benefit Anniversary" is every seventh Contract Anniversary beginning with the Issue Date. For example, the Issue Date, 7th and 14th Contract Anniversaries are the first three Death Benefit Anniversaries. We will adjust the death benefit by any applicable Market Value Adjustment as of the date we determine the death benefit. The death benefit will never be less than the sum of all purchase payments less any amounts previously paid to the Contract Owner (including income tax withholding). DEATH BENEFIT PAYMENTS The Contract Owner eligible to receive death benefits has the following options: 1. If the Contract Owner is not a natural person, then the Contract Owner must receive the death benefit in a lump sum within 5 years of the date of death. 2. Otherwise, within 60 days of the date when the death benefit is calculated, the Contract Owner may elect to receive the death benefit under an Income Plan or in a lump sum. Payments from the Income Plan must begin within one year of the Date of Death and must be payable throughout: .. the life of the Contract owner; or .. a period not to exceed the life expectancy of the Contract owner; or .. the life of the Contract owner with payments guaranteed for a period not to exceed the life expectancy of the Contract owner. Any death benefit payable in a lump sum must be paid within five years of the date of death. If no election is 26 PROSPECTUS made, funds will be distributed at the end of the 5 year period. 3. If the surviving spouse of the deceased Contract Owner is the new Contract owner, then the spouse may elect one of the options listed above or may continue the Contract in the Accumulation Phase as if the death had not occurred. If the Contract is continued in the Accumulation Phase, the surviving spouse may make a single withdrawal of any amount within one year of the date of death without incurring a withdrawal charge. However, any applicable Market Value Adjustment, determined as of the date of the withdrawal, will apply. CONTRACTS ISSUED ON OR AFTER MAY 1, 1997 DEATH BENEFIT AMOUNT Prior to the Payout Start Date, if we receive a complete request for settlement of the death benefit within 180 days of the date of death, the death benefit is equal to the greatest of: 1. the Contract Value as of the date we receive a complete request for settlement 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 receive a complete request for settlement of the death benefit, or 3. the Contract Value on each Death Benefit Anniversary as defined above prior to the date we receive a complete request for settlement of the death benefit, increased by purchase payments made since that Death Benefit Anniversary and reduced by an adjustment for any partial withdrawals since that Death Benefit Anniversary. The adjustment is equal to (a) divided by (b) and the result multiplied by (c) where: (a) is the withdrawal amount, (b) is the Contract Value immediately prior to the withdrawal, and (c) is the Contract Value on the Death Benefit Anniversary adjusted by any prior purchase payments or withdrawals made since that Anniversary. We will calculate the Death Benefit Anniversary values until the oldest Contract owner, or the Annuitant if the Contract Owner is not a natural person, attains age 80. If we do not receive a complete request for settlement of the death benefit within 180 days of the date of death, the death benefit is equal to the greater of: 1. the Contract Value as of the date we determine the death benefit, or 2. the Settlement Value as of the date we determine the death benefit. We reserve the right to extend the 180-day period on a non-discriminatory basis. ENHANCED DEATH BENEFIT RIDER. If the oldest Contract Owner and Annuitant are less than or equal to age 75 as of the date we receive the completed application, the Enhanced Death Benefit Rider is an optional benefit that you may elect. For Contracts with the Enhanced Death Benefit Rider, the death benefit will be the greatest of (1) through (3) above, or 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. An "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 non-forfeiture laws that govern the Contract. If we do not receive a complete request for settlement of the death benefit within 180 days of the date of death, the Enhanced Death Benefit Rider will not apply and the death benefit is equal to the greater of: 1. the Contract Value as of the date we determine the death benefit, or 2. the Settlement Value as of the date we determine the death benefit. DEATH BENEFIT PAYMENTS DEATH OF OWNER 1. If your spouse is the sole surviving Contract Owner, or is the sole Beneficiary: a. Your spouse may elect to receive the death benefits in a lump sum; or b. Your spouse may elect to receive the death benefits 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 27 PROSPECTUS 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 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 benefit over the Contract Value will be allocated to the Sub-Accounts of the Variable Account. This excess will be allocated in proportion to your Contract Value in those Sub-Accounts as of the end of the Valuation Date on which we receive the complete request for settlement of the death benefits (the next Valuation Date if we receive the request after 3:00 p.m. Central Time), 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 described under "Death Benefit Amount." Only one spousal continuation is allowed under the Contract. 2. If the new Contract Owner is not your spouse but is a natural person or if there are multiple natural-person new Contract Owners: a. The new Contract Owner may elect to receive the death benefits in a lump sum; or b. The new Contract Owner may elect to receive the death benefits 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. The Contract Value will equal the amount of the death benefit as determined as of the end of the Valuation Date on which we receive a complete request for settlement of the death benefit (the next Valuation Date if we receive the request after 3:00 p.m. Central Time). Unless otherwise instructed by the new Contract Owner, the excess, if any, of the death benefit 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. No additional purchase payments may be added 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-natural person: a. The new Contract Owner may elect to receive the death benefits 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. The Contract Value will equal the amount of the death benefit as determined as of the end of the Valuation Date on which we receive a complete request for settlement of the death benefit (the next Valuation Date if 28 PROSPECTUS we receive the request after 3:00 p.m. Central Time). Unless otherwise instructed by the new Contract Owner, the excess, if any, of the death benefit 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. No additional purchase payments may be added 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-natural person, all new Contract Owners will be considered to be non-natural persons for the above purposes. 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 benefits 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 natural 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-natural person: a. The Contract Owner may elect to receive the death benefits 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. The Contract Value will equal the amount of the death benefit as determined as of the end of the Valuation Date on which we receive a complete request for settlement of the death benefit (the next Valuation Date if we receive the request after 3:00 p.m. Central Time). Unless otherwise instructed by the Contract Owner, the excess, if any, of the death benefits 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. No additional purchase payments may be added 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-natural Contract Owner from the date of the Annuitant's death to the date on which the death benefits are paid. 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 and in which SunTrust Bank, Inc., through its banking subsidiaries, conducts business. Our headquarters 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 29 PROSPECTUS 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 AND ANNUITY COMPANY Variable Annuity Account on December 15, 1992. 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, of which 40 are currently available for investment under the Contract. 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 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 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 fund. 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 underlying 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 or trustees 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 or trustees 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. 30 PROSPECTUS THE CONTRACT DISTRIBUTION. ALFS, Inc. ("ALFS"), located at 3100 Sanders Road, Northbrook, Illinois 60062-7154, serves as 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. 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 81/2% of all purchase payments (on a present value basis). These commissions are intended to cover distribution expenses. Sometimes, we also pay the broker-dealer a persistency bonus in addition to the standard commissions. 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 quarterly. 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 will 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 Foley & Lardner, Washington, D.C., has advised GLENBROOK LIFE on certain federal securities law matters. All matters of state 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. 31 PROSPECTUS 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 32 PROSPECTUS 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, 33 PROSPECTUS 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 34 PROSPECTUS 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 35 PROSPECTUS 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 36 PROSPECTUS 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 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. 0000945094. 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 can also 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 Avenue, Vernon Hills, Illinois, 60061 (telephone: 1-800-755-5275). PERFORMANCE INFORMATION -------------------------------------------------------------------------------- We may advertise the performance of the Variable Sub-Accounts, including yield and total return information. Yield refers to the income generated by an investment in a Variable Sub-Account over a specified period. Total return represents the change, over a specified period of time, in the value of an investment in a Variable Sub-Account after reinvesting all income distributions. All performance advertisements will include, as applicable, standardized yield and total return figures that reflect the deduction of insurance charges, the contract maintenance charge, and withdrawal charge. Performance advertisements also may include total return figures that reflect the deduction of insurance charges, but not the contract maintenance or withdrawal charges. The deduction of such charges would reduce the performance shown. In addition, performance advertisements may include aggregate average, year-by-year, or other types of total return figures. Performance information for periods prior to the inception date of the Variable Sub-Accounts will be based on the historical performance of the corresponding 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 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. 37 PROSPECTUS 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. 38 PROSPECTUS APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE INCEPTION BASE POLICY(1) --------------------------------------------------------------------------------
For the Years Beginning January 1* and Ending December 31, 1995 1996 1997 1998 1999 ---------------------------------------------------------- AIM V.I. BALANCED SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - - - $ 10.00 Accumulation Unit Value, End of Period - - - - $ 14.58 Number of Units Outstanding, End of Period - - - - 468,136 AIM V.I. CORE EQUITY SUB-ACCOUNT(2) (11) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - AIM V.I. GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - AIM V.I. HIGH YIELD SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - AIM V.I. PREMIER EQUITY SUB-ACCOUNT(2) (12) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - FEDERATED PRIME MONEY FUND II SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.05 $ 10.42 $ 10.79 $ 11.17 Accumulation Unit Value, End of Period $ 10.05 $ 10.42 $ 10.79 $ 11.17 $ 11.54 Number of Units Outstanding, End of Period 132,650 488,506 343,107 483,734 481,530 FIDELITY VIP CONTRAFUND(R) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - FIDELITY VIP EQUITY INCOME SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - FIDELITY VIP GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - 39 PROSPECTUS For the Years Beginning January 1* and Ending December 31, 1995 1996 1997 1998 1999 ---------------------------------------------------------- FIDELITY VIP HIGH INCOME SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - FIDELITY VIP II INDEX 500 SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - FIDELITY VIP OVERSEAS SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - MFS EMERGING GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - MFS INVESTORS TRUST SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - MFS NEW DISCOVERY SERIES - INITIAL CLASS(7) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - MFS RESEARCH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - MFS UTILITIES SERIES - INITIAL CLASS (7) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - OPPENHEIMER MAIN STREET GROWTH AND INCOME SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - OPPENHEIMER MULTIPLE STRATEGIES SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - - - $ 10.00 Accumulation Unit Value, End of Period - - - - $ 11.14 Number of Units Outstanding, End of Period - - - - 186,352 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - - - $ 10.00 Accumulation Unit Value, End of Period - - - - $ 10.25 Number of Units Outstanding, End of Period - - - - 73,123 PUTNAM VT DIVERSIFIED INCOME FUND - CLASS IB (7) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - 40 PROSPECTUS For the Years Beginning January 1* and Ending December 31, 1995 1996 1997 1998 1999 ---------------------------------------------------------- PUTNAM VT GROWTH AND INCOME FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - PUTNAM GROWTH OPPORTUNITIES FUND - CLASS IB (7) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - PUTNAM VT HEALTH SCIENCES FUND - CLASS IB (7) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - PUTNAM VT NEW VALUE FUND - CLASS IB (7) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - PUTNAM VOYAGER FUND II - CLASS IB (7) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - STI CAPITAL APPRECIATION SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.66 $ 13.10 $ 17.53 $ 22.31 Accumulation Unit Value, End of Period $ 10.66 $ 13.01 $ 17.53 $ 22.31 $ 23.93 Number of Units Outstanding, End of Period 103,697 1,680,419 2,788,068 3,048,172 3,298,412 STI GROWTH AND INCOME SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - STI INTERNATIONAL EQUITY SUB-ACCOUNT(5) Accumulation Unit Value, Beginning of Period - $ 10.00 $ 10.15 $ 11.69 $ 12.79 Accumulation Unit Value, End of Period - $ 10.15 $ 11.69 $ 12.79 $ 13.73 Number of Units Outstanding, End of Period - 97,975 734,702 785,600 681,256 STI INVESTMENT GRADE BOND SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.33 $ 10.42 $ 11.20 $ 12.09 Accumulation Unit Value, End of Period $ 10.33 $ 10.42 $ 11.20 $ 12.09 $ 11.72 Number of Units Outstanding, End of Period 40,503 506,887 685,967 974,155 996,889 STI MID-CAP EQUITY SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.28 $ 11.77 $ 14.20 $ 15.03 Accumulation Unit Value, End of Period $ 10.28 $ 11.77 $ 14.20 $ 15.03 $ 16.88 Number of Units Outstanding, End of Period 80,549 959,682 1,354,069 1,398,523 1,236,668 STI QUALITY GROWTH STOCK SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - STI SMALL CAP VALUE EQUITY SUB-ACCOUNT(6) Accumulation Unit Value, Beginning of Period - - $ 10.00 $ 9.76 $ 8.46 Accumulation Unit Value, End of Period - - $ 9.76 $ 8.46 $ 7.95 Number of Units Outstanding, End of Period - - 111,688 339,380 330,184 STI VALUE INCOME STOCK SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.69 $ 12.51 $ 15.66 $ 16.95 Accumulation Unit Value, End of Period $ 10.69 $ 12.51 $ 15.66 $ 16.95 $ 16.22 Number of Units Outstanding, End of Period 124,596 2,238,993 3,718,933 3,867,770 3,911,784 TEMPLETON BOND (CLASS 2) SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - - - $ 10.00 Accumulation Unit Value, End of Period (8,10) - - - - $ 9.26 Number of Units Outstanding, End of Period (8,10) - - - - 23,888 41 PROSPECTUS For the Years Beginning January 1* and Ending December 31, 1995 1996 1997 1998 1999 ---------------------------------------------------------- TEMPLETON GLOBAL INCOME SECURITIES (CLASS 2) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period (9,10) - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - TEMPLETON GROWTH SECURITIES (CLASS 2) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period (9,10) - - - - - Accumulation Unit Value, End of Period - - - - - Number of Units Outstanding, End of Period - - - - - TEMPLETON STOCK (CLASS 2) SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - - - $ 10.00 Accumulation Unit Value, End of Period (8,10) - - - - $ 12.92 Number of Units Outstanding, End of Period (8,10) - - - - 147,546
*Unless otherwise indicated.
For the Years Beginning January 1* and Ending December 31, 2000 2001 AIM V.I. BALANCED SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.63 Accumulation Unit Value, End of Period $ 9.63 $ 8.412 Number of Units Outstanding, End of Period 62,875 49,132 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period $ 14.58 $ 12.82 Accumulation Unit Value, End of Period $ 12.82 $ 9.70 Number of Units Outstanding, End of Period 1,230,860 996,618 AIM V.I. CORE EQUITY SUB-ACCOUNT(2)(11) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.32 Accumulation Unit Value, End of Period $ 8.32 $ 6.335 Number of Units Outstanding, End of Period 175,864 153,369 AIM V.I. GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 7.44 Accumulation Unit Value, End of Period $ 7.44 $ 4.853 Number of Units Outstanding, End of Period 140,188 118,052 AIM V.I. HIGH YIELD SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.70 Accumulation Unit Value, End of Period $ 8.70 $ 8.153 Number of Units Outstanding, End of Period 83,527 71,056 AIM V.I. PREMIER EQUITY SUB-ACCOUNT(2)(12) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.04 Accumulation Unit Value, End of Period $ 8.04 $ 6.934 Number of Units Outstanding, End of Period 457,479 420,469 FEDERATED PRIME MONEY FUND II SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 11.54 $ 12.07 Accumulation Unit Value, End of Period $ 12.07 $ 12.354 Number of Units Outstanding, End of Period 358,725 479,698 FIDELITY VIP CONTRAFUND(R) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.40 Accumulation Unit Value, End of Period $ 9.40 $ 8.137 Number of Units Outstanding, End of Period 129,181 104,334 FIDELITY VIP EQUITY INCOME SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.86 Accumulation Unit Value, End of Period $ 10.86 $ 10.186 Number of Units Outstanding, End of Period 19,864 50,669 FIDELITY VIP GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.67 Accumulation Unit Value, End of Period $ 8.67 $ 7.042 Number of Units Outstanding, End of Period 296,742 233,288 42 PROSPECTUS For the Years Beginning January 1* and Ending December 31, 2000 2001 FIDELITY VIP HIGH INCOME SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.07 Accumulation Unit Value, End of Period $ 8.07 $ 7.023 Number of Units Outstanding, End of Period 15,164 12,392 FIDELITY VIP II INDEX 500 SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.99 Accumulation Unit Value, End of Period $ 8.99 $ 7.798 Number of Units Outstanding, End of Period 282,105 257,109 FIDELITY VIP OVERSEAS SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.61 Accumulation Unit Value, End of Period $ 8.61 $ 6.698 Number of Units Outstanding, End of Period 68,280 61,716 MFS EMERGING GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.19 Accumulation Unit Value, End of Period $ 8.19 $ 5.376 Number of Units Outstanding, End of Period 173,584 145,743 MFS INVESTORS TRUST SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.86 Accumulation Unit Value, End of Period $ 9.86 $ 8.176 Number of Units Outstanding, End of Period 20,415 15,960 MFS NEW DISCOVERY SERIES - INITIAL CLASS (7) Accumulation Unit Value, Beginning of Period - $ 10.000 Accumulation Unit Value, End of Period - $ 10.645 Number of Units Outstanding, End of Period - 82 MFS RESEARCH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.01 Accumulation Unit Value, End of Period $ 9.01 $ 6.999 Number of Units Outstanding, End of Period 47,248 62,169 MFS UTILITIES SERIES - INITIAL CLASS(7) Accumulation Unit Value, Beginning of Period - $ 10.000 Accumulation Unit Value, End of Period - $ 9.120 Number of Units Outstanding, End of Period - 1,122 OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.21 Accumulation Unit Value, End of Period $ 8.21 $ 5.566 Number of Units Outstanding, End of Period 93,883 78,813 OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.13 Accumulation Unit Value, End of Period $ 9.13 $ 7.876 Number of Units Outstanding, End of Period 110,703 93,537 OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.69 Accumulation Unit Value, End of Period $ 9.69 $ 8.405 Number of Units Outstanding, End of Period 108,051 112,055 OPPENHEIMER MAIN STREET GROWTH AND INCOME SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.01 Accumulation Unit Value, End of Period $ 9.01 $ 7.986 Number of Units Outstanding, End of Period 250,805 269,657 OPPENHEIMER MULTIPLE STRATEGIES SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period $ 11.14 $ 11.70 Accumulation Unit Value, End of Period $ 11.70 $ 11.797 Number of Units Outstanding, End of Period 395,411 362,364 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period $ 10.25 $ 10.38 Accumulation Unit Value, End of Period $ 10.38 $ 10.736 Number of Units Outstanding, End of Period 131,969 115,937 43 PROSPECTUS For the Years Beginning January 1* and Ending December 31, 2000 2001 PUTNAM VT DIVERSIFIED INCOME FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - $ 10.000 Accumulation Unit Value, End of Period - $ 9.864 Number of Units Outstanding, End of Period - 0 PUTNAM VT GROWTH AND INCOME FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - $ 10.000 Accumulation Unit Value, End of Period - $ 9.904 Number of Units Outstanding, End of Period - 0 PUTNAM VT GROWTH OPPORTUNITIES FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - $ 10.000 Accumulation Unit Value, End of Period - $ 9,796 Number of Units Outstanding, End of Period - 700 PUTNAM VT HEALTH SCIENCES FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - $ 10.000 Accumulation Unit Value, End of Period - $ 9.796 Number of Units Outstanding, End of Period - 0 PUTNAM VT NEW VALUE FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - $ 10.000 Accumulation Unit Value, End of Period - $ 10.121 Number of Units Outstanding, End of Period - 0 PUTNAM VT VOYAGER FUND II - CLASS IB(7) Accumulation Unit Value, Beginning of Period - $ 10.000 Accumulation Unit Value, End of Period - $ 10.138 Number of Units Outstanding, End of Period - 0 STI CAPITAL APPRECIATION SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 23.93 $ 24.34 Accumulation Unit Value, End of Period $ 24.34 $ 22.726 Number of Units Outstanding, End of Period 2,508,651 2,235,751 STI GROWTH AND INCOME SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.13 Accumulation Unit Value, End of Period $ 10.13 $ $9.437 Number of Units Outstanding, End of Period 23,535 48,707 STI INTERNATIONAL EQUITY SUB-ACCOUNT(5) Accumulation Unit Value, Beginning of Period $ 13.73 $ 13.08 Accumulation Unit Value, End of Period $ 13.08 $ 10.660 Number of Units Outstanding, End of Period 453,806 382,587 STI INVESTMENT GRADE BOND SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 11.72 $ 12.30 Accumulation Unit Value, End of Period $ 12.30 $ 13.251 Number of Units Outstanding, End of Period 731,489 679,613 STI MID-CAP EQUITY SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 16.88 $ 16.17 Accumulation Unit Value, End of Period $ 16.17 $ 16.386 Number of Units Outstanding, End of Period 974,068 869,756 STI QUALITY GROWTH STOCK SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.96 Accumulation Unit Value, End of Period $ 8.96 $ 7.189 Number of Units Outstanding, End of Period 9,144 3,627 STI SMALL CAP VALUE EQUITY SUB-ACCOUNT(6) Accumulation Unit Value, Beginning of Period $ 7.95 $ 9.13 Accumulation Unit Value, End of Period $ 9.13 $ 10.941 Number of Units Outstanding, End of Period 256,009 254,243 STI VALUE INCOME STOCK SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 16.22 $ 17.68 Accumulation Unit Value, End of Period $ 17.68 $ 17.240 Number of Units Outstanding, End of Period 2,427,230 2,159,700 44 PROSPECTUS For the Years Beginning January 1* and Ending December 31, 2000 2001 TEMPLETON BOND (CLASS 2) SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period $ 9.26 - Accumulation Unit Value, End of Period (8,10) $ 9.07 - Number of Units Outstanding, End of Period (8,10) 0 - TEMPLETON GLOBAL INCOME SECURITIES (CLASS 2) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period (9,10) $ 10.00 $ 11.38 Accumulation Unit Value, End of Period $ 11.38 $ 11.474 Number of Units Outstanding, End of Period 25,703 24,475 TEMPLETON GROWTH SECURITIES (CLASS 2) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period (9,10) $ 10.00 $ 13.58 Accumulation Unit Value, End of Period $ 13.58 $ 13.218 Number of Units Outstanding, End of Period 336,766 237,738 TEMPLETON STOCK (CLASS 2) SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period $ 12.92 - Accumulation Unit Value, End of Period (8,10) $ 12.97 - Number of Units Outstanding, End of Period (8,10) 0 -
-------------------------------------------------------------------------------- *Unless otherwise indicated. (1) 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%. (2) Variable Sub-Accounts that commenced operations on May 1, 2000. (3) Variable Sub-Accounts that commenced operations on January 10, 1999. (4) Variable Sub-Account that commenced operations on October 2, 1995. (5) Variable Sub-Accounts that commenced operations on November 7, 1996. (6) Variable Sub-Accounts that commenced operations on October 21, 1997. (7) Variable Sub-Accounts that commenced operations on August 30, 2001. (8) End of period May 1, 2000. (9) Beginning of period May 1, 2000. (10) Effective May 1, 2000, the Portfolios in which the Templeton Bond (Class 2) and Templeton Stock (Class 2) Variable Sub-Accounts invested were merged into the Templeton Global Income Securities (Class 2) and Templeton Growth Securities (Class 2) Portfolios. Accordingly, for administrative convenience, as of May 1, 2000, the corresponding Variable Sub-Accounts merged with and into, respectively, new Variable Sub-Accounts named Templeton Global Income Securities (Class 2) and Templeton Growth Securities (Class 2) respectively, with Accumulation Unit Values starting at $10.00. For ease of comparison, in this table we are continuing to show Accumulation Unit Values for the predecessor Variable Sub-Accounts (11) Effective May 1, 2002, the Portfolio changed its name from AIM V.I. Growth and Income Fund to AIM V.I. Core Equity Fund. (12) Effective May 1, 2002, the Portfolio changed its name from AIM V.I. Value Fund to AIM V.I. Premier Equity Fund. 45 PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE INCEPTION BASE POLICY PLUS ENHANCED DEATH BENEFIT RIDER(1) --------------------------------------------------------------------------------
For the Years Beginning January 1* and Ending December 31, 1997 1998 1999 2000 2001 ---------------------------------------------------------- AIM V.I. BALANCED SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 9.62 Accumulation Unit Value, End of Period - - - $ 9.62 $ 8.398 Number of Units Outstanding, End of Period - - - 47,107 49,240 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - $ 10.00 $ 14.57 $ 12.79 Accumulation Unit Value, End of Period - - $ 14.57 $ 12.79 $ 9.672 Number of Units Outstanding, End of Period - - 592,699 1,177,017 968,618 AIM V.I. CORE EQUITY SUB-ACCOUNT(2)(11) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 8.32 Accumulation Unit Value, End of Period - - - $ 8.32 $ 6.325 Number of Units Outstanding, End of Period - - - 99,646 90,807 AIM V.I. GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 7.44 Accumulation Unit Value, End of Period - - - $ 7.44 $ 4.845 Number of Units Outstanding, End of Period - - - 101,927 83,950 AIM V.I. HIGH YIELD SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - $ 10.00 $ 10.87 $ 8.68 Accumulation Unit Value, End of Period - - $ 10.87 8.68 $ 8.129 Number of Units Outstanding, End of Period - - 115,113 105,396 83,541 AIM V.I. PREMIER EQUITY SUB-ACCOUNT(2)(12) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 8.03 Accumulation Unit Value, End of Period - - - $ 8.03 $ 6.922 Number of Units Outstanding, End of Period - - - 391,975 307,118 FEDERATED PRIME MONEY FUND II SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 10.43 $ 10.78 $ 11.15 $ 11.51 $ 12.03 Accumulation Unit Value, End of Period $ 10.78 $ 11.15 $ 11.51 $ 12.03 $ 12.297 Number of Units Outstanding, End of Period 240,430 266,876 268,039 284,797 496,709 FIDELITY VIP CONTRAFUND(R) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 9.40 Accumulation Unit Value, End of Period - - - $ 9.40 $ 8.137 Number of Units Outstanding, End of Period - - - 116,742 120,063 FIDELITY VIP EQUITY INCOME SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 8.67 Accumulation Unit Value, End of Period - - - $ 8.67 $ 10.169 Number of Units Outstanding, End of Period - - - 298,717 63,333 FIDELITY VIP GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 8.06 Accumulation Unit Value, End of Period - - - $ 8.06 $ 7.042 Number of Units Outstanding, End of Period - - - 8,615 220,292 FIDELITY VIP HIGH INCOME SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 8.61 Accumulation Unit Value, End of Period - - - $ 8.61 $ 7.012 Number of Units Outstanding, End of Period - - - 42,836 23,979 FIDELITY VIP II INDEX 500 SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 9.40 Accumulation Unit Value, End of Period - - - $ 9.40 $ 7.798 Number of Units Outstanding, End of Period - - - 116,742 220,428 46 PROSPECTUS For the Years Beginning January 1* and Ending December 31, 1997 1998 1999 2000 2001 FIDELITY VIP OVERSEAS SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 8.61 Accumulation Unit Value, End of Period - - - $ 8.61 $ 6.698 Number of Units Outstanding, End of Period - - - 42,836 39,992 MFS EMERGING GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 8.19 Accumulation Unit Value, End of Period - - - $ 8.19 $ 5.367 Number of Units Outstanding, End of Period - - - 180,090 143,998 MFS INVESTORS TRUST SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 9.86 Accumulation Unit Value, End of Period - - - $ 9.86 $ 8.164 Number of Units Outstanding, End of Period - - - 31,236 28,414 MFS NEW DISCOVERY SERIES - INITIAL CLASS(7) Accumulation Unit Value, Beginning of Period - - - - $ 10.000 Accumulation Unit Value, End of Period - - - - $ 10.641 Number of Units Outstanding, End of Period - - - - 0 MFS RESEARCH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 9.00 Accumulation Unit Value, End of Period - - - $ 9.00 $ 6.987 Number of Units Outstanding, End of Period - - - 83,109 74,997 MFS UTILITIES SERIES - INITIAL CLASS (7) Accumulation Unit Value, Beginning of Period - - - - $ 10.000 Accumulation Unit Value, End of Period - - - - $ 9.117 Number of Units Outstanding, End of Period - - - - 0 OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 8.20 Accumulation Unit Value, End of Period - - - $ 8.20 $ 5.557 Number of Units Outstanding, End of Period - - - 111,564 103,565 OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 9.13 Accumulation Unit Value, End of Period - - - $ 9.13 $ 7.863 Number of Units Outstanding, End of Period - - - 115,644 112,220 OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 9.68 Accumulation Unit Value, End of Period - - - $ 9.68 $ 8.391 Number of Units Outstanding, End of Period - - - 119,614 121,589 OPPENHEIMER MAIN STREET GROWTH AND INCOME SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 9.01 Accumulation Unit Value, End of Period - - - $ 9.01 $ 7.973 Number of Units Outstanding, End of Period - - - 232,475 225,807 OPPENHEIMER MULTIPLE STRATEGIES SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - $ 10.00 $ 11.13 $ 11.68 Accumulation Unit Value, End of Period - - $ 11.13 $ 11.68 $ 11.763 Number of Units Outstanding, End of Period - - 180,771 305,016 277,398 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - $ 10.00 $ 10.24 $ 10.36 Accumulation Unit Value, End of Period - - $ 10.24 $ 10.36 $ 10.704 Number of Units Outstanding, End of Period - - 98,211 100,515 101,021 PUTNAM VT DIVERSIFIED INCOME FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - - - - $ 10.000 Accumulation Unit Value, End of Period - - - - $ 9.861 Number of Units Outstanding, End of Period - - - - 0 PUTNAM VT GROWTH AND INCOME FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - - - - $ 10.000 Accumulation Unit Value, End of Period - - - - $ 9.901 Number of Units Outstanding, End of Period - - - - 1,194 47 PROSPECTUS For the Years Beginning January 1* and Ending December 31, 1997 1998 1999 2000 2001 PUTNAM VT GROWTH OPPORTUNITIES FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - - - - $ 10.000 Accumulation Unit Value, End of Period - - - - $ 10.143 Number of Units Outstanding, End of Period - - - - 0 PUTNAM VT HEALTH SCIENCES FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - - - - $ 10.000 Accumulation Unit Value, End of Period - - - - $ 9.792 Number of Units Outstanding, End of Period - - - - 0 PUTNAM VT NEW VALUE FUND - CLASS IB(7) Accumulation Unit Value, Beginning of Period - - - - $ 10.000 Accumulation Unit Value, End of Period - - - - $ 10.117 Number of Units Outstanding, End of Period - - - - 0 PUTNAM VOYAGER FUND II - CLASS IB(7) Accumulation Unit Value, Beginning of Period - - - - $ 10.000 Accumulation Unit Value, End of Period - - - - $ 10.135 Number of Units Outstanding, End of Period - - - - 0 STI CAPITAL APPRECIATION SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 13.01 $ 17.52 $ 22.27 $ 23.87 $ 24.25 Accumulation Unit Value, End of Period $ 17.52 $ 22.27 $ 23.87 $ 24.25 $ 22.620 Number of Units Outstanding, End of Period 740,261 1,683,922 2,274,389 1.623,697 1,447,966 STI GROWTH AND INCOME SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 10.12 Accumulation Unit Value, End of Period - - - $ 10.12 $ 9.422 Number of Units Outstanding, End of Period - - - 54,035 62,398 STI INTERNATIONAL EQUITY SUB-ACCOUNT(5) Accumulation Unit Value, Beginning of Period $ 10.15 $ 11.69 $ 12.76 $ 13.69 $ 13.03 Accumulation Unit Value, End of Period $ 11.69 $ 12.76 $ 13.69 $ 13.03 $ 10.610 Number of Units Outstanding, End of Period 449,232 694,787 650,400 449,680 390,163 STI INVESTMENT GRADE BOND SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 10.43 $ 11.19 $ 12.07 $ 11.69 $ 12.26 Accumulation Unit Value, End of Period $ 11.19 $ 12.07 $ 11.69 $ 12.26 $ 13.189 Number of Units Outstanding, End of Period 187,763 604,179 847,001 612,043 593,732 STI MID-CAP EQUITY SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 11.77 $ 14.19 $ 15.01 $ 16.84 $ 16.11 Accumulation Unit Value, End of Period $ 14.19 $ 15.01 $ 16.84 $ 16.11 $ 16.310 Number of Units Outstanding, End of Period 329,138 671,132 584,235 474,428 419,051 STI QUALITY GROWTH STOCK SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period - - - $ 10.00 $ 8.96 Accumulation Unit Value, End of Period - - - $ 8.96 $ 7.177 Number of Units Outstanding, End of Period - - - 20,238 21,539 STI SMALL CAP VALUE EQUITY SUB-ACCOUNT(6) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.76 $ 8.45 $ 7.93 $ 9.10 Accumulation Unit Value, End of Period $ 9.76 $ 8.45 $ 7.93 $ 9.10 $ 10.894 Number of Units Outstanding, End of Period 161,267 706,858 545,289 350,147 310,696 STI VALUE INCOME STOCK SUB-ACCOUNT(4) Accumulation Unit Value, Beginning of Period $ 12.52 $ 15.65 $ 16.90 $ 16.18 $ 17.61 Accumulation Unit Value, End of Period $ 15.65 $ 16.90 $ 16.18 $ 17.61 $ 17.159 Number of Units Outstanding, End of Period 923,837 1,961,704 2,345,908 1,338,854 1,207,310 TEMPLETON BOND (CLASS 2) SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - $ 10.00 $ 9.25 - Accumulation Unit Value, End of Period (8,10) - - $ 9.25 $ 9.06 - Number of Units Outstanding, End of Period (8,10) - - 23,888 0 - TEMPLETON GLOBAL INCOME SECURITIES (CLASS 2) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period (9,10) - - - $ 10.00 $ 11.37 Accumulation Unit Value, End of Period - - - $ 11.37 $ 11.455 Number of Units Outstanding, End of Period - - - 22,202 18,984 48 PROSPECTUS For the Years Beginning January 1* and Ending December 31, 1997 1998 1999 2000 2001 TEMPLETON GROWTH SECURITIES (CLASS 2) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period (9,10) - - - $ 10.00 $ 13.57 Accumulation Unit Value, End of Period - - - $ 13.57 $ 13.196 Number of Units Outstanding, End of Period - - - 370,743 290,701 TEMPLETON STOCK (CLASS 2) SUB-ACCOUNT(3) Accumulation Unit Value, Beginning of Period - - $ 10.00 $ 12.91 - Accumulation Unit Value, End of Period (8,10) - - $ 12.91 $ 12.95 - Number of Units Outstanding, End of Period (8,10) - - 190,464 0 -
*Unless otherwise indicated. (1) 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%. (2) Variable Sub-Accounts that commenced operations on May 1, 2000. (3) Variable Sub-Accounts that commenced operations on January 10, 1999. (4) Variable Sub-Account that commenced operations on October 2, 1995. (5) Variable Sub-Accounts that commenced operations on November 7, 1996. (6) Variable Sub-Accounts that commenced operations on October 21, 1997. (7) Variable Sub-Accounts that commenced operations on August 30, 2001. (8) End of period May 1, 2000. (9) Beginning of period May 1, 2000. (10) Effective May 1, 2000, the Portfolios in which the Templeton Bond (Class 2) and Templeton Stock (Class 2) Variable Sub-Accounts invested were merged into the Templeton Global Income Securities (Class 2) and Templeton Growth Securities (Class 2) Portfolios. Accordingly, for administrative convenience, as of May 1, 2000, the corresponding Variable Sub-Accounts merged with and into, respectively, new Variable Sub-Accounts named Templeton Global Income Securities (Class 2) and Templeton Growth Securities (Class 2) respectively, with Accumulation Unit Values starting at $10.00. For ease of comparison, in this table we are continuing to show Accumulation Unit Values for the predecessor Variable Sub-Accounts. (11) Effective May 1, 2002, the Fund changed its name from AIM V.I. Growth and Income Fund to AIM V.I. Core Equity Fund. (12) Effective May 1, 2002, the Fund changed its name from AIM V.I. Value Fund to AIM V.I. Premier Equity Fund. 49 PROSPECTUS APPENDIX B MARKET VALUE ADJUSTMENT -------------------------------------------------------------------------------- The Market Value Adjustment is based on the following: I = the interest crediting rate for a Guarantee Period N = the number of whole and partial years from the date we receive the transfer, withdrawal, or death benefit request, or from the Payout Start Date to the end of the Guarantee Period; and J = the current interest crediting rate offered for a Guarantee Period of length N on the date we determine the Market Value Adjustment. J will be determined by a linear interpolation between the current interest rates for the next higher and lower integral years. For purposes of interpolation, current interest rates for Guarantee Periods not available under this Contract will be calculated in a manner consistent with those which are available. The Market Value Adjustment factor is determined from the following formula: .9 x (I - J) x N Any transfer, withdrawal, or death benefit (depending on your Contract) paid or amount applied to an Income Plan from a Guarantee Period (except during the 30 day period after such Guarantee Period expires) will be multiplied by the Market Value Adjustment factor to determine the Market Value Adjustment. 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: This illustration assumes that premium taxes are not applicable. EXAMPLE 1 (ASSUMES DECLINING INTEREST RATES)
Step 1. Calculate Contract Value at End of Contract Year 3: $10,000.00 X (1.0450)/3 /= $11,411.66 Step 2. Calculate the Free Withdrawal Amount: .10 X $11,411.66 = $1,141.17 Step 3. Calculate the Withdrawal .05 X ($10,000.00 - $1,141.17) = Charge: $442.94 Step 4. Calculate the Market Value I = 4.5% Adjustment J = 4.2% N = 730 days = 2 -------- 365 days Market Value Adjustment Factor: .9 x (I - J) x N = .9 x (.045 - .042) x (730/365) = .0054 Market Value Adjustment = Market Value Adjustment Factor x Amount Subject to Market Value Adjustment: = .0054 X $11,411.66 = $61.62 50 PROSPECTUS Step 5. Calculate the amount received by Customers as a result of full withdrawal at the end of Contract Year $11,411.66 - $442.94 + $61.62 = 3: $11.030.34
EXAMPLE 2: (ASSUMES RISING INTEREST RATES)
Step 1. Calculate Contract Value at End $10,000.00 X (1.045)/3 /= of Contract Year 3: $11,411.66 Step 2. Calculate the Free Withdrawal Amount: .10% X ($11,411.66) = $1,141.17 Step 3. Calculate the Withdrawal Charge: = .05 X ($10,000.00 - $1,141.17) = $442.94 Step 4. Calculate the Market Value I = 4.5% Adjustment: J = 4.8% N = 730 days = 2 -------- 365 days Market Value Adjustment Factor: .9 x (I - J) x N = .9 x (.045 - .048) x (730/365) = - .0054 Market Value Adjustment = Market Value Adjustment Factor x Amount Subject to Market Value Adjustment: = -.0054 X $11,411.66 = - $61.62 Step 5. Calculate the amount received by Customers as a result of full withdrawal $11,411.66 - $442.94 - $61.62 = at the end of Contract Year 3: $10,907.10
51 PROSPECTUS