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FILED PURSUANT TO RULE 424 (b)(3)
REGISTRATION NO. 33-92842
GLENBROOK LIFE AND ANNUITY COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
(800) 755-5275
INDIVIDUAL FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
This prospectus describes the Individual Flexible Payment Deferred Annuity
Contract ("Contract") offered by Glenbrook Life and Annuity Company ("Company"),
a wholly owned subsidiary of Allstate Life Insurance Company. Allstate Life
Financial Services, Inc. is the principal underwriter.
The Contract has the flexibility to allow you to shape an annuity to fit your
particular needs. It is designed to aid you in your choice of short-term,
mid-term, or long-term financial planning and can be used for retirement
planning regardless of whether the plan qualifies for special federal income tax
treatment. The Company will accept an initial purchase payment of $3,000 ($2,000
for a Qualified Contract). Additional purchase payments of $100 or more may be
added to the Contract.
Withdrawals under the Contract may be subject to a Market Value Adjustment.
Therefore, the Owner bears some investment risk under the Contract.
The Contracts may be distributed through broker-dealers which have relationships
with banks or other financial institutions; 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. THESE CONTRACTS ARE NOT FDIC INSURED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 6, 1995.
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THE CONTRACTS MAY NOT BE AVAILABLE IN ALL STATES.
At least once each Contract Year prior to the Payout Start Date, the Company
will send the Owner an annual statement that contains certain information
pertinent to the individual Owner's Contract. The annual statement details
values and specific Contract data that applies to each particular Contract. The
annual statement does not contain financial statements of the Company. The
Company, however, is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission. Reports and other
information filed by the Company can be inspected at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such material can be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549 at prescribed rates.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
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TABLE OF CONTENTS
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GLOSSARY............................................................................................ 4
THE CONTRACTS....................................................................................... 6
The Purchase of the Contract..................................................................... 6
The Accumulation Phase........................................................................... 7
Adjustments to Account Value (Withdrawal Charge, Market Value
Adjustment and Taxes)........................................................................... 9
The Parties to the Contract...................................................................... 11
The Death Benefit Provisions..................................................................... 12
The Payout Phase................................................................................. 13
AMENDMENT OF THE CONTRACTS.......................................................................... 14
DISTRIBUTION OF THE CONTRACTS....................................................................... 15
FEDERAL TAX MATTERS................................................................................. 15
Introduction..................................................................................... 15
Taxation of the Company.......................................................................... 15
Taxation of Annuities in General................................................................. 15
Tax Deferral................................................................................. 15
Taxation of Partial and Full Withdrawals..................................................... 15
Taxation of Annuity Payments................................................................. 16
Taxation of Annuity Death Benefits........................................................... 16
Penalty Tax on Premature Distributions....................................................... 16
Aggregation of Annuity Contracts............................................................. 16
IRS Required Distribution at Death Rules..................................................... 16
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(TABLE OF CONTENTS CONTINUED)
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Qualified Plans.................................................................................. 17
Types of Qualified Plans......................................................................... 17
Individual Retirement Annuities.............................................................. 17
Simplified Employee Pension Plans............................................................ 17
Tax Sheltered Annuities...................................................................... 17
Corporate and Self-Employed Pension and Profit Sharing Plans................................. 17
State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans.......................................................................... 17
Income Tax Withholding........................................................................... 18
THE COMPANY......................................................................................... 18
Business......................................................................................... 18
Reinsurance Agreements........................................................................... 18
Investments by the Company....................................................................... 18
SELECTED FINANCIAL DATA............................................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................... 20
General...................................................................................... 20
Results of Operations........................................................................ 21
Liquidity and Capital Resources.............................................................. 21
Segment Information.......................................................................... 21
Reserves..................................................................................... 21
Investments.................................................................................. 21
Pending Accounting Standards................................................................. 21
Three and Six Month Periods Ended June 30, 1995.................................................. 21
General...................................................................................... 21
Results of Operations and Financial Condition................................................ 22
Liquidity and Capital Resources.............................................................. 22
Pending Accounting Standards................................................................. 22
COMPETITION......................................................................................... 22
EMPLOYEES........................................................................................... 22
PROPERTIES.......................................................................................... 22
STATE & FEDERAL REGULATION.......................................................................... 23
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY..................................................... 23
EXECUTIVE COMPENSATION.............................................................................. 25
LEGAL PROCEEDINGS................................................................................... 26
EXPERTS............................................................................................. 26
LEGAL MATTERS....................................................................................... 26
FINANCIAL STATEMENTS................................................................................ F-1
APPENDIX A.......................................................................................... A-1
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GLOSSARY ACCOUNT(S) -- Are distinguished by Guarantee Period(s) and the
dates the period(s) begins. Accounts are established when
purchase payments are made and when previous accounts expire and
a new Guarantee Period is selected.
ACCOUNT VALUE -- The Account Value is the accumulation of funds
allocated to that Account and interest credited less any
withdrawals.
ADJUSTED ACCOUNT VALUE -- The Account Value adjusted by any
Market Value Adjustment.
ANNUITANT(S) -- The person or persons whose life determines the
latest Payout Start Date and the amount and duration of any
income payments for Income Plan options other than Guaranteed
Payments for a Specified Period.
BENEFICIARY(IES) -- The person(s) to whom any benefits are due
when a Death Benefit is payable and there is no surviving Owner.
COMPANY("WE," "US") -- Glenbrook Life and Annuity Company.
CONTRACT -- The Glenbrook Life and Annuity Company Flexible
Payment Deferred Annuity Contract, known as "The Glenbrook Choice
Plus" that is described in this prospectus.
CONTRACT ANNIVERSARY -- An anniversary of the date that the
Contract was issued.
CONTRACT VALUE -- The sum of all Account Values.
CONTRACT YEAR -- A period of 12 months starting with the issue
date or any Contract Anniversary.
DEATH BENEFIT -- The Death Benefit is the Contract Value plus any
positive Market Value Adjustment applied to the portion of the
Contract Value in excess of the Free Withdrawal Amount.
FREE WITHDRAWAL AMOUNT -- A portion of each Account Value which
may be withdrawn each year without incurring a Withdrawal Charge
or a Market Value Adjustment.
GUARANTEE PERIOD -- A period of years for which a specified
effective annual interest rate is guaranteed by the Company.
INCOME PLAN -- One of several ways in which a series of payments
are made after the Payout Start Date. Income payments are based
on the Contract Value adjusted by any applicable Market Value
Adjustment on the Payout Start Date.
ISSUE DATE -- The date the Contract becomes effective.
MARKET VALUE ADJUSTMENT -- The Market Value Adjustment is an
increase or decrease in a withdrawal payment, Death Benefit
payment or in the amount applied to an Income Plan reflecting the
impact of changes in interest rates between the time the Account
was established and the time of distribution.
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OWNER(S)("YOU") -- The person or persons designated as the Owner
in the Contract.
PAYOUT START DATE -- The date the Contract Value adjusted by any
Market Value Adjustment is applied to an Income Plan.
TREASURY RATE -- The U.S. Treasury Note Constant Maturity weekly
yield as reported in Federal Reserve Bulletin Release H.15.
WITHDRAWAL CHARGE -- The charge that is assessed by the Company
on withdrawals in excess of the Free Withdrawal Amount.
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THE CONTRACTS
THE PURCHASE OF 1. WHAT IS THE PURPOSE OF THE CONTRACT?
THE CONTRACT The Contract described in this prospectus is designed to
aid you in your choice of short-term, mid-term, or
long-term financial planning and can be used for retirement
planning regardless of whether the plan qualifies for
special federal income tax treatment. The Contract has an
accumulation phase and a payout phase. The accumulation
phase is the first of the two phases and begins on the
issue date and continues until the Payout Start Date.
During the accumulation phase, interest is credited to the
purchase payment(s) and both a cash withdrawal benefit and
a Death Benefit are available. The payout phase begins on
the Payout Start Date and provides income payments under an
Income Plan. The payout phase continues until the Company
makes the last payment as provided by the Income Plan.
2. HOW IS A CONTRACT PURCHASED?
The minimum initial purchase payment the Company will
accept is $3,000 ($2,000 for a qualified contract).
Additional purchase payments of $100 or more may be added
to the Contract. The Owner must select the Guarantee
Period(s) in which to allocate each purchase payment.
Guarantee Periods will be offered at the Company's
discretion and may range from one to ten years. No less
than $100 may be allocated to any one Guarantee Period. The
Company reserves the right to limit or increase the amount
of purchase payments it will accept.
3. DOES THIS CONTRACT HAVE A FREE-LOOK PROVISION?
Yes. The Owner may cancel the Contract anytime within 20
days after receipt of the Contract, or longer if required
by state law, and receive a full refund of all purchase
payments. For Contracts issued in California, the Owner
will receive the greater of the Adjusted Account Value or
the sum of all purchase payments.
4. CAN ADDITIONS BE MADE TO THE CONTRACT AFTER THE INITIAL
PURCHASE PAYMENT?
Yes, additional purchase payments may be made at any time
during the accumulation phase of the Contract. Subsequent
purchase payments must be at least $100 and may be made
from a bank account through Automatic Additions. For each
purchase payment, the Owner must select a Guarantee
Period(s) to which the purchase payment will be allocated.
The Company reserves the right to limit the number of
additional purchase payments.
5. ONCE A CONTRACT IS PURCHASED, HOW IS THE OWNER INFORMED
AS TO THE STATUS OF THE CONTRACT?
There are several ways an Owner may receive information
about the Contract. At least once a year, prior to the
Payout Start Date, the Owner will be sent a statement
containing Account Value information of the Contract.
Another option the Owner has is to call the Company's
customer support unit directly at 1-800-755-5275.
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THE ACCUMULATION
PHASE 6. HOW IS INTEREST CREDITED TO THE CONTRACT?
Interest will be credited to initial purchase payments from
the Issue Date. Interest will be credited to subsequent
purchase payments from the date of receipt by the Company.
No deductions are made from purchase payments. Therefore,
the full amount of every purchase payment is invested in an
Account for accumulation of interest. Interest is credited
daily to each Guarantee Period in the Contract and is based
upon the interest rate of the Guarantee Period which has
been chosen. For current interest rate information, please
contact your sales representative or the Company's Customer
support unit at 1-800-755-5275.
The following example illustrates how an Account Value
would grow given an assumed purchase payment, Guarantee
Period, and effective annual interest rate. The effective
annual interest rate is defined as the yield resulting when
interest credited at the underlying daily rate has
compounded for a full year.
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EXAMPLE OF INTEREST CREDITING DURING THE GUARANTEE PERIOD:
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Purchase Payment:.............................................. $10,000.00
Guarantee Period:.............................................. 5 years
Effective Annual Rate:......................................... 5.50%
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END OF CONTRACT YEAR:
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YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
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Beginning Account Value $ 10,000.00
X (1 + Effective Annual Rate) 1.055
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$ 10,550.00
Account Value at end of Contract $ 10,550.00
year 1 X (1 + Effective Annual 1.055
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Rate) $ 11,130.25
Account Value at end of Contract $ 11,130.25
year 2 X (1 + Effective Annual 1.055
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Rate) $ 11,742.41
Account Value at end of Contract $ 11,742.41
year 3 X (1 + Effective Annual 1.055
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Rate) $ 12,388.25
Account Value at end of Contract $ 12,388.25
year 4 X (1 + Effective Annual 1.055
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Rate)
Account Value at end of Guarantee
Period: $ 13,069.60
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TOTAL INTEREST CREDITED IN GUARANTEE PERIOD: $3,069.60 ($13,069.60 - $10,000.00)
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NOTE: The above illustration assumes no withdrawals of any amount during the
entire five year period. A Market Value Adjustment and Withdrawal Charge would
apply to any such interim withdrawal in excess of the Free Withdrawal Amount.
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 as
found in the Contract.
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The Company has no specific formula for determining the rate of
interest that it will declare initially or in the future. Such
interest rates will be reflective of investment returns available
at the time of the determination. In addition, the management of
the Company may also consider various other factors in
determining interest rates, including regulatory and tax
requirements, sales commissions and administrative expenses borne
by the Company, general economic trends, and competitive factors.
THE MANAGEMENT OF THE COMPANY WILL MAKE THE FINAL DETERMINATION
AS TO THE INTEREST RATES TO BE DECLARED. THE COMPANY CAN NEITHER
PREDICT NOR GUARANTEE FUTURE INTEREST RATES TO BE DECLARED.
7. WHAT HAPPENS TO THE ACCOUNT VALUE AT THE END OF A GUARANTEE
PERIOD?
Prior to the end of a Guarantee Period, a notice will be mailed
to the Owner outlining the options available at the end of a
Guarantee Period. Within 30 days after the end of a Guarantee
Period the Owner may:
- take no action and the Company will automatically apply the
Account Value to a new Guarantee Period of the same duration to
be established on the day the previous Guarantee Period
expired; or
- notify the Company to apply the Account Value to a Guarantee
Period(s) of a new duration to be established on the day the
previous Guarantee Period expired; or
- receive a portion of the Account Value or the entire Account
Value through a partial or full withdrawal that is not subject to
a Market Value Adjustment. In this case, the amount withdrawn
will be deemed to have been withdrawn on the day the Guarantee
Period expired.
8. IS IT POSSIBLE TO PRESELECT A RENEWAL GUARANTEE PERIOD AT THE
POINT OF PURCHASE?
Yes. The Automatic Laddering Program allows the Owner to choose,
in advance, one renewal Guarantee Period for all renewing
Accounts. The Owner can select the Automatic Laddering Program at
any time during the accumulation phase, including on the Issue
Date. The Automatic Laddering Program will continue until the
Owner gives written notice to the Company.
9. CAN A PARTIAL WITHDRAWAL OR A FULL WITHDRAWAL BE TAKEN AT ANY
TIME?
Yes. As long as the Contract is still in the accumulation phase
and has not entered the payout phase, the Owner may withdraw
money from the Contract or surrender the Contract at any time (a
Withdrawal Charge, Market Value Adjustment and taxes may apply,
including a 10% penalty tax for withdrawals prior to the Owner
attaining age 59 1/2). Partial withdrawals may be taken
automatically through Systematic Withdrawals. The Owner must
specify the Account from which the withdrawal will be taken. If
any partial withdrawal reduces an Account Value to less than
$100, the withdrawal will be treated as a request to withdraw the
entire Account Value. If the withdrawal reduces the Contract
Value to less than $2,000, the withdrawal will be treated as a
request to withdraw the entire Contract Value. The Company may
defer payment of any partial withdrawal or full withdrawal for a
period not exceeding six months from the date of the receipt of
the request.
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ADJUSTMENTS TO 10. IF A PARTIAL WITHDRAWAL OR FULL WITHDRAWAL IS REQUESTED, HOW
ACCOUNT VALUE IS THE AMOUNT RECEIVED DETERMINED?
(WITHDRAWAL CHARGE, The main component in determining the amount received by the
MARKET VALUE Owner is the amount which was requested, however, there may be
ADJUSTMENT AND adjustments to the requested amount. A Withdrawal Charge may
TAXES) reduce the amount requested. A Market Value Adjustment may apply
which will reduce or increase the amount requested. Premium taxes
and federal income tax withholding may apply and would reduce the
amount requested. In summary:
The amount received by the Owner under a partial withdrawal or
full withdrawal request equals the amount requested less a
Withdrawal Charge (if applicable) plus or minus a Market Value
Adjustment (if applicable) less premium taxes and withholding (if
applicable).
The questions which follow further clarify the components used in
determining the amount received upon a partial withdrawal or full
withdrawal.
11. UPON A FULL WITHDRAWAL OF THE ENTIRE CONTRACT, IS IT POSSIBLE
THAT THE MARKET VALUE ADJUSTMENT AND WITHDRAWAL CHARGE COULD
CAUSE THE AMOUNT RECEIVED TO BE LESS THAN THE INITIAL PURCHASE
PAYMENT AND ANY SUBSEQUENT PAYMENTS?
No. This Contract has a return of purchase payment guarantee
which provides that the amount received upon a full withdrawal is
guaranteed never to be less than the sum of initial and any
subsequent purchase payments less amounts previously received
(prior to withholding and the deduction of any taxes if
applicable). However, to the extent that premium taxes are
assessed against the Contract or income tax is withheld, the
amount received upon a full withdrawal may be less than the
initial and any subsequent purchase payments.
The renewal of any individual Account(s) within the entire
Contract does not in any way change the return of purchase
payment guarantee provided by this Contract. Upon Account
renewal, the return of purchase payment guarantee will not be
adjusted to include any accrued interest, but will continue to
apply to the initial and any subsequent purchase payments.
12. UPON A PARTIAL WITHDRAWAL OR FULL WITHDRAWAL, IS THE ENTIRE
AMOUNT REQUESTED SUBJECT TO A WITHDRAWAL CHARGE AND A MARKET
VALUE ADJUSTMENT?
No. Only amounts in excess of any remaining Free Withdrawal
Amount within an Account will be subject to a Withdrawal Charge
and a Market Value Adjustment. A Free Withdrawal Amount is
available in every payment year of a Guarantee Period and is
equal to 10% of the purchase payment allocated to the Guarantee
Period. Any unused Free Withdrawal Amount in a payment year may
not be used to increase the Free Withdrawal Amount in a
subsequent Account year nor may it be used to increase the Free
Withdrawal Amount in another Guarantee Period.
In addition to the Free Withdrawal Amount, any amounts withdrawn
from Accounts which are within the first 30 days of their renewal
Guarantee Periods will be completely free from any Market Value
Adjustment.
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13. WHAT IS THE WITHDRAWAL CHARGE UPON A PARTIAL WITHDRAWAL OR
FULL WITHDRAWAL?
The amount withdrawn from the Account Value in excess of the Free
Withdrawal Amount is subject to the following Withdrawal Charge:
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PAYMENT YEAR 1 2 3 4 5 6 AND LATER
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Percentage 7% 7% 6% 5% 4% 0%
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For each purchase payment withdrawal, the payment year in the
above table is measured from the date we received the purchase
payment.
The Withdrawal Charge is determined by multiplying the percentage
corresponding to the payment year times that part of each
withdrawal that is in excess of the Free Withdrawal Amount.
The Company will waive any Withdrawal Charge prior to the Payout
Start Date if at least 30 days after the Issue Date any Owner (or
Annuitant if the Owner is not a natural person) is first confined
to a long term care facility or hospital for at least 90
consecutive days, confinement is prescribed by a physician and is
medically necessary, and the request for a withdrawal and
adequate written proof of confinement are received by us no later
than 90 days after discharge.
14. WHAT IS THE MARKET VALUE ADJUSTMENT UPON A PARTIAL OR FULL
WITHDRAWAL OR AT DEATH?
The Market Value Adjustment will be applied to all amounts
withdrawn, paid at death or applied to an Income Plan, which are
not exempt from adjustment as discussed in question 12.
The Market Value Adjustment reflects the relationship between (1)
the Treasury Rate for the time remaining in the Guarantee Period
at the time of death or the request for withdrawal, and (2) the
Treasury Rate at the time the Account was established for a
maturity equal to the Account Guarantee Period. Since current
Treasury Rates are the basis for the investment yields at the
time, and current interest rates are based, in part, upon
investment yields available when the Account was established, the
effect of the Market Value Adjustment will be closely related to
the levels of such yields. As such, the Owner bears some
investment risk under the Contract.
Generally, if the Treasury Rate at the time the Account was
established is lower than the Treasury Rate (interest rate for a
period equal to the time remaining in the Account), then the
Market Value Adjustment will result in a lower amount payable to
the Owner. Similarly, if the Treasury Rate at the time the
Account was established is higher than the applicable current
Treasury Rate, then the Market Value Adjustment will result in a
higher amount payable to the Owner.
For example, assume the Owner purchases a Contract and selects an
initial Guarantee Period of five years and the Treasury Rate for
that duration is 5.50%. Assume that at the end of 3 years, the
Owner makes a partial withdrawal. If, at that later time, the
Treasury 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 the Owner. Similarly, if the
Treasury Rate for the 2 year Guarantee Period is 7.00%, then the
Market Value Adjustment will be negative, which will result in a
decrease in the amount payable to the Owner.
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The formula for calculating the Market Value Adjustment is set
forth in Appendix A to this prospectus which also contains
additional illustrations of the application of the Market Value
Adjustment.
15. THE IRS REQUIRES ANNUAL WITHDRAWALS TO BE TAKEN FROM
QUALIFIED CONTRACTS UPON ATTAINMENT OF AGE 70. WILL THESE
WITHDRAWALS INCUR WITHDRAWAL CHARGES AND MARKET VALUE
ADJUSTMENTS?
No. Both the Withdrawal Charge and Market Value Adjustment will
be waived on withdrawals taken to satisfy IRS required minimum
distribution rules for this Contract.
16. WHAT ARE THE TAX IMPLICATIONS ASSOCIATED WITH THE CONTRACT?
It varies based upon the Owner's circumstances. Generally, the
two areas which may give rise to a taxable situation are personal
federal and state income taxation and taxation of the Company.
With respect to personal federal and state income tax, an annuity
contract Owner who is a natural person is not taxed on increases
in the Contract Value until a distribution occurs. For federal
income tax purposes, distributions include the receipt of
proceeds from loans and an assignment or pledge of any portion of
the value of the Contract, as well as withdrawals, income
payments, or Death Benefits. In addition, personal federal and
state income tax withholding may be deducted from partial
withdrawal and full withdrawal payments. Amounts withheld for
personal taxes do not necessarily represent the Owner's entire
income tax liability.
With respect to taxation of the Company, premium taxes and other
applicable taxes imposed on the Company may be deducted from the
Contract's purchase payment or Contract Value upon a full
withdrawal or annuitization of the Contract. Current premium tax
rates range from 0 to 3.5%, but are subject to change by state
regulation.
There are several exceptions to the above generalizations. More
complete information can be found in the "Federal Tax Matters"
section found on page 15 of this prospectus.
THE PARTIES TO THE 17. WHAT RIGHTS DOES AN OWNER HAVE IN THIS CONTRACT?
CONTRACT This Contract offers the Owner several rights. The Owner may:
- receive any withdrawals or periodic income payments from the
Contract, unless the Owner has directed the Company to pay them
to someone else;
- name and change the Owner, Beneficiary, and Annuitant (only if
Owner is a natural person);
- assign benefits under the Contract prior to the Payout Start
Date;
- elect a Death Benefit option upon death of a co-owner or
Annuitant if the Owner is not a natural person; and
- terminate the Contract.
The above may be subject to the rights of any irrevocable
Beneficiary.
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18. WHAT PURPOSE DOES THE ANNUITANT SERVE?
The Annuitant's life determines the income payments which will
begin on the Payout Start Date. This Contract requires an
Annuitant at all times during the accumulation phase and on the
Payout Start Date. The Annuitant must be a natural person. A
Death Benefit may be payable upon the death of the Annuitant only
if the Owner is not a natural person.
19. WHO IS THE BENEFICIARY TO THE CONTRACT?
The Beneficiary varies based upon who the Owner is, and the
designation of the parties to the Contract by the Owner. If the
Owner is a natural person, the Beneficiary will be determined
from the most recent written request of the Owner. If the Owner
does not name a Beneficiary or if the Beneficiaries named are no
longer living, the Beneficiary will be:
- a contingent beneficiary named by the Owner; otherwise
- the Owner's spouse if living; otherwise
- the Owner's children, equally, if living; otherwise
- the Owner's estate.
20. WHAT PURPOSE DOES THE BENEFICIARY SERVE?
The Beneficiary becomes the new Owner if the sole surviving Owner
dies prior to the Payout Start Date. If the sole surviving Owner
dies after the Payout Start Date, the Beneficiary will receive
any guaranteed income payments scheduled to continue.
THE DEATH BENEFITS 21. UPON DEATH OF THE OWNER, WHO IS THE NEW OWNER OF THE
PROVISIONS CONTRACT?
The new Owner is any surviving joint Owner(s) or if none, the
Beneficiary.
22. UPON DEATH OF THE OWNER, WHAT OPTIONS DOES THE NEW OWNER
HAVE?
In most cases, the new Owner of the Contract has the following
three options:
- receive the Contract Value adjusted by any positive Market
Value Adjustment within 5 years of the date of death; or
- receive the Death Benefit in a lump sum. The Death Benefit is
equal to the Contract Value plus any positive Market Value
Adjustment; or
- apply the Death Benefit to an Income Plan with income payments
beginning within one year of the date of death. Income payments
must be made over the life of the new Owner, or a period not to
exceed the life expectancy of the new Owner, or the life of the
new Owner with payments guaranteed for a period not to exceed
the life expectancy of the new Owner.
If the new Owner is the spouse of the deceased Owner, the new
Owner may elect to continue the Contract. See question 23, below.
If the new Owner is a non-natural person, then the new Owner must
receive the Death Benefit in a lump sum within 5 years.
23. IF THE NEW OWNER IS THE SURVIVING SPOUSE OF THE DECEASED
OWNER, WHAT HAPPENS TO THE CONTRACT UPON THE OWNER'S DEATH?
In addition to the options available in question 22, a surviving
spousal Owner has the following options:
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- continue the Contract as if the death had not occurred; and
- if the Contract is continued, one withdrawal of any amount
within the year of death is allowed which will not be assessed a
Withdrawal Charge (a Market Value Adjustment will apply).
24. IF THE OWNER IS NOT THE ANNUITANT AND THE ANNUITANT DIES
PRIOR TO THE PAYOUT START DATE, WHAT HAPPENS TO THE CONTRACT?
If the Owner is a natural person, the Contract will continue as
if the death had not occurred. The new Annuitant will be the
youngest Owner; or
If the Owner is not a natural person, the Owner will receive the
Death Benefit in a lump sum within 5 years of the date of death.
THE PAYOUT PHASE 25. WHAT IS THE PAYOUT START DATE?
The date on which the accumulation phase ceases and the payout
phase begins. During the payout phase, the Owner receives income
payments based upon an Income Plan selected by the Owner from the
Contract. The payout phase will continue until the Company makes
the last payment as provided by the Income Plan chosen. The Owner
may change the Payout Start Date at anytime by notifying the
Company in writing of the change at least 30 days before the
scheduled Payout Start Date. The Payout Start Date must be at
least one month after the issue date and on or before the later
of:
- the Annuitant's 90th birthday; or
- the 10th anniversary of the Contract's Issue Date.
26. WHAT TYPES OF INCOME PLANS ARE AVAILABLE IN THE CONTRACT?
Income payments are made under an Income Plan which may be chosen
by the Owner. The types of Income Plans which are available are
as follows:
- Life Income with Guaranteed Payments -- If the Annuitant dies
before all the guaranteed payments have been made, the remainder
of the guaranteed payments will be made to the Owner; or
- Joint and Survivor Life Income with Guaranteed Payments -- If
both the Annuitant and Joint Annuitant die before the guaranteed
payments have been made, the remainder of the guaranteed
payments will be made to the Owner; or
- Guaranteed Payments for a Specified Period -- Payments under
this option do not depend on the continuation of the Annuitant's
life.
Any period for which payments are guaranteed may range from 60 to
360 months. If any Owner dies, guaranteed income payments will
continue as scheduled. Up to 30 days before the Payout Start
Date, the Owner may change the Income Plan or request any other
form of Income Plan agreeable to both the Company and the Owner.
If the Company does not receive a written choice from the Owner,
the Income Plan will be life income with 120 monthly payments
guaranteed. If an Income Plan is chosen which depends on the
Annuitant's or Joint Annuitant's life, proof of age will be
required before income payments begin. The Company reserves the
right to accept other Income Plans.
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27. HOW ARE THE INCOME PAYMENTS FROM AN INCOME PLAN DETERMINED?
To determine the income payments, the Contract Value, adjusted by
any Market Value Adjustment less any applicable premium taxes,
will be applied to the greater of:
- payment plan rates declared by the Company; or
- guaranteed payment plan rates as described in the Contract.
If the monthly income payments determined under the Income Plan
are less than $20, the Company may pay the Contract Value,
adjusted by any Market Value Adjustment less any applicable
premium taxes, in a lump sum or change the payment frequency to
an interval which results in income payments of at least $20.
The Contracts are based on life annuity tables that provide for
different benefit payments to men and women of the same age
(except in states which require unisex annuity tables).
Nevertheless, in accordance with the U.S. Supreme Court's
decision in ARIZONA GOVERNING COMMITTEE V. NORRIS, in certain
employment-related situations, annuity tables that do not vary on
the basis of sex may be used. Accordingly, if the Contract is to
be used in connection with an employment-related retirement or
benefit plan, consideration should be given in consultation with
legal counsel, to the impact of NORRIS on any such plan before
making any contributions under these Contracts.
The dollar amount of income payments is generally affected by the
duration of the Income Plan selected. For example, if an Income
Plan Guaranteed for Life is chosen, the income payments may be
greater or less than income payments under an Income Plan for a
specified period depending on the life expectancy of the
Annuitant. Also, the Company may require proof that the Annuitant
or joint Annuitant is still alive before the Company makes each
payment that depends on their continued life.
28. CAN PARTIAL WITHDRAWALS BE TAKEN FROM THE CONTRACT OR CAN THE
CONTRACT BE SURRENDERED ONCE IT HAS ENTERED THE PAYOUT PHASE?
No. After the Contract Value has been applied to an Income Plan
on the Payout Start Date, the Income Plan can not be changed, the
exchange of the Contract Value for an Income Plan can not be
reversed, and no withdrawals can be made.
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AMENDMENT OF THE The Company reserves the right to amend the Contracts to meet the
CONTRACTS requirements of applicable federal or state laws or regulations.
The Company will notify the Owner of any such amendments.
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DISTRIBUTION OF THE Allstate Life Financial Services, Inc. ("ALFS"), 3100 Sanders
CONTRACTS Road, Northbrook, Illinois, a wholly-owned subsidiary of Allstate
Life, acts as the principal underwriter of the Contracts. ALFS is
registered as a broker-dealer under the Securities Exchange Act
of 1934 and became a member of the National Association of
Securities Dealers, Inc. on June 30, 1993 Contracts are sold by
registered representatives of broker-dealers or bank employees
who are licensed insurance agents appointed by the Company,
either individually or through an incorporated insurance agency.
The Company may pay up to a maximum sales commission of 8% both
upon sale of the Contract and upon renewal of a Guarantee Period.
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The Underwriting Agreement between the Company and ALFS provides
that the Company will indemnify ALFS for certain damages that may
be caused by actions, statements or omissions by the Company.
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FEDERAL TAX MATTERS
INTRODUCTION THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX
ADVICE. THE COMPANY MAKES NO GUARANTEE REGARDING THE TAX
TREATMENT OF ANY CONTRACT OR TRANSACTION INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or
receipt of distributions under an annuity contract depend on the
individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual
circumstances, you should consult a competent tax adviser.
TAXATION OF THE The Company is taxed as a life insurance company under Part I of
COMPANY Subchapter L of the Internal Revenue Code. The following
discussion assumes that the Company is taxed as a life insurance
company under Part I of Subchapter L.
TAXATION OF TAX DEFERRAL. In general, an annuity contract owned by a natural
ANNUITIES IN GENERAL person is not taxed on increases in the contract value until a
distribution occurs. Annuity contracts owned by non-natural
persons are generally not treated as annuity contracts for
federal income tax purposes and the income on such contracts is
taxed as ordinary income received or accrued by the owner during
the taxable year. There are exceptions to the non-natural owner
rule and you should discuss these with your tax advisor.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. In the case of a
partial withdrawal under a non-qualified contract, amounts
received are taxable to the extent the contract value before the
withdrawal exceeds the investment in the contract. In the case of
a partial withdrawal under a qualified contract, the portion of
the payment that bears the same ratio to the total payment that
the investment in the contract bears to the contract value, can
be excluded from income. In the case of a full withdrawal under a
non-qualified contract or a qualified contract, the amount
received will be taxable only to the extent it exceeds the
investment in the contract. If an individual transfers an annuity
contract without full and adequate consideration to a person
other than the individual's spouse (or to a former spouse
incident to a divorce), the owner will be taxed on the difference
between the contract value and the investment in the contract at
the time of transfer. Other than in the case of certain qualified
contracts, any amount received as a loan under a contract, and
any assignment or pledge (or agreement to assign or pledge) of
the contract value is treated as a withdrawal of such amount or
portion.
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TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income
taxation of payments received from an annuity contract provides
for the return of the owner's investment in the contract in equal
tax-free amounts over the payment period. The balance of each
payment received is taxable. In the case of 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.
TAXATION OF ANNUITY DEATH BENEFITS. Amounts may be distributed
from an annuity contract because of the death of an owner or
annuitant. Generally, such amounts are includible in income as
follows: (1) if distributed in a lump sum, the amounts are taxed
in the same manner as a full withdrawal or (2) if distributed
under an annuity option, the amounts are taxed in the same manner
as an annuity payment.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. There is a 10% penalty
tax on the taxable amount of any premature distribution from a
non-qualified annuity contract. The penalty tax generally applies
to any distribution made prior to the owner attaining age 59 1/2.
However, there should be no penalty tax on distributions to
owners (1) made on or after the owner attains age 59 1/2; (2)
made as a result of the owner's death or disability; (3) made in
substantially equal periodic payments over life or life
expectancy; or (4) made under an immediate annuity. Similar rules
apply for distributions under certain qualified contracts.
AGGREGATION OF ANNUITY CONTRACTS. All non-qualified annuity
contracts issued by the Company (or its affiliates) to the same
owner during any calendar year will be aggregated and treated as
one annuity contract for purposes of determining the taxable
amount of a distribution.
IRS REQUIRED DISTRIBUTION AT DEATH RULES. In order to be
considered an annuity contract for federal income tax purposes,
an annuity contract must provide: (1) if any owner dies on or
after the annuity start date but before the entire interest in
the contract has been distributed, the remaining portion of such
interest must be distributed at least as rapidly as under the
method of distribution being used as of the date of the owner's
death; (2) if any owner dies prior to the annuity start date, the
entire interest in the contract will be distributed within five
years after the date of the owner's death. These requirements are
satisfied if any portion of the owner's interest which is payable
to, or for the benefit of, a designated beneficiary is
distributed over the life of such beneficiary (or over a period
not extending beyond the life expectancy of the beneficiary) and
the distributions begin within one year of the owner's death. If
the owner's designated beneficiary is the surviving spouse of the
owner, the contract may be continued with the surviving spouse as
the new owner. If the owner of the contract is a nonnatural
person, then the annuitant will be treated as the owner for
purposes of applying the distribution at death rules. Also, a
change of annuitant on a contract owned by a nonnatural person
will be treated as the death of the owner.
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QUALIFIED PLANS This annuity contract may be used with several types of qualified
plans. The tax rules applicable to participants in such qualified
plans vary according to the type of plan and the terms and
conditions of the plan itself. Adverse tax consequences may
result from excess contributions, premature distributions,
distributions that do not conform to specified commencement and
minimum distribution rules, excess distributions and in other
circumstances. Owners and participants under the plan and
annuitants and beneficiaries under the contract may be subject to
the terms and conditions of the plan regardless of the terms of
the contract.
TYPES OF QUALIFIED INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits
PLANS eligible individuals to contribute to an individual retirement
program known as an Individual Retirement Annuity. 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.
SIMPLIFIED EMPLOYEE PENSION PLANS. Section 408(k) of the Code
allows employers to establish simplified employee pension plans
for their employees using the employees' individual retirement
annuities if certain criteria are met. Under these plans the
employer may, within specified limits, make deductible
contributions on behalf of the employees to their individual
retirement annuities.
TAX SHELTERED ANNUITIES. Section 403(b) of the Code permits
public school employees and employees of certain types of
tax-exempt organizations (specified in Section 501(c)(3) of the
Code) to have their employers purchase annuity contracts for
them, and subject to certain limitations, to exclude the purchase
payments from the employees' gross income. An annuity contract
used for a Section 403(b) plan must provide that distributions
attributable to salary reduction contributions made after
12/31/88, and all earnings on salary reduction contributions, may
be made only after the employee attains age 59 1/2, separates
from service, dies, becomes disabled or on the account of
hardship (earnings on salary reduction contributions may not be
distributed for hardship).
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING
PLANS. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax favored retirement
plans for employees. The Self-Employed Individuals Retirement Act
of 1962, as amended, (commonly referred to as "H.R. 10" or
"Keogh") permits self-employed individuals to establish tax
favored retirement plans for themselves and their employees. Such
retirement plans may permit the purchase of annuity contracts in
order to provide benefits under the plans.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED
COMPENSATION PLANS. Section 457 of the Code permits employees of
state and local governments and tax-exempt organizations to defer
a portion of their compensation without paying current taxes. The
employees must be participants in an eligible deferred
compensation plan. Generally, under the non-natural owner rules,
such contracts are not treated as annuity contracts for federal
income tax purposes. However, under these plans, contributions
made for the benefit of the employees will not be includible in
the employees' gross income until distributed from the plan.
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INCOME TAX WITHHOLDING. The Company is required to withhold
federal income tax at a rate of 20% on all "eligible rollover
distributions" unless an individual elects to make a "direct
rollover" of such amounts to another qualified plan or Individual
Retirement Account or Annuity (IRA). Eligible rollover
distributions generally include all distributions from qualified
contracts, excluding IRAs, with the exception of (1) required
minimum distributions, or (2) a series of substantially equal
periodic payments made over a period of at least 10 years, or the
life (joint lives) of the participant (and beneficiary). For any
distributions from non-qualified annuity contracts, or
distributions from qualified contracts which are not considered
eligible rollover distributions, the Company may be required to
withhold federal and state income taxes unless the recipient
elects not to have taxes withheld and properly notifies the
Company of such election.
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THE COMPANY
BUSINESS Glenbrook Life and Annuity Company (the "Company") is wholly
owned by Allstate Life Insurance Company ("Allstate Life"), which
is wholly owned by Allstate Insurance Company, a wholly-owned
subsidiary of The Allstate Corporation (the "Corporation").
Sears, Roebuck and Co. ("Sears") distributed its 80.3% ownership
in the Corporation on June 30, 1995 to Sears common shareholders
through a tax-free dividend. As a result of the distribution,
Sears no longer has an ownership interest in the Corporation.
REINSURANCE Effective December 31, 1993, the Company entered into an
AGREEMENTS assumption reinsurance treaty with an affiliate, Glenbrook Life
Insurance Company, to reinsure certain annuity contracts. Per the
terms of the agreement, the Company assumed all of Glenbrook Life
Insurance Company's liability under such contracts.
Purchase payments of qualified Contracts issued in conjunction
with a Section 401(a), 401(k) or 403(b) plan, will be invested in
the general account of the Company. The Company and Allstate Life
have entered into a modified coinsurance agreement under which
Allstate Life will reinsure all of the Company's general account
obligations under such qualified Contracts; the reserves for such
Contracts will be held in the Company's general account.
The Company reinsures all of its insurance in force, including
the business assumed from Glenbrook Life Insurance Company, with
Allstate Life. Accordingly, the results of operations with
respect to applications received and contracts issued by the
Company are not reflected in the Company's financial statements.
The amounts reflected in the Company's financial statements
relate only to the investment of those assets of the Company that
are not transferred to Allstate Life under the reinsurance
agreement.
INVESTMENTS BY THE The Company's general account assets, like the general account
COMPANY assets of other insurance companies, including Allstate Life,
must be invested in accordance with applicable state laws. These
laws govern the nature and quality of investments that may be
made by life insurance companies and the percentage of their
assets that may be committed to any particular type of
investment. In general, these laws permit investments, within
specified limits and subject to certain qualifications, in
federal, state, and municipal obligations, corporate bonds,
preferred stocks, real estate mortgages, real estate and certain
other investments. All of the Company's general account assets
are available to meet the Company's obligations.
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The Company will primarily invest its general account assets in
investment-grade fixed income securities including the following:
Securities issued by the United States Government or its
agencies or instrumentalities, which may or may not be
guaranteed by the United States Government;
Debt instruments, including, but not limited to, issues of or
guaranteed by banks or bank holding companies, and of
corporations, which are deemed by the Company's management to
have qualities appropriate for inclusion in this portfolio;
Commercial mortgages, mortgage-backed securities
collateralized by real estate mortgage loans, or securities
collateralized by other assets, that are insured or
guaranteed by the Federal Home Loan Mortgage Association, the
Federal National Mortgage Association or the Government
National Mortgage Association, or that have an investment
grade at time of purchase within the four highest grades
assigned by Moody's Investors Services, Inc. (Aaa, Aa, A or
Baa), Standard & Poor's Corporation (AAA, AA, A or BBB) or
any other nationally recognized rating service;
Commercial paper, cash, or cash equivalents, and other
short-term investments having a maturity of less than one
year that are considered by the Company's management to have
investment quality comparable to securities having the
ratings stated above.
In addition, interest rate swaps, futures, options, rate caps,
and other hedging instruments may be used solely for
non-speculative hedging purposes. Anticipated use of these
financial instruments shall be limited to protecting the value of
portfolio sales or purchases, or to enhance yield through the
creation of a synthetic security.
In addition, the Company maintains certain unitized Separate
Accounts which invest in shares of open-end investment companies
registered under the Investment Company Act of 1940. These
Separate Account assets, which relate to the Company's variable
annuity contracts, do not support the Company's obligations under
the Contracts.
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SELECTED FINANCIAL The following selected financial data for the Company should be
DATA read in conjunction with the financial statements and notes
thereto included in this prospectus beginning on page F-1.
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GLENBROOK LIFE AND ANNUITY COMPANY
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR-END FINANCIAL DATA 1994 1993 1992*
- -------------------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
For The Years Ended December 31:
Income Before Taxes......................................... $ 2,017 $ 836 $ 337
Net Income.................................................. 1,294 529 212
As of December 31:
Total Assets (1)............................................ 751,680 169,361 12,183
<CAPTION>
QUARTERLY FINANCIAL DATA 1995 1994
- -------------------------------------------------------------- ------------- -----------
<S> <C> <C> <C>
For The Quarter Ended June 30:
Income Before Taxes........................................................ $ 1,022 $ 210
Net Income................................................................. 659 132
As of June 30:
Total Assets (1)........................................................... 1,101,366 420,653
<FN>
- ------------------------
(1) The Company adopted SFAS No. 115, "Accounting for Certain Instruments in
Debt and Equity Securities" on December 31, 1993. See Note 3 to Financial
Statements.
* For the period from April 1, 1992 (date of acquisition) to December 31,
1992.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994
AND 1993 AND FOR THE PERIOD FROM APRIL 1, 1992 (DATE OF ACQUISITION)
TO DECEMBER 31, 1992
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GENERAL Glenbrook Life and Annuity Company (the "Company") is wholly
owned by Allstate Life Insurance Company ("Allstate Life"), which
is wholly owned by Allstate Insurance Company, a wholly-owned
subsidiary of The Allstate Corporation (the "Corporation"). In
November 1994, Sears, Roebuck and Co. ("Sears") announced it
intended to distribute in a tax-free dividend to its stockholders
its 80.3% ownership interest of the Corporation (the
"Distribution").
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The Company issues single and flexible premium fixed annuity
contracts. In addition, the Company plans to issue flexible
premium deferred variable annuity contracts.
Effective December 31, 1993, the Company entered into an
assumption reinsurance treaty with an affiliate, Glenbrook Life
Insurance Company, to reinsure certain annuity contracts. Per the
terms of the agreement, the Company assumed all of Glenbrook Life
Insurance Company's liability under such contracts.
The Company reinsures all of its in force insurance, including
the business assumed from Glenbrook Life Insurance Company, with
Allstate Life. Accordingly, the results of operations with
respect to applications received and
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contracts issued by the Company are not reflected in the
Company's financial statements. The amounts reflected in the
Company's financial statements relate only to the investment of
those assets of the Company that are not transferred to Allstate
Life under the reinsurance agreement.
RESULTS OF Net investment income was $2.0 million in 1994 compared with $836
OPERATIONS thousand and $405 thousand in 1993 and 1992, respectively.
Invested assets grew $38.5 million in 1994 due entirely to a
capital contribution from Allstate Life during the third quarter
of 1994.
Net income was $1.3 million compared to $529 thousand in 1993 and
$212 thousand in 1992. The increase in 1994 is due to the
increase in investment income.
LIQUIDITY AND Under the terms of inter-company reinsurance agreements, assets
CAPITAL RESOURCES of the Company that relate to insurance in-force are transferred
to Allstate Life. Therefore, the funds necessary to support the
operations of the Company are provided by Allstate Life and the
invested assets supporting contract liabilities are held by
Allstate Life.
During the third quarter of 1994, the Company received a capital
contribution of $40 million from Allstate Life.
SEGMENT INFORMATION The Company's operations consist of one business segment which is
the issuance of insurance and annuity products.
RESERVES Under the Company's reinsurance agreement with Allstate Life, the
Company reinsures all reserve liabilities with Allstate Life
except for variable contracts. The Company's variable contract
assets and liabilities will be held in a legally segregated
unitized separate account and are retained by the Company.
INVESTMENTS The Company generally holds its fixed income securities for the
long term, but has classified them as "available for sale" and
carries them in the statement of financial position at fair
value, to allow maximum flexibility in portfolio management.
PENDING ACCOUNTING In May, 1993, the Financial Accounting Standards Board ("FASB")
STANDARDS issued FASB No. 114, "Accounting by Creditors for Impairment of a
Loan." The statement, which must be adopted by 1995, requires
that impairment loans be measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate. The impact on net income and financial condition
of adopting this statement is not expected to be significant.
THREE-AND SIX-MONTH PERIODS ENDED JUNE 30, 1995
GENERAL Glenbrook Life and Annuity Company ("the Company") is wholly
owned by Allstate Life Insurance Company ("Allstate Life").
Allstate Life is wholly-owned by Allstate Insurance Company, a
wholly-owned subsidiary of The Allstate Corporation ("the
Corporation"). Sears, Roebuck and Co. distributed its 80.3%
ownership in the Corporation on June 30, 1995 to Sears common
shareholders through a tax-free dividend. As a result of the
distribution, Sears no longer has an ownership interest in the
Corporation.
The Company issues single and flexible premium annuity contracts
and flexible premium deferred variable annuity contracts.
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The Company reinsures all of its insurance in-force with Allstate
Life. Accordingly, the results of operations with respect to
applications received and contracts issued by the Company are not
reflected in the Company's Statements of Income.
RESULTS OF Pre-tax net investment income in the second quarter of 1995
OPERATIONS AND increased 280.2% to $1.0 million compared to $210 thousand for
FINANCIAL CONDITION the same period in 1994. For the first six months of 1995 pre-tax
net investment income increased 339.6% to $2.0 million compared
to $455 thousand in the prior year. The increases were primarily
related to an increased level of invested assets which resulted
from a $40 million capital contribution from Allstate Life during
the third quarter of 1994. Net income reflects the changes in
pre-tax investment income.
The Statement of Financial Position at June 30, 1995 reflects an
increase of 49.4% from December 31, 1994 in both contractholder
funds and amounts recoverable from Allstate Life Insurance
Company under reinsurance treaties. This is due to sales of the
Company's single and flexible premium annuity contracts.
LIQUIDITY AND Under the terms of the reinsurance agreement, assets of the
CAPITAL RESOURCES Company that relate to insurance in-force, excluding separate
account assets and, beginning in 1995, assets related to certain
market value adjusted annuity contracts under employee benefit
plans, are transferred to Allstate Life. Therefore, the funds
necessary to support the operations of the Company are provided
by Allstate Life and the Company is not required to obtain
additional capital to support inforce or future business.
PENDING ACCOUNTING In March 1995, the Financial Accounting Standards Board issued
STANDARDS SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". The statement
requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The
statement requires that impairment loss be measured for those
assets as the amount by which the carrying amount of the asset
exceeds the asset's fair value. This statement will be adopted in
1996 and is not expected to have a material impact on the
Company's results of operations or financial position.
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COMPETITION The Company is engaged in a business that is highly competitive
because of the large number of stock and mutual life insurance
companies and other entities competing in the sale of insurance
and annuities. There are approximately 2,000 stock, mutual and
other types of insurers in business in the United States. A.M.
Best Company assigns A+ (Superior) to Allstate Life which
automatically reinsures all net business of the Company. A.M.
Best Company also assigns the Company the rating of A+(r) because
the Company automatically reinsures all business with Allstate
Life. Standard & Poor's Insurance Rating Services assigns AA+
(Excellent) to Glenbrook Life's claims-paying ability and Moody's
assigns an Aa3 (Excellent) financial stability rating to
Glenbrook Life.
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EMPLOYEES As of December 31, 1994, Allstate Life has approximately 31
employees at its home office in Northbrook, Illinois who work
primarily on the Company's matters.
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PROPERTIES The Company occupies office space provided by its parent,
Allstate Life, in Northbrook, Illinois. Expenses associated with
these offices are allocated on a direct and indirect basis to the
Company.
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STATE AND FEDERAL The insurance business of the Company is subject to comprehensive
REGULATION and detailed regulation and supervision throughout the United
States.
The laws of the various jurisdictions establish supervisory
agencies with broad administrative powers with respect to
licensing to transact business, overseeing trade practices,
licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance
policy loans and minimum rates for accumulation of surrender
values, prescribing the form and content of required financial
statements and regulating the type and amounts of investments
permitted. Each insurance company is required to file detailed
annual reports with supervisory agencies in each of the
jurisdictions in which it does business and its operations and
accounts are subject to examination by such agencies at regular
intervals.
Under insurance guaranty fund law, in most states, insurers doing
business therein can be assessed up to prescribed limits for
contract owner losses incurred as a result of company
insolvencies. The amount of any future assessments on the Company
under these laws cannot be reasonably estimated. Most of these
laws do provide, however, that an assessment may be excused or
deferred if it would threaten an insurer's own financial
strength.
In addition, several states, including Illinois, regulate
affiliated groups of insurers, such as the Company and its
affiliates, under insurance holding company legislation. Under
such laws, intercompany transfers of assets and dividend payments
from insurance subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in
relation to the financial positions of the companies.
Although the federal government generally does not directly
regulate the business of insurance, federal initiatives often
have an impact on the business in a variety of ways. Current and
proposed federal measures which may significantly affect the
insurance business include employee benefit regulation, controls
on medical care costs, removal of barriers preventing banks from
engaging in the securities and insurance business, tax law
changes affecting the taxation of insurance companies, the tax
treatment of insurance products and its impact on the relative
desirability of various personal investment vehicles, and
proposed legislation to prohibit the use of gender in determining
insurance and pension rates and benefits.
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EXECUTIVE OFFICERS The directors and executive officers are listed below, together
AND DIRECTORS OF THE with information as to their ages, dates of election and
COMPANY principal business occupations during the last five years (if
other than their present business occupations).
LOUIS G. LOWER, II, 49, Chief Executive Officer and Chairman of
the Board (1995)*
He is also the President of Allstate Life Insurance Company;
President and Chairman of the Board of Allstate Life Insurance
Company of New York,
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Glenbrook Life Insurance Company, and Northbrook Life Insurance
Company; Chairman of the Board of Allstate Settlement
Corporation; Chairman of the Board and Chief Executive Officer of
Lincoln Benefit Life Company and Surety Life Insurance Company;
and a Director of Allstate Insurance Company and Allstate Life
Financial Services, Inc. Prior to January 1, 1990, he was
Executive Vice President of Allstate Life Insurance Company. From
1990 to 1995, he was President and Chairman of the Board of the
Company.
MARLA G. FRIEDMAN, 41, President, Chief Operating Officer and
Director (1995)*
She is also Vice President and Director of Allstate Life
Insurance Company, Glenbrook Life Insurance Company, and
Northbrook Life Insurance Company; and a Director of Allstate
Life Financial Services, Inc. She was elected a Vice President
and Director of the Company in 1992. Prior to 1995, she was Vice
President of the Company.
MICHAEL J. VELOTTA, 50, Vice President, Secretary, General
Counsel, and Director (1993)*
He is also Vice President, Secretary, General Counsel and
Director of Allstate Life Insurance Company, Allstate Life
Insurance Company of New York, Glenbrook Life Insurance Company,
Northbrook Life Insurance Company and Surety Life Insurance
Company; and a Director of Lincoln Benefit Life Company and
Allstate Life Financial Services, Inc. From 1989 through 1992, he
was Vice President, Assistant General Counsel of Allstate
Insurance Company.
MYRON J. RESNICK, 63, Treasurer and Director (1992)*
He is also Director and President of Allstate Investment
Management Company; Director of PMI Insurance Company, PMI
Mortgage Insurance Company, PMI Securities Company, American
Pioneer Title Insurance Company, Allstate Insurance Company of
Canada, Allstate Life Insurance Company of Canada, Allstate
Automobile and Fire Insurance Company, Ltd., Truswal Timber
Company, Ltd., Saison Life Insurance Company, Ltd. and Allstate
Reinsurance Co, Ltd.; Senior Vice President, Treasurer and
Director of Allstate Insurance Company, Allstate Enterprises
Inc., Allstate Indemnity Company, Allstate Property and Casualty
Insurance Company, First Assurance Company, Northbrook Indemnity
Company, Northbrook National Insurance Company, Northbrook
Property and Casualty Insurance Company, and Allstate
International, Inc.; Director, Vice President and Treasurer of
Allstate Motor Club, Inc., Enterprises Services Corporation, and
Direct Marketing Center Inc.; Vice President and Treasurer of The
Allstate Corporation, Allstate County Mutual Insurance Company,
Allstate Texas Lloyd's, Inc., and Glenbrook Life Insurance
Company; Director and Treasurer of Allstate Life Insurance
Company; Treasurer of Northbrook Life Insurance Company, Allstate
Settlement Corporation, Allstate Life Financial Services, Inc.,
General
Underwriters Agency Inc., Tech-Cor, Inc. and Allstate Life
Insurance Company of New York. Trustee, Vice President and
Treasurer of The Allstate Foundation; and Trustee of Aurora
University. He was elected a Director of the Company in 1992.
Prior to 1992, he held all of the above listed positions except
the current position with the Company.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
PETER H. HECKMAN, 49, Vice President and Director (1992)*
He is also Vice President and Director of Allstate Life Insurance
Company; Vice President of Allstate Life Insurance Company of New
York, Northbrook Life Insurance Company, Glenbrook Life Insurance
Company; and Director of Surety Life Insurance Company and
Lincoln Benefit Life Company. He was elected a Director of the
Company in 1992. Prior to 1992 he held all of the above listed
positions except the current position with the Company.
G. CRAIG WHITEHEAD, 49, Senior Vice President, Assistant Vice
President and Director (1995)*
He is also Assistant Vice President and Director of Glenbrook
Life Insurance Company and Assistant Vice President of Allstate
Life Insurance Company. From 1991-1995, he was an Assistant Vice
President of the Company. Prior to 1991, he was a director in the
strategic planning area of Allstate.
BARRY S. PAUL, 39, Assistant Vice President and Controller (1992)
He is also Assistant Vice President of Allstate Life Insurance
Company; Assistant Vice President and Corporate Actuary of
Allstate Life Insurance Company of New York; and Assistant Vice
President and Controller of Glenbrook Life Insurance Company and
Northbrook Life Insurance Company. Prior to 1992, he held all of
the above listed positions except the current position with the
Company.
* Date elected to current office.
----------------------------------------------------------------
EXECUTIVE Executive officers of the Company also serve as officers of
COMPENSATION Allstate Life and receive no compensation directly from the
Company. Some of the officers also serve as officers of other
companies affiliated with the Company. Allocations have been made
as to each individual's time devoted to his or her duties as an
executive officer of the Company. However, no officer's
compensation allocated to the Company exceeded $100,000 in 1994.
The allocated cash compensation of all officers of the Company as
a group for services rendered in all capacities to the Company
during 1994 totalled $9,216.31. Directors of the Company receive
no compensation in addition to their compensation as employees of
the Company.
Shares of the Company and Allstate Life are not directly owned by
any director or officer of the Company. The percentage of shares
of The Allstate Corporation beneficially owned by any director,
and by all directors and officers of the Company as a group, does
not exceed one percent of the class outstanding.
</TABLE>
25
<PAGE>
SUMMARY COMPENSATION TABLE
(ALLSTATE LIFE INSURANCE CO.)
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION -------------------------- --------------------------
----------------------------------- (G)
(A) (E) (F) SECURITIES (H) (I)
NAME AND OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
PRINCIPAL (B) (C) (D) COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($) $ AWARD(S) SARS(#) ($) ($)
- ----------- --------- --------- --------- ------------- ----------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $ 389,050 $ 26,950 $ 25,889 $ 170,660 N/A 0 $ 1,890(1)
1993 $ 374,200 $ 294,683 $ 52,443 $ 318,625 N/A $ 13,451 $ 6,296(1)
1992 $ 356,625 0 $ 11,981 $ 206,388 N/A $ 173,561 $ 2,095(1)
Louis G.
Lower, II
President
and
Chairman
<FN>
- ------------------------------
(1) Amount received by Mr. Lower which represents the value allocated to his
account from employer contributions under The Savings and Profit Sharing
Fund of Sears employees.
</TABLE>
<TABLE>
<S> <C>
----------------------------------------------------------------
LEGAL PROCEEDINGS The Company is involved in pending and threatened litigation in
the normal course of its business in which claims for monetary
damages are asserted. Management, after consultation with legal
counsel, does not anticipate the ultimate liability arising from
such pending or threatened litigation to have a material effect
on the financial condition of the Company.
----------------------------------------------------------------
EXPERTS The financial statements and financial statement schedule of the
Company as of December 31, 1994 and 1993 and for the years ended
December 31, 1994 and 1993 and for the period from April 1, 1992
(Date of Acquisition) to December 31, 1992 included in this
prospectus have been audited by Deloitte & Touche LLP, Two
Prudential Plaza, 180 North Stetson Avenue, Chicago, Illinois,
60601-6779, independent auditors, as stated in their report
appearing herein, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and
auditing.
----------------------------------------------------------------
LEGAL MATTERS Certain legal matters relating to the federal securities laws
applicable to the issue and sale of the Contracts have been
passed upon by Routier, Mackey and Johnson, P.C., of Washington,
D.C. All matters of Illinois law pertaining to the Contracts,
including the validity of the Contracts and the Company's right
to issue such Contracts under Illinois insurance law, have been
passed upon by Michael J. Velotta, General Counsel of the
Company.
----------------------------------------------------------------
</TABLE>
26
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER
OF GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (an affiliate of Sears, Roebuck and Co.) as of December
31, 1994 and 1993, and the related Statements of Income, Shareholder's Equity
and Cash Flows for the years ended December 31, 1994 and 1993 and for the period
from April 1, 1992 (date of acquisition) to December 31, 1992. Our audits also
included Schedule IV -- Reinsurance for the years ended December 31, 1994 and
1993 and for the period April 1, 1992 to December 31, 1992. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Glenbrook Life and Annuity Company as of
December 31, 1994 and 1993 and the results of its operations and its cash flows
for the years ended December 31, 1994, 1993, and for the period from April 1,
1992 (date of acquisition) to December 31, 1992 in conformity with generally
accepted accounting principles. Also in our opinion, Schedule IV -- Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 3 to the financial statements, in 1993 the Company changed
its method of accounting for investments in debt securities.
/s/ Deloitte & Touche LLP
April 1, 1995
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
----------- -----------
($ IN THOUSANDS)
<S> <C> <C>
Assets
Investments
Fixed income securities:
Available for sale, at fair value (amortized cost $51,527 and $9,543)....... $ 49,807 $ 10,609
Short-term.................................................................... 924 1,591
----------- -----------
Total investments......................................................... 50,731 12,200
Reinsurance recoverable from Allstate Life Insurance Company.................... 696,854 154,799
Cash............................................................................ 299
Net receivable from affiliates.................................................. 88 41
Other........................................................................... 4,007 2,022
----------- -----------
Total assets.............................................................. $ 751,680 $ 169,361
----------- -----------
----------- -----------
Liabilities
Contractholder funds............................................................ $ 696,854 $ 154,799
Income taxes payable............................................................ 63 574
Other liabilities and accrued expenses.......................................... 2,105 813
----------- -----------
Total liabilities......................................................... 699,022 156,186
----------- -----------
Commitments and contingencies
Shareholder's equity
Common stock ($500 par, 42,000 shares authorized, issued, and outstanding)...... 2,100 2,100
Additional capital paid-in...................................................... 49,641 9,641
Unrealized net capital (losses) gains........................................... (1,118) 693
Retained income................................................................. 2,035 741
----------- -----------
Total shareholder's equity................................................ 52,658 13,175
----------- -----------
Total liabilities and shareholder's equity................................ $ 751,680 $ 169,361
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE
PERIOD FROM
DECEMBER 31, APRIL 1 TO
-------------------- DECEMBER 31,
1994 1993 1992
--------- --------- -------------
($ IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Investment income, less investment expense............... $ 2,017 $ 753 $ 405
Realized capital gains and losses........................ 83
--------- --------- -----
2,017 836 405
Expenses
Operating expenses....................................... 68
--------- --------- -----
Income before income taxes................................. 2,017 836 337
Income tax expense......................................... 723 307 125
--------- --------- -----
Net income................................................. $ 1,294 $ 529 $ 212
--------- --------- -----
--------- --------- -----
</TABLE>
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL NET CAPITAL
COMMON CAPITAL GAINS RETAINED
STOCK PAID-IN (LOSSES) INCOME TOTAL
----------- ----------- ----------- ----------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, at April 1, 1992 (date of acquisition)... $ 2,100 $ 3,641 $ -- $ -- $ 5,741
Net income...................................... 212 212
Capital contribution............................ 6,000 6,000
Change in unrealized net capital gains and
losses......................................... (10) (10)
----------- ----------- ----------- ----------- ---------
Balance, December 31, 1992........................ 2,100 9,641 (10) 212 11,943
Net income...................................... 529 529
Change in unrealized net capital gains and
losses......................................... 703 703
----------- ----------- ----------- ----------- ---------
Balance, December 31, 1993........................ 2,100 9,641 693 741 13,175
Net income...................................... 1,294 1,294
Capital contribution............................ 40,000 40,000
Change in unrealized net capital gains and
losses......................................... (1,811) (1,811)
----------- ----------- ----------- ----------- ---------
Balance, December 31, 1994........................ $ 2,100 $ 49,641 $ (1,118) $ 2,035 $ 52,658
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED PERIOD FROM
DECEMBER 31, APRIL 1 TO
--------------------- DECEMBER 31,
1994 1993 1992
---------- --------- -------------
($ IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 1,294 $ 529 $ 212
Adjustments to reconcile net income to net cash from operating
activities:
Amortization..................................................... 97 58 45
Realized capital gains........................................... (83)
Changes in other operating assets and liabilities................ (277) 598 (90)
---------- --------- -------------
Net cash from operating activities............................. 1,114 1,102 167
---------- --------- -------------
Cash flows from investing activities:
Fixed income securities available for sale:
Proceeds from sales.............................................. 3,015
Investment collections........................................... 649 969 403
Investment purchases............................................. (42,729) (3,737) (6,996)
Net change in short-term investments............................... 667 (1,102) (489)
---------- --------- -------------
Net cash from investing activities............................. (41,413) (855) (7,082)
---------- --------- -------------
Cash flows from financing activities:
Capital contribution............................................... 40,000 -- 6,000
---------- --------- -------------
Net cash from financing activities............................. 40,000 -- 6,000
---------- --------- -------------
Net (decrease) increase in cash...................................... (299) 247 (915)
Cash at date of acquisition.......................................... 967
Cash at beginning of period.......................................... 299 52
---------- --------- -------------
Cash at end of period................................................ $ 0 $ 299 $ 52
---------- --------- -------------
---------- --------- -------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1993
AND PERIOD FROM APRIL 1, 1992
(DATE OF ACQUISITION) TO DECEMBER 31, 1992
($ IN THOUSANDS)
1. BASIS OF PRESENTATION
Glenbrook Life and Annuity Company (the "Company") is wholly owned by Allstate
Life Insurance Company ("Allstate Life"), which is wholly owned by Allstate
Insurance Company ("Allstate"), a wholly-owned subsidiary of The Allstate
Corporation (the "Corporation"). In November 1994, Sears, Roebuck and Co.
("Sears") announced it intends to distribute in a tax-free dividend to its
stockholders its 80.3% ownership interest of the Corporation (the
"Distribution"). The Distribution is expected to occur in mid-1995, but is
subject to market conditions, final approval by the Sears Board of Directors,
any required regulatory approvals and a favorable tax ruling or legal opinion on
the tax-free nature of the Distribution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS. Fixed income securities include bonds and mortgage-backed
securities. Fixed income securities which may be sold prior to their contractual
maturity ("available for sale") are carried at fair value. The difference
between amortized cost and fair value, net of deferred income taxes, is
reflected as a separate component of shareholder's equity. Provisions are made
to write down the carrying value of fixed income securities for declines in
value that are other than temporary.
Short-term investments are carried at cost which approximates fair value.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method based on the anticipated repayment of principal.
Realized capital gains and losses are determined on a specific identification
basis.
INCOME TAXES. The income tax provision is calculated under the liability
method. Deferred tax assets and liabilities are recorded based on the difference
between the financial statement and tax bases of assets and liabilities and the
enacted tax rates. Deferred income taxes also arise from unrealized capital
gains or losses on fixed income securities carried at fair value.
LIFE INSURANCE ACCOUNTING. The Company sells long-duration contracts that do
not involve significant risk of policyholder mortality or morbidity (principally
single and flexible premium annuities) which are considered investment
contracts.
INVESTMENT CONTRACTS. Payments received under investment contracts are recorded
as interest bearing liabilities.
CONTRACTHOLDER FUNDS. Contractholder funds are reserves for investment
contracts, which are equal to the account balance that accrues to the benefit of
the contractholder. Credited interest rates on contractholder funds ranged from
3.0% to 7.45% for those contracts with fixed interest rates and from 4.25% to
8.1% for those with flexible rates during 1994.
3. ACCOUNTING CHANGES
Effective December 31, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." SFAS No. 115
F-6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
AND PERIOD FROM APRIL 1, 1992
(DATE OF ACQUISITION) TO DECEMBER 31, 1992
($ IN THOUSANDS)
3. ACCOUNTING CHANGES (CONTINUED)
requires that investments classified as available for sale be carried at fair
value. Previously, fixed income securities classified as available for sale were
carried at the lower of amortized cost or fair value, determined in the
aggregate. Unrealized holding gains and losses are reflected as a separate
component of shareholder's equity, net of deferred income taxes. The net effect
of adoption of this statement increased shareholder's equity at December 31,
1993 by $693, with no impact on net income.
4. RELATED PARTY TRANSACTIONS
BUSINESS OPERATIONS AND REINSURANCE. The Company utilizes services and business
facilities owned or leased, and operated by Allstate in conducting its business
activities. The Company reimburses Allstate for the operating expenses incurred
by Allstate. The cost to the Company is determined by various allocation methods
and is primarily related to the level of services provided. Investment-related
expenses are retained by the Company. All other costs, including costs of
retirement and other benefit programs, are assumed by Allstate Life under a
reinsurance agreement.
The Company reinsures all of its insurance in force with Allstate Life,
including business assumed on December 31, 1993 from Glenbrook Life Insurance
Company, an affiliate. Contract charges, credited interest and the provision for
policy benefits and other insurance reserves are 100% ceded to Allstate Life and
reflected net of such cessions in the statements of income. Reinsurance
recoverable from Allstate Life under reinsurance treaty and contractholder funds
are reported separately in the statements of financial position.
Revenues ceded to Allstate Life consist of contract charges of $409 and $70 in
1994 and 1993, respectively. Benefits and expenses ceded to Allstate Life
consist of paid benefits, credited interest and operating expenses. These
benefits and expenses amounted to $26,177 and $2,162 in 1994 and 1993,
respectively.
5. INCOME TAXES
The Corporation and its domestic subsidiaries (the "Allstate Group") join with
Sears and its domestic business units (the "Sears Group") in the filing of a
consolidated federal income tax return (the "Sears Tax Group") and are parties
to a federal income tax allocation agreement (the "Tax Sharing Agreement"). As a
member of the Sears Tax Group, the Company is jointly and severally liable for
the consolidated income tax liability of the Sears Tax Group.
Under the Tax Sharing Agreement, the Company will pay to or receive from the
Allstate Group the amount, if any, by which the Sears Group's federal income tax
liability is affected by virtue of inclusion of the Company in the consolidated
federal income tax return. Effectively, this results in the Company's annual
income tax provision being computed as if the Company filed a separate return,
except that items such as net operating losses, capital losses, foreign tax
credits, investment tax credits or similar items which might not be immediately
recognizable in a separate return, are allocated according to the Tax Sharing
Agreement and reflected in the Company's provision to the extent that such items
reduce the Sears Tax Group's federal tax liability.
F-7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
AND PERIOD FROM APRIL 1, 1992
(DATE OF ACQUISITION) TO DECEMBER 31, 1992
($ IN THOUSANDS)
5. INCOME TAXES (CONTINUED)
Payments under the Tax Sharing Agreement generally are to be paid on each date
on which a quarterly payment of estimated federal income tax is due, with any
final settlement made after the consolidated return is filed. When a refund is
received from the Internal Revenue Service as the result of any carryback,
payment will be made to the members of the Sears Tax Group within 15 days after
receipt of the refund.
In anticipation of the Distribution (see Note 1), the Allstate Group and Sears
Group have entered into an agreement which governs their respective rights and
obligations with respect to federal income taxes for all periods prior to the
Distribution ("Consolidated Tax Years"). The agreement provides that all
Consolidated Tax Years will continue to be governed by the Tax Sharing Agreement
with respect to the Allstate Group's federal income tax liability and taxes
payable to or recoverable from the Sears Group.
After the Distribution, the Allstate Group will no longer be included in the
Sears Tax Group. The Company does not expect the impact of separation from the
Sears Tax Group to be significant.
The components of the deferred income tax assets and liabilities at December 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Unrealized losses on fixed income securities available for sale.................. $ 602 $ --
Other............................................................................ 4
--------- ---------
Total deferred assets.......................................................... 606 --
--------- ---------
Unrealized gains on fixed income securities available for sale................... (373)
Amortization..................................................................... (64) (14)
Other............................................................................ (3)
--------- ---------
Total deferred liabilities..................................................... (64) (390)
--------- ---------
Net deferred asset (liability)................................................. $ 542 $ (390)
--------- ---------
--------- ---------
</TABLE>
The Company paid income taxes of $57 in 1994 to Allstate under the Tax Sharing
Agreement. The Company had an income tax payable to Allstate of $605 and $184 at
December 31, 1994 and 1993, respectively.
The Company has not established a valuation reserve as it is more likely than
not that the Company will produce sufficient taxable income in the future to
realize the deferred tax asset.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED DECEMBER PERIOD FROM
31, APRIL 1, TO
-------------------- DECEMBER 31,
1994 1993 1992
--------- --------- ---------------
<S> <C> <C> <C>
Current................................................. $ 652 $ 290 $ 67
Deferred................................................ 71 17 58
--------- --------- -----
Income tax expense...................................... $ 723 $ 307 $ 125
--------- --------- -----
--------- --------- -----
</TABLE>
F-8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
AND PERIOD FROM APRIL 1, 1992
(DATE OF ACQUISITION) TO DECEMBER 31, 1992
($ IN THOUSANDS)
6. INVESTMENTS
FAIR VALUES. The amortized cost, fair value and gross unrealized gains and
losses for fixed income securities, which are designated as available for sale
and carried at fair value, are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED -------------------- FAIR
AT DECEMBER 31, 1994 COST GAINS LOSSES VALUE
- ------------------------------------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Government and agencies............... $ 31,005 $ 30 $ 1,126 $ 29,909
Mortgage-backed securities................. 20,522 624 19,898
----------- --------- --------- ---------
Totals................................... $ 51,527 $ 30 $ 1,750 $ 49,807
----------- --------- --------- ---------
----------- --------- --------- ---------
<CAPTION>
AT DECEMBER 31, 1993
- -------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agencies............... $ 9,543 $ 1,066 $ -- $ 10,609
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
SCHEDULED MATURITIES. The scheduled maturities of fixed income securities
available for sale at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
FAIR
AMORTIZED COST VALUE
-------------- ---------
<S> <C> <C>
Due in one year or less..................................... $ -- $ --
Due after one year through five years....................... 393 399
Due after five years through ten years...................... 21,951 21,174
Due after ten years......................................... 8,661 8,336
-------------- ---------
31,005 29,909
Mortgage-backed securities.................................. 20,522 19,898
-------------- ---------
Total..................................................... $ 51,527 $ 49,807
-------------- ---------
-------------- ---------
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
UNREALIZED NET CAPITAL GAINS AND LOSSES. Unrealized net capital gains and
losses on fixed income securities available for sale included in shareholder's
equity at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR UNREALIZED NET
COST VALUE GAINS/(LOSSES)
----------- --------- --------------
<S> <C> <C> <C>
Fixed income securities available for sale...... $ 51,527 $ 49,807 $ (1,720)
Deferred income taxes........................... 602
-------
Total......................................... $ (1,118)
-------
-------
</TABLE>
F-9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
AND PERIOD FROM APRIL 1, 1992
(DATE OF ACQUISITION) TO DECEMBER 31, 1992
($ IN THOUSANDS)
6. INVESTMENTS (CONTINUED)
The change in unrealized net capital gains and losses for fixed income
securities is as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED PERIOD FROM
DECEMBER 31, APRIL 1, TO
-------------------- DECEMBER 31,
1994 1993 1992
--------- --------- ---------------
<S> <C> <C> <C>
Fixed income securities available for sale......... $ (2,786) $ 1,076 $ (13)
Deferred income taxes.............................. 975 (373) 3
--------- --------- ---
Change in unrealized net capital gains and
losses............................................ $ (1,811) $ 703 $ (10)
--------- --------- ---
--------- --------- ---
</TABLE>
INVESTMENT INCOME. Investment income by investment type is as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED PERIOD FROM
DECEMBER 31, APRIL 1, TO
-------------------- DECEMBER 31,
1994 1993 1992
--------- --------- ---------------
<S> <C> <C> <C>
Investment income:
Fixed income securities............................. $ 1,984 $ 729 $ 395
Short-term.......................................... 48 35 13
--------- --------- -----
Investment income, before expense..................... 2,032 764 408
Investment expense.................................... 15 11 3
--------- --------- -----
Investment income, less investment expense............ $ 2,017 $ 753 $ 405
--------- --------- -----
--------- --------- -----
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES. Gross gains of $83 were realized on sales of
fixed income securities, during 1993. No gross gains or losses were realized on
such sales during 1994 and 1992.
SECURITIES ON DEPOSIT. At December 31, 1994, fixed income securities with a
carrying value of $7,986 were on deposit with regulatory authorities as required
by law.
7. STATUTORY FINANCIAL INFORMATION
The accompanying financial statements have been prepared on the basis of
generally accepted accounting principles which vary from statutory accounting
principles prescribed or permitted by regulatory authorities. The following
tables reconcile net income and shareholder's equity as reported herein in
F-10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
AND PERIOD FROM APRIL 1, 1992
(DATE OF ACQUISITION) TO DECEMBER 31, 1992
($ IN THOUSANDS)
7. STATUTORY FINANCIAL INFORMATION (CONTINUED)
conformity with generally accepted accounting principles with statutory net
income and statutory capital and surplus, determined in accordance with
principles prescribed or permitted by insurance regulatory authorities:
<TABLE>
<CAPTION>
NET INCOME
-------------------------------------
FOR THE FOR THE
YEAR ENDED PERIOD FROM
DECEMBER 31, APRIL 1, TO
-------------------- DECEMBER 31,
1994 1993 1992
--------- --------- ---------------
<S> <C> <C> <C>
Balance per generally accepted accounting principles...................... $ 1,294 $ 529 $ 212
Deferred income taxes................................................... 29 8 (9)
Fixed income securities................................................. (53) 27 26
Statutory income from January 1, 1992 to March 31, 1992................. 123
Non-admitted assets and statutory reserves.............................. 15 (47) 31
--------- --------- -----
Balance per statutory accounting practices................................ $ 1,285 $ 517 $ 383
--------- --------- -----
--------- --------- -----
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER'S EQUITY
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Balance per generally accepted accounting principles................................. $ 52,658 $ 13,175
Deferred income taxes.............................................................. (575) 530
Fixed income securities............................................................ 1,719 (1,179)
Non-admitted assets and statutory reserves......................................... (1,635) (1,831)
--------- ---------
Balance per statutory accounting practices........................................... $ 52,167 $ 10,695
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
AND PERIOD FROM APRIL 1, 1992
(DATE OF ACQUISITION) TO DECEMBER 31, 1992
($ IN THOUSANDS)
7. STATUTORY FINANCIAL INFORMATION (CONTINUED)
PERMITTED STATUTORY ACCOUNTING PRACTICES. Allstate and its life insurance
subsidiaries prepare their statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the insurance
department of the applicable state of domicile. Prescribed statutory accounting
practices include a variety of publications of the National Association of
Insurance Commissioners, as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed.
Allstate and its life insurance subsidiaries do not follow any permitted
statutory accounting practices that have a material effect on statutory surplus
or risk-based capital of any company individually or in the aggregate.
DIVIDENDS. The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant factors.
The payment of shareholder dividends by insurance companies without the prior
approval of the state insurance regulator is limited to formula amounts based on
net income and capital and surplus, determined in accordance with statutory
accounting principles, as well as the timing and amount of dividends paid in the
preceding twelve months. The maximum amount of dividends that the Company can
distribute during 1995 without prior approval of both the Illinois and
California Departments of Insurance is $5,217.
8. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value of all financial
assets other than fixed income securities and all liabilities other than
contractholder funds approximates their carrying value as they are short-term in
nature.
Fair values for fixed income securities are based on quoted market prices. The
December 31, 1994 and 1993 fair values and carrying values of fixed income
securities are discussed in Note 6.
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the fund balance less surrender charge. The fair value of immediate
annuities and annuities without life contingencies with fixed terms are
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and duration. Contractholder
funds on investment contracts had a carrying value of $696,854 at December 31,
1994 and a fair value of $670,930. The carrying value and fair value at December
31, 1993 were $154,799 and $151,595, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company has no significant commitments or contingencies at December 31,
1994.
F-12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV -- REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
- ---------------------------------------------------------------------------------------------------
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
Life insurance in force...................................................... $ 1,250 $ 1,250 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Contract charges........................................................... $ 409 $ 409 $ --
--------- --------- ---------
--------- --------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
- ---------------------------------------------------------------------------------------------------
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
Life insurance in force...................................................... $ 1,250 $ 1,250 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life....................................................................... $ 6 $ 6 $ --
Contract charges........................................................... 70 70 --
--------- --------- ---------
$ 76 $ 76 $ --
--------- --------- ---------
--------- --------- ---------
<CAPTION>
PERIOD FROM APRIL 1, 1992
(DATE OF ACQUISITION) TO DECEMBER 31, 1992
- ---------------------------------------------------------------------------------------------------
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
Life insurance in force...................................................... $ 1,250 $ 1,250 $ --
--------- --------- ---------
--------- --------- ---------
Premiums:
Life....................................................................... $ 3 $ 3 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIODS ENDED JUNE 30, 1995
F-14
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
JUNE 30,
(UNAUDITED) DECEMBER 31,
1995 1994
------------- -------------
($ IN THOUSANDS)
<S> <C> <C>
Assets
Investments
Fixed income securities:
Available for sale, at fair value (amortized cost $52,352 and
$51,527)............................................................... $ 55,764 $ 49,807
Short-term.............................................................. 1,922 924
------------- -------------
Total investments..................................................... 57,686 50,731
Reinsurance recoverable from Allstate Life Insurance Company................ 1,041,226 696,854
Net receivable from affiliates.............................................. 239 88
Other....................................................................... 2,215 4,007
------------- -------------
Total assets.......................................................... 1,101,366 751,680
------------- -------------
------------- -------------
Liabilities
Contractholder funds........................................................ $ 1,041,226 $ 696,854
Income taxes payable........................................................ 2,627 63
Other liabilities and accrued expenses...................................... 218 2,105
------------- -------------
Total liabilities..................................................... 1,044,071 699,022
------------- -------------
Shareholder's equity
Common stock, ($500 par, 42,000 shares authorized, issued and
outstanding)............................................................... 2,100 2,100
Additional capital paid-in.................................................. 49,641 49,641
Unrealized net capital gains (losses)....................................... 2,218 (1,118)
Retained income............................................................. 3,336 2,035
------------- -------------
Total shareholder's equity............................................ 57,295 52,658
------------- -------------
Total liabilities and shareholder's equity............................ $ 1,101,366 $ 751,680
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
F-15
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED)
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues
Investment income, less investment expense.......... 1,022 210 2,018 455
--------- --------- --------- ---------
Income before income taxes............................ 1,022 210 2,018 455
Income tax expense.................................... 363 78 717 167
--------- --------- --------- ---------
Net income............................................ $ 659 $ 132 $ 1,301 $ 288
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to financial statements.
F-16
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, (UNAUDITED)
--------------------
1995 1994
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 1,301 $ 288
Adjustments to reconcile net income to net cash from operating activities:
Amortization...................................................................... (19) 112
Change in deferred income taxes................................................... 25 15
Changes in other operating assets and liabilities................................. 497 (822)
--------- ---------
Net cash from operating activities.............................................. 1,804 (407)
--------- ---------
Cash flows from investing activities:
Fixed income securities available for sale:
Investment collections............................................................ 685 436
Investment purchases.............................................................. (1,491) (1,531)
Net change in short-term investments................................................ (998) 1,203
--------- ---------
Net cash from investing activities................................................ (1,804) 108
--------- ---------
Net (decrease) in cash................................................................ (0) (299)
Cash at beginning of period........................................................... 0 299
--------- ---------
Cash at end of period................................................................. $ (0) $ 0
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
F-17
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The Statement of Financial Position as of June 30, 1995, the Statements of
Income for the three-month and six-month periods ended June 30, 1995 and 1994,
and the Statements of Cash Flows for the six-month periods then ended are
unaudited. The interim financial statements reflect all adjustments (consisting
only of normal recurring accruals) which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
The financial statements should be read in conjunction with the financial
statements and notes thereto included in the Glenbrook Life and Annuity Company
1994 Financial Statements. The results of operations for the interim periods
should not be considered indicative of results to be expected for the full year.
2. TRANSACTIONS WITH AFFILIATES
Revenues ceded to Allstate Life Insurance Company consist of contract charges of
$806,254 and $120,219 for the six-month periods ended June 30, 1995 and 1994,
respectively. Benefits and expenses ceded to Allstate Life consist of paid
benefits, credited interest on reinsured contracts and operating expenses. These
benefits and expenses amounted to $29,889,515 and $8,907,705 for the six-month
periods ended June 30, 1995 and 1994, respectively.
F-18
<PAGE>
APPENDIX A
MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
<TABLE>
<S> <C> <C>
I = Treasury Rate for a maturity equal to the Account's Guarantee Period for the week preceding the
establishment of the Account
N = the number of whole and partial years from the date we receive the withdrawal or Death Benefit
request, or from the Payout Start Date to the end of the Account's Guarantee Period; and
J = the Treasury Rate for a maturity of length N for the week preceding the date we determine the
Market Value Adjustment. If a note with a maturity of length N is not available, a weighted
average will be used. If N is one year or less, J will be the 1-year Treasury Rate.
</TABLE>
The Market Value Adjustment factor is determined from the following formula:
.9 X (I-J) X N
Any amount withdrawn from the Account Value which is subject to a Market Value
Adjustment will be multiplied by the Market Value Adjustment factor to determine
the Market Value Adjustment.
ILLUSTRATION
EXAMPLE OF MARKET VALUE ADJUSTMENT
<TABLE>
<S> <C>
Purchase Payment: $10,000
Guarantee Period: 5 Years
Interest Rate: 5.50%
Full Withdrawal: End of Contract Year 3
</TABLE>
NOTE: THIS ILLUSTRATION ASSUMES THAT PREMIUM TAXES WERE NOT APPLICABLE.
EXAMPLE 1: (Assumes declining interest rates)
Step 1: Calculate Account Value at end of Contract Year 3:
= 10,000.00 X (1.055)3 = $11,742.41
Step 2: Calculate the Free Withdrawal Amount:
Free Withdrawal Amount:
= .10 X 10,000.00 = $1,000.00
Step 3: Calculate the Withdrawal Charge:
= .06 X (11,742.41 - 1,000) = $644.54
Step 4: Calculate the Market Value Adjustment:
I = 5.50%
J = 5.00%
N = 5 years - 3 years = 2 years
Market Value Adjustment factor: .9 X (I-J) X N
.9 X (.055 - .05) X 2 = .009
A-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
Market Value Adjustment = factor X amount subject to Market Value Adjustment:
= .009 X (11,742.41 - 1,000) = $96.68
Step 5: Calculate the actual amount received by customers as a result of a full withdrawal at
the end of Contract Year 3:
= 11,742.41 - 644.54 + 96.68 = $11,194.55
EXAMPLE 2: (Assumes rising interest rates)
Step 1: Calculate Account Value at end of Contract Year 3:
= 10,000.00 X (1.055)3 = $11,742.41
Step 2: Calculate the Free Withdrawal Amount:
Free Withdrawal Amount:
= .10 X 10,000.00 = $1,000.00
Step 3: Calculate the Withdrawal Charge:
= .06 X (11,742.41 - 1,000) = $664.54
Step 4: Calculate the Market Value Adjustment:
I = 5.50%
J = 6.00%
N = 5 years - 3 years = 2 years
Market Value Adjustment factor: .9 X (I-J) X N
= .9 X (.055 - .06) X (2) = -.009
Market Value Adjustment = factor X amount subject to Market Value Adjustment:
= -.009 (11,742.41 - 1,000) = - $96.68
Step 5: Calculate the net surrender value at end of Contract Year 3:
= 11,742.41 - 644.54 - 96.68 = $11,001.19
</TABLE>
A-2
