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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 MAY 1, 1996.
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THE CONTRACT 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............................................ 14
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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Qualified Plans....................................................... 17
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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............................................ 19
SELECTED FINANCIAL DATA.................................................. 20
Management's Discussion and Analysis of Financial Condition and
Results
of Operations........................................................ 20
General........................................................... 20
Results of Operations............................................. 20
Financial Position................................................ 21
Liquidity and Capital Resources................................... 21
COMPETITION.............................................................. 22
EMPLOYEES................................................................ 22
PROPERTIES............................................................... 22
STATE AND FEDERAL REGULATION............................................. 22
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY.......................... 23
EXECUTIVE COMPENSATION................................................... 25
LEGAL PROCEEDINGS........................................................ 25
EXPERTS.................................................................. 25
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 (increase only) 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:......................................... 5.70%
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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) 1.057
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$ 10,570.00
Account Value at end of Contract $ 10,570.00
year 1 X (1 + Effective Annual 1.057
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Rate) $ 11,172.49
Account Value at end of Contract $ 11,172.49
year 2 X (1 + Effective Annual 1.057
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Rate) $ 11,809.32
Account Value at end of Contract $ 11,809.32
year 3 X (1 + Effective Annual 1.057
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Rate) $ 12,482.45
Account Value at end of Contract $ 12,482.45
year 4 X (1 + Effective Annual 1.057
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Rate)
Account Value at end of Guarantee
Period: $ 13,193.95
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TOTAL INTEREST CREDITED IN GUARANTEE PERIOD: $3,193.95 ($13,193.95 - $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 or income plan
payment request, 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 6.34%. 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 5.84%, 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 6.84%, 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 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 BENEFIT 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 remaining 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.
The Company and Allstate Life entered into a reinsurance
agreement, effective June 5, 1992, under which the Company
reinsures all of its business with Allstate Life. Under the
reinsurance agreement, fixed annuity purchase payments are
automatically transferred to Allstate Life and become invested
with the assets of Allstate Life, and Allstate Life accepts 100%
of the liability under such contracts. However, the obligations
of Allstate Life under the terms of the reinsurance agreement are
to the Company; the Company remains the sole obligor under the
Contracts to the Owners. The Company reinsures substantially all
of its annuities 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.
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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.
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 and variable life 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.
</TABLE>
GLENBROOK LIFE AND ANNUITY COMPANY
SELECTED FINANCIAL DATA
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR-END FINANCIAL DATA 1995 1994 1993 1992(2)
- ----------------------------------------------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
For The Years Ended December 31:
Income Before Taxes................................ $ 4,455 $ 2,017 $ 836 $ 337
Net Income......................................... 2,879 1,294 529 212
As of December 31:
Total Assets (1)................................... 1,409,705 750,245 169,361 12,183
</TABLE>
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(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.
(2) For the period from April 1, 1992 (date of acquisition) to December 31,
1992.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<S> <C>
GENERAL The following highlights significant factors influencing results
of operations and financial position.
</TABLE>
<TABLE>
<S> <C>
Glenbrook Life and Annuity Company ("the Company"), which is
wholly owned by Allstate Life Insurance Company ("Allstate
Life"), currently issues flexible premium fixed annuities, and
beginning in 1995, flexible premium deferred variable annuity
contracts through its Separate Accounts. The Company markets its
products through banks and other financial institutions.
The Company reinsures all of its annuity deposits with Allstate
Life, and all life insurance in-force with other reinsurers.
Accordingly, the financial results reflected in the Company's
statements of operations relate only to the investment of those
assets of the Company that are not transferred to Allstate Life
or other reinsurers under the reinsurance treaties.
Separate Account assets and liabilities are legally segregated
and carried at fair value in the statements of financial
position. The Separate Account investment portfolios were
initially funded with a $10 million seed money contribution from
the Company in 1995. Investment income and realized gains and
losses of the Separate Account investments, other than the
portion related to the Company's participation, accrue directly
to the contractholders (net of fees) and, therefore, are not
included in the Company's statements of operations.
RESULTS OF
OPERATIONS
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<CAPTION>
1995 1994 1993
--------- --------- ---------
$ IN THOUSANDS
<S> <C> <C> <C> <C>
Net investment income....................... $ 3,996 $ 2,017 $ 753
--------- --------- ---------
Realized capital gains (losses), after
tax........................................ $ 298 $ -- $ 54
--------- --------- ---------
Net income.................................. $ 2,879 $ 1,294 $ 529
--------- --------- ---------
Fixed income securities, at amortized
cost....................................... $ 44,112 $ 51,527 $ 9,543
--------- --------- ---------
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Net investment income increased $2.0 million in 1995, and $1.3
million in 1994. In both years, the increases were attributable
to an increased level of investments, including the Company's
participation in the Separate Accounts during 1995, and a $40
million capital contribution received from Allstate Life in the
third quarter of 1994. Net income increases of $1.6 million and
$0.8 million reflect the change in net investment income in both
years.
Realized capital gains after tax of $0.3 million in 1995 were the
result of sales of investments to fund the Company's
participation in the Separate Accounts.
FINANCIAL POSITION
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------------- -----------
$ IN THOUSANDS
<S> <C> <C> <C>
Fixed income securities, at fair value............ $ 48,815 $ 49,807
------------- -----------
Unrealized net capital gains (losses) (1)......... $ 5,164 $ (1,720)
------------- -----------
Separate Account assets, at fair value............ $ 15,578 $ --
------------- -----------
Contractholder funds.............................. $ 1,340,925 $ 696,854
------------- -----------
Reinsurance recoverable from Allstate Life........ $ 1,340,925 $ 696,854
------------- -----------
</TABLE>
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(1) Unrealized net capital gains (losses) exclude the effect of deferred income
taxes.
<TABLE>
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Fixed income securities are classified as available for sale and
carried in the statements of financial position at fair value.
Although the Company generally intends to hold its fixed income
securities for the long-term, such classification affords the
Company flexibility in managing the portfolio in response to
changes in market conditions.
At December 31, 1995 unrealized capital gains were $5.2 million
compared to an unrealized capital loss of $1.7 million at
December 31, 1994. The significant change in the unrealized
capital gain/loss position is primarily attributable to declining
interest rates.
At December 31, 1995 both contractholder funds and amounts
recoverable from Allstate Life under reinsurance treaties reflect
an increase of $644 million. These increases result from sales of
the Company's single and flexible premium deferred annuities
partially offset by surrenders. Reinsurance recoverable from
Allstate Life relates to policy benefit obligations ceded to
Allstate Life.
The Company's participation in the Separate Accounts of $10.5
million at December 31, 1995 is included in the Separate Accounts
assets. Unrealized net capital gains arising from the Company's
participation in the Separate Accounts was $0.3 million, net of
tax, at December 31, 1995.
LIQUIDITY AND Allstate Life made a $40 million capital contribution to the
CAPITAL RESOURCES Company in the third quarter of 1994.
Under the terms of intercompany reinsurance agreements, assets of
the Company that relate to insurance in-force, excluding Separate
Account assets, are transferred to Allstate Life or other
reinsurers, who maintain the investment portfolios which support
the Company's products.
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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. The Company shares the same ratings of its
parent, Allstate Life Insurance Company.
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EMPLOYEES As of December 31, 1995, Glenbrook Life and Annuity Company has
approximately 43 employees at its home office in Northbrook,
Illinois.
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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.
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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, 50, 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; Chairman of the Board of Allstate Settlement
Corporation; Chairman of the Board and Chief Executive Officer of
Glenbrook Life Insurance Company, and Northbrook Life Insurance
Company; 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, 42, President, Chief Operating Officer and
Director (1995)*
She is also Vice President and Director of Allstate Life
Insurance Company; President, Chief Operating Officer and
Director 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.
PETER H. HECKMAN, 50, 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.
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23
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<TABLE>
<S> <C>
G. CRAIG WHITEHEAD, 50, 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, 40, 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.
JAMES P. ZILS, 44, Treasurer (1995)*
He is also Treasurer of Allstate Life Financial Services, Inc.,
Allstate Settlement Corporation, Allstate Life Insurance Company,
Allstate Life Insurance Company of New York, Northbrook Life
Insurance Company, Glenbrook Life Insurance Company, The
Northbrook Corporation. He is Treasurer and Vice President of AEI
Group, Inc., Allstate International Inc., Allstate Motor Club,
Inc., Direct Marketing Center, Inc., Enterprise Services
Corporation, The Allstate Foundation, Forestview Mortgage
Insurance Company, Allstate Indemnity Company, Allstate Property
and Casualty, Deerbrook Insurance Company, First Assurance
Company, Northbrook Indemnity Company, Northbrook National
Insurance Company, Northbrook Property and Casualty Insurance
Company. Prior to 1995 he was Vice President of Allstate Life
Insurance Company. Prior to 1993 he held various management
positions with Allstate.
CASEY J. SYLLA, 52, Chief Investment Officer (1995)*
He is also Director of Allstate Insurance Company, Allstate
Indemnity Company, Allstate Property and Casualty Insurance
Company, Deerbrook Insurance Company, First Assurance Company,
Northbrook Indemnity Company, Northbrook Life Insurance Company,
Northbrook National Insurance Company, Northbrook Property and
Casualty Insurance Company. He is also Chief Investment Officer
of Allstate Settlement Corporation, The Northbrook Corporation,
Allstate Insurance Company, Allstate Indemnity Company, Allstate
Property and Casualty, Deerbrook Insurance Company, First
Assurance Company, Northbrook Indemnity Company, Northbrook
National Insurance Company, Northbrook Property and Casualty
Insurance Company. Prior to 1995, he was Senior Vice President
and Executive Officer of Investments for Northwestern Mutual Life
Insurance Company.
* Date elected to current office.
----------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
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 1995.
The allocated cash compensation of all officers of the Company as
a group for services rendered in all capacities to the Company
during 1995 totalled $5,976.86. Directors of the Company receive
no compensation in addition to their compensation as employees of
the Company.
Shares of the Company and Allstate Life are not directly owned by
any director or officer of the Company. The percentage of shares
of The Allstate Corporation beneficially owned by any director,
and by all directors and officers of the Company as a group, does
not exceed one percent of the class outstanding.
</TABLE>
SUMMARY COMPENSATION TABLE
(ALLSTATE LIFE INSURANCE CO.)
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------------ --------------------------
----------------------------------- (G)
(A) (E) (F) SECURITIES (H) (I)
NAME AND OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
PRINCIPAL (B) (C) (D) COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR SALARY($) BONUS($) $ AWARD(S) SARS(#) ($) ($)
- ----------- --------- --------- --------- ------------- ----------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 416,000 $ 266,175 $ 17,044 $ 199,890 $ 131,997 $ 411,122 $ 5,250(1)
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)
Louis G.
Lower, II
Chief
Executive
Officer
and
Chairman
<FN>
- ------------------------------
(1) Amount received by Mr. Lower which represents the value allocated to his
account from employer contributions under the Profit Sharing Fund and to
its predecessor, 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, the financial statement schedule and
the financial statements from which the Selected Financial Data
included in this prospectus have been derived, 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 have been so
included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
----------------------------------------------------------------
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 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>
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 as of December 31, 1995 and 1994, and the related
Statements of Operations, Shareholder's Equity and Cash Flows for each of the
three years in the period ended December 31, 1995. Our audits also included
Schedule IV -- Reinsurance. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Glenbrook Life and Annuity Company as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 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 fixed income securities.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 1, 1996
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------- -----------
($ IN THOUSANDS)
<S> <C> <C>
Assets
Investments
Fixed income securities
Available for sale, at fair value (amortized cost $44,112 and $51,527).... $ 48,815 $ 49,807
Short-term.................................................................. 2,102 924
------------- -----------
Total investments....................................................... 50,917 50,731
Reinsurance recoverable from Allstate Life Insurance Company.................. 1,340,925 696,854
Cash.......................................................................... 264
Deferred income taxes......................................................... 542
Other assets.................................................................. 2,021 2,118
Separate Accounts............................................................. 15,578
------------- -----------
Total assets............................................................ $ 1,409,705 $ 750,245
------------- -----------
------------- -----------
Liabilities
Contractholder funds.......................................................... $ 1,340,925 $ 696,854
Income taxes payable.......................................................... 1,637 605
Deferred income taxes......................................................... 1,828
Net payable to Allstate Life Insurance Company................................ 255 128
Separate Accounts............................................................. 5,048
------------- -----------
Total liabilities....................................................... 1,349,693 697,587
------------- -----------
Shareholder's equity
Common stock ($500 par value, 4,200 shares authorized, issued, and
outstanding)................................................................. 2,100 2,100
Additional capital paid-in.................................................... 49,641 49,641
Unrealized net capital gains (losses)......................................... 3,357 (1,118)
Retained income............................................................... 4,914 2,035
------------- -----------
Total shareholder's equity.............................................. 60,012 52,658
------------- -----------
Total liabilities and shareholder's equity.............................. $ 1,409,705 $ 750,245
------------- -----------
------------- -----------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Net investment income..................................................... $ 3,996 $ 2,017 $ 753
Realized capital gains (losses)........................................... 459 83
--------- --------- ---------
Income before income taxes.................................................. 4,455 2,017 836
Income tax expense.......................................................... 1,576 723 307
--------- --------- ---------
Net income.................................................................. $ 2,879 $ 1,294 $ 529
--------- --------- ---------
--------- --------- ---------
</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, 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
Net income................................... 2,879 2,879
Change in unrealized net capital gains and
losses...................................... 4,475 4,475
----------- ----------- ------------- ----------- ---------
Balance, December 31, 1995..................... $ 2,100 $ 49,641 $ 3,357 $ 4,914 $ 60,012
----------- ----------- ------------- ----------- ---------
----------- ----------- ------------- ----------- ---------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
---------- ---------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income........................................................... $ 2,879 $ 1,294 $ 529
Adjustments to reconcile net income to net cash from operating
activities
Deferred income taxes.............................................. (39)
Realized capital gains............................................. (459) (83)
Changes in other operating assets and liabilities.................. 1,217 (180) 656
---------- ---------- ---------
Net cash from operating activities............................... 3,598 1,114 1,102
---------- ---------- ---------
Cash flows from investing activities
Fixed income securities available for sale
Proceeds from sales................................................ 7,836 3,015
Investment collections............................................. 1,568 649 969
Investment purchases............................................... (1,491) (42,729) (3,737)
Participation in Separate Account.................................... (10,069)
Change in short-term investments, net................................ (1,178) 667 (1,102)
---------- ---------- ---------
Net cash from investing activities............................... (3,334) (41,413) (855)
---------- ---------- ---------
Cash flows from financing activities
Capital contribution................................................. 40,000
---------- ---------- ---------
Net cash from financing activities............................... -- 40,000 --
---------- ---------- ---------
Net increase (decrease) in cash........................................ 264 (299) 247
Cash at beginning of year.............................................. -- 299 52
---------- ---------- ---------
Cash at end of year.................................................... $ 264 $ -- $ 299
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. ORGANIZATION AND NATURE OF OPERATIONS
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"). On June 30, 1995, Sears, Roebuck and Co.
("Sears") distributed its 80.3% ownership in the Corporation to Sears common
shareholders through a tax-free dividend (the "Distribution").
The Company develops and markets flexible premium deferred variable annuity
contracts and single and flexible premium deferred annuities to individuals
through banks and financial institutions in the United States.
Annuity contracts issued by the Company are subject to discretionary withdrawal
or surrender by the contractholder, subject to applicable surrender charges.
These contracts are reinsured with Allstate Life (Note 4) which selects assets
to meet the anticipated cash flow requirements of the assumed liabilities.
Allstate Life utilizes various modeling techniques in managing the relationship
between assets and liabilities and employs strategies to maintain investments
which are sufficiently liquid to meet obligations to contractholders in various
interest rate scenarios.
The Company monitors economic and regulatory developments which have the
potential to impact its business. Currently there is proposed legislation which
would permit banks greater participation in securities businesses, which could
eventually present an increased level of competition for sales of the Company's
annuity contracts. Furthermore, the federal government may enact changes which
could possibly eliminate the tax-advantaged nature of annuities or eliminate
consumers' need for tax deferral, thereby reducing the incentive for customers
to purchase the Company's products. While it is not possible to predict the
outcome of such issues with certainty, management evaluates the likelihood of
various outcomes and develops strategies, as appropriate, to respond to such
challenges.
Certain reclassifications have been made to the prior year financial statements
to conform to the presentation for the current year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual and group annuities
that include an investment component. Payments received are recorded as
interest-bearing liabilities. Contractholder funds are equal to deposits
received and interest accrued to the benefit of the contractholder less
withdrawals, mortality charges and administrative expenses. Credited interest
rates on contractholder funds ranged from 3.0% to 7.4% for those contracts with
fixed interest rates and from 4.25% to 7.9% for those with flexible rates during
1995.
SEPARATE ACCOUNTS
During 1995, the Company issued flexible premium deferred variable annuity
contracts, the assets and liabilities of which are legally segregated and
reflected in the accompanying statements of financial
F-6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
position as assets and liabilities of the Separate Accounts (Glenbrook Life and
Annuity Company Variable Annuity Account and Glenbrook Life and Annuity Company
Separate Account A) unit investment trusts registered with the Securities and
Exchange Commission. Assets of the Separate Accounts are invested in funds of
management investment companies. For certain variable annuity contracts, the
Company has entered into an exclusive distribution arrangement with
distributors.
The assets of the Separate Accounts are carried at fair value. Unrealized gains
and losses on the Company's participation in the Separate Account, net of
deferred income taxes, is shown as a component of shareholder's equity. The
Company's participation in the Separate Account, amounting to $10,530 at
December 31, 1995, is subject to certain withdrawal restrictions which are
dependent upon aggregate fund net asset values. In addition, limitations exist
with regard to the maximum amount which can be withdrawn by the Company within
any 30-day period.
Investment income and realized gains and losses of the Separate Accounts, other
than the portion related to the Company's participation, accrue directly to the
contractholders and, therefore, are not included in the accompanying statements
of operations. Revenues to the Company from the Separate Accounts consist of
contract maintenance fees, administrative fees and mortality and expense risk
charges, which are entirely ceded to Allstate Life.
REINSURANCE
Beginning June 5, 1992, the Company reinsures all new business to Allstate Life
(Note 4). Life insurance in force prior to that date is ceded to non-affiliated
reinsurers.
Contract charges and credited interest are ceded and reflected net of such
cessions in the statements of operations. Reinsurance recoverable and
contractholder funds are reported separately in the statements of financial
position.
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. Fixed
income securities 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. Such writedowns are included in realized capital gains and
losses.
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 estimated principal repayments. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
F-7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. ACCOUNTING CHANGE
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 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
REINSURANCE
Contract charges ceded to Allstate Life under reinsurance agreements were $1,523
and $409 in 1995 and 1994, respectively. Credited interest and expenses ceded to
Allstate Life amounted to $71,905 and $26,177 in 1995 and 1994, respectively.
Investment income earned on the assets which support contractholder funds is not
included in the Company's financial statements as those assets were transferred
to Allstate Life under the terms of reinsurance treaties. Reinsurance ceded
arrangements do not discharge the Company as the primary insurer.
BUSINESS OPERATIONS
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 on behalf of
the Company. The cost to the Company is determined by various allocation methods
and is primarily related to the level of services provided. Operating expenses,
including compensation and retirement and other benefit programs, allocated to
the Company were $348, $271 and $59 in 1995, 1994 and 1993, respectively.
Investment-related expenses are retained by the Company. All other costs are
assumed by Allstate Life under reinsurance treaties.
LAUGHLIN GROUP
Laughlin Group, Inc. ("Laughlin"), a wholly-owned subsidiary of Laughlin Group
Holdings Inc., a wholly-owned subsidiary of Allstate Life which was acquired in
September 1995, is a third-party marketer which distributes the products of
insurance carriers including the Company. Laughlin markets the Company's
flexible premium deferred variable annuity contracts and flexible premium
deferred annuities. Sales commissions paid to Laughlin subsequent to the
acquisition date of $3,439 were ceded to Allstate Life.
F-8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
5. INCOME TAXES
Allstate Life and its life insurance subsidiaries, including the Company, will
file a consolidated federal income tax return. Tax liabilities and benefits
realized by the consolidated group are allocated as generated by the respective
subsidiaries, whether or not such benefits generated by the subsidiaries would
be available on a separate return basis. The Corporation and its domestic
subsidiaries including the Company (the "Allstate Group"), will be eligible to
file a consolidated tax return beginning in the year 2000.
Prior to the Distribution, the Allstate Group joined 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 were parties to a federal income
tax allocation agreement (the "Tax Sharing Agreement"). As a member of the Sears
Tax Group, the Corporation was jointly and severally liable for the consolidated
income tax liability of the Sears Tax Group. Under the Tax Sharing Agreement,
the Company, through the Corporation, paid to or received from the Sears Group
the amount, if any, by which the Sears Tax Group's federal income tax liability
was affected by virtue of inclusion of the Allstate Group in the consolidated
federal income tax return. Effectively, this resulted 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 or similar items
which might not be immediately recognizable in a separate return, were allocated
according to the Tax Sharing Agreement and reflected in the Company's provision
to the extent that such items reduced the Sears Tax Group's federal tax
liability.
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 Company's federal income tax liability and
taxes payable to or recoverable from the Sears Group.
The components of the deferred income tax assets and liabilities at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Unrealized net capital losses on fixed income securities................................. $ -- $ 602
Other.................................................................................... 4
--------- ---------
Total deferred assets.................................................................. -- 606
--------- ---------
--------- ---------
Unrealized net capital gains on fixed income securities.................................. $ (1,807)
Difference in tax bases of investments................................................... (21)
Other.................................................................................... (64)
--------- ---------
Total deferred liabilities............................................................. (1,828) (64)
--------- ---------
Net deferred (liability) asset......................................................... $ (1,828) $ 542
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
5. INCOME TAXES (CONTINUED)
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current..................................................................... $ 1,615 $ 652 $ 290
Deferred.................................................................... (39) 71 17
--------- --------- ---------
Income tax expense........................................................ $ 1,576 $ 723 $ 307
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company paid income taxes of $874, $57 and $290 in 1995, 1994 and 1993,
respectively, under the Tax Sharing Agreement. The Company had income taxes
payable to Allstate Life of $1,637 and $605 at December 31, 1995 and 1994,
respectively.
6. INVESTMENTS
FAIR VALUES
The amortized cost, fair value and gross unrealized gains and losses for fixed
income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED -------------------- FAIR
COST GAINS LOSSES VALUE
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1995
U.S. government and agencies................................... $ 24,722 $ 3,470 -- $ 28,192
Corporate...................................................... 1,304 120 1,424
Mortgage-backed securities..................................... 18,086 1,113 19,199
----------- --------- --------- ---------
Totals....................................................... $ 44,112 $ 4,703 -- $ 48,815
----------- --------- --------- ---------
----------- --------- --------- ---------
AT DECEMBER 31, 1994
U.S. government and agencies................................... $ 31,005 $ 30 $ 1,126 $ 29,909
Mortgage-backed securities..................................... 20,522 624 19,898
----------- --------- --------- ---------
Total........................................................ $ 51,527 $ 30 $ 1,750 $ 49,807
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities of fixed income securities available for sale at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- ---------
<S> <C> <C>
Due in one year or less............................................................. $ 398 $ 403
Due after one year through five years...............................................
Due after five years through ten years.............................................. 15,883 17,681
Due after ten years................................................................. 9,745 11,532
----------- ---------
26,026 29,616
Mortgage-backed securities.......................................................... 18,086 19,199
----------- ---------
Total............................................................................. $ 44,112 $ 48,815
----------- ---------
----------- ---------
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
F-10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
6. INVESTMENTS (CONTINUED)
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital gains and losses on fixed income securities and the
Company's participation in the Separate Account included in shareholder's equity
at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED FAIR NET GAINS/
COST VALUE (LOSSES)
----------- --------- -----------
<S> <C> <C> <C>
Fixed income securities................................................. $ 44,112 $ 48,815 $ 4,703
Participation in Separate Account....................................... 10,069 10,530 461
Deferred income taxes................................................... (1,807)
-----------
Total................................................................. $ 3,357
-----------
-----------
</TABLE>
The change in unrealized net capital gains and losses for fixed income
securities and the Company's participation in the Separate Account is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Fixed income securities.................................................... $ 6,423 $ (2,786) $ 1,076
Participation in Separate Account in 1995.................................. 461
Deferred income taxes...................................................... (2,409) 975 (373)
--------- --------- ---------
Change in unrealized net capital gains and losses.......................... $ 4,475 $ (1,811) $ 703
--------- --------- ---------
--------- --------- ---------
</TABLE>
COMPONENTS OF NET INVESTMENT INCOME
Investment income by investment type is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Investment income:
Fixed income securities...................................................... $ 3,850 $ 1,984 $ 729
Short-term................................................................... 113 48 35
Participation in Separate Account in 1995.................................... 69
--------- --------- ---------
Investment income, before expense.............................................. 4,032 2,032 764
Investment expense............................................................. 36 15 11
--------- --------- ---------
Net investment income.......................................................... $ 3,996 $ 2,017 $ 753
--------- --------- ---------
--------- --------- ---------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES
Realized capital gains on investments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Fixed income securities............................................................................. $459 $-- $83
Income tax.......................................................................................... 161 29
---- ---- ----
Net realized gains.................................................................................. $298 $-- $54
---- ---- ----
---- ---- ----
</TABLE>
F-11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
6. INVESTMENTS (CONTINUED)
PROCEEDS FROM SALES OF FIXED INCOME SECURITIES
The proceeds from sales of investments in fixed income securities, excluding
calls, were $7,836 and $3,015, with related gross realized gains of $459 and $22
for 1995 and 1993, respectively. There were no such amounts realized in 1994.
SECURITIES ON DEPOSIT
At December 31, 1995, fixed income securities with a carrying value of $10,085
were on deposit with regulatory authorities as required by law.
7. 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, 1995 and 1994 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 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
$1,340,925 at December 31, 1995 and a fair value of $1,282,248. The carrying
value and fair value at December 31, 1994 were $696,854 and $670,930,
respectively.
F-12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
8. STATUTORY FINANCIAL INFORMATION
The following tables reconcile net income and shareholder's equity as reported
herein in conformity with generally accepted accounting principles with
statutory net income and capital and surplus, determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities:
<TABLE>
<CAPTION>
NET INCOME
YEAR ENDED
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Balance per generally accepted accounting principles...................... $ 2,879 $ 1,294 $ 529
Income taxes............................................................ (164) 29 8
Interest maintenance reserve............................................ (53) 27
Non-admitted assets and statutory reserves.............................. (46) 15 (47)
--------- --------- ---------
Balance per statutory accounting practices................................ $ 2,669 $ 1,285 $ 517
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER'S
EQUITY
DECEMBER 31,
----------------
1995 1994
------- -------
<S> <C> <C>
Balance per generally accepted accounting principles............................ $60,012 $52,658
Income taxes.................................................................. 698 (575)
Unrealized net capital gains (losses)......................................... (4,703) 1,719
Non-admitted assets and statutory reserves.................................... (1,702) (1,635)
------- -------
Balance per statutory accounting practices...................................... $54,305 $52,167
------- -------
------- -------
</TABLE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares their statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the insurance
department of the State of Illinois. 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. The Company does not follow any permitted statutory
accounting practices that have a material effect on statutory surplus or
risk-based capital.
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
practices, 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 1996 without prior approval of both the Illinois and California
Departments of Insurance is $5,220.
F-13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Life insurance in force...................................................... $ 1,250 $ 1,250 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life and annuities......................................................... $ 6,571 $ 6,571 $ --
--------- --------- ---------
--------- --------- ---------
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Life insurance in force...................................................... $ 1,250 $ 1,250 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life and annuities......................................................... $ 409 $ 409 $ --
--------- --------- ---------
--------- --------- ---------
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Life insurance in force...................................................... $ 1,250 $ 1,250 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life....................................................................... 6 6 --
Contract charges........................................................... 70 70 --
--------- --------- ---------
$ 76 $ 76 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<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
Guaranteed
Interest Rate: 5.70%
5-Year Treasury
Rate at the time
the Sub-Account
is established: 6.34%
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 (1.057)3 = $11,809.32
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 (11,809.32 - 1,000) = $648.56
Step 4: Calculate the Market Value Adjustment:
I = 6.34%
J = 5.84%
N = 5 years - 3 years = 2 years
A-1
<PAGE>
<TABLE>
<S> <C> <C> <C>
Market Value Adjustment factor: .9 X (I-J) X N
.9 X (.0634 - .0584) X 2 = .009
Market Value Adjustment = factor X amount subject to Market Value Adjustment:
= .009 X (11,809.32 - 1,000) = $97.28
Step 5: Calculate the actual amount received by customers as a result of a full withdrawal at
the end of Contract Year 3:
= 11,809.32 - 648.56 + 97.28 = $11,258.04
EXAMPLE 2: (Assumes rising interest rates)
Step 1: Calculate Account Value at end of Contract Year 3:
= 10,000.00 X (1.057)3 = $11,809.32
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 (11,809.32 - 1,000) = $648.56
Step 4: Calculate the Market Value Adjustment:
I = 6.34%
J = 6.84%
N = 5 years - 3 years = 2 years
Market Value Adjustment factor: .9 X (I-J) X N
= .9 X (.0634 - .0684) X 2 = -.009
Market Value Adjustment = factor X amount subject to Market Value Adjustment:
= -.009 (11,809.32 - 1,000) = - $97.28
Step 5: Calculate the net surrender value at end of Contract Year 3:
= 11,809.32 - 648.56 - 97.28 = $11,063.48
</TABLE>
A-2
