[Federal Register Volume 60, Number 216 (Wednesday, November 8, 1995)]
[Notices]
[Pages 56381-56384]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27652]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21469; File No. 812-9664]


Glenbrook Life and Annuity Company, et al.

November 2, 1995.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1940 (the ``1940 Act'').

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APPLICANTS: Glenbrook Life and Annuity Company (``Glenbrook'' or the 
``Company''), Glenbrook Life and Annuity Company Separate Account A 
(the ``Variable Account''), and Allstate Life Financial Services, Inc. 
(``Allstate'').

RELEVANT 1940 ACT SECTIONS: Order requested under Section 6(c) of the 
1940 Act granting exemptions from the provisions of Sections 26(a)(2(C) 
and 27(c)(2) of the 1940 Act.

SUMMARY OF APPLICATION: Applicants seek an order permitting the 
deduction of a mortality and expensive risk charge from the assets of 
the Variable Account and other separate accounts established by 
Glenbrook in the future (``Other Separate Accounts'') in connection 
with the issuance and sale of certain deferred variable annuity 
contracts (``Contracts'') and/or any contracts that are similar in all 
material respects to the Contracts (``Other Contracts''). Applicants 
also respect that the exemptive relief extend to certain other broker-
dealers which may serve in the future as a principal underwriter of the 
Contracts or Other Contracts (``Future Underwriters'').

FILING DATE: The application was filed on July 13, 1995, and amended on 
October 16, 1995.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Secretary of the 
Commission and serving Applicants with a copy of the request, 
personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on November 27, 1995, and should be accompanied 
by proof of service on Applicants in the form of a affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the requester's interest, the reason for the request, and the 
issues contested. Persons may request notification of a hearing by 
writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicants, David E. Stone, Esq., Glenbrook Life and Annuity 
Company, 3100 Sanders Road, Northbrook, Illinois 20062.

FOR FURTHER INFORMATION CONTACT:
Mark C. Amorosi, Attorney, or Patrice M. Pitts, Special Counsel, Office 
of Insurance Products (Division of Investment Management), or (202) 
942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application; 
the complete application is available for a fee from the Public 
Reference Branch of the Commission. 

[[Page 56382]]


Applicant's Representations

    1. Glenbrook, incorporated as a stock life insurance company is 
1992, is organized under the laws of Illinois. The Company is a wholly-
owned subsidiary of Allstate Life Insurance Company, which is a wholly-
owned subsidiary of Allstate Insurance Company. Glenbrook sells 
individual and group annuities and life insurance.
    2. The Variable Account was established by Glenbrook as a 
segregated investment account pursuant to a resolution of the Board of 
Directors, and serves as a funding medium for variable annuity 
contracts issued through the Variable Account. The Variable Account is 
divided into sub-accounts, each of which invests solely in shares of a 
registered open-end management investment company (the ``Fund'').
    3. Allstate, a wholly-owned subsidiary of Allstate Life Insurance 
Company, will serve as the principal underwriter for the Contracts. 
Allstate is registered as a broker-dealer under the Securities Exchange 
Act of 1934 and is a member of the National Association of Securities 
Dealers, Inc.
    4. The Contracts are individual and group flexible premium deferred 
annuity contracts which may be sold on a non-tax qualified basis 
(``Non-Qualified Contracts'') or offered in connection with retirement 
plans which qualify for favorable federal income tax treatment 
(``Qualified Contracts'').\1\ The Contracts provide for, among other 
things: (a) minimum initial purchase payments of $5,000 ($2,000 in the 
case of Qualified Contracts) and minimum subsequent purchase payments 
of $500; (b) several annuity payment options beginning on the payout 
start date; and (c) if the annuitant dies during the accumulation 
phase, the payment of a death benefit equal to the greatest of (1) the 
Contract value on the date the Company receives a complete request for 
payment of the death benefit, (2) the amount that would have been 
payable in the event of a full withdrawal of the Contract value on the 
date the Company receives a complete request for payment of the death 
benefit, or (3) the Contract value on the death benefit anniversary 
immediately preceding the date the Company determines the death benefit 
adjusted by any purchase payments, withdrawals and charges made between 
such death benefit anniversary and the date the Company determines the 
death benefit. The death benefit anniversary is every seventh Contract 
anniversary beginning with the issue date.

    \1\ Applicants state that a registration statement on Form N-4 
was filed with the Commission to register the investment interest in 
the Contracts with the SEC (File No. 33-62203).
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    5. Applicants state that, upon purchase of the Contract, the 
Contract owner can also select one of the following death benefit 
options: (a) the greatest of the anniversary values as of the date 
Glenbrook determines that the death benefit (where the anniversary 
value, which is calculated each Contract anniversary prior to the 
deceased's attained age 75 or 5 years after the date the Contract was 
issued, if later, is equal to the Contract value on a Contract 
anniversary, increased by purchase payments made since that anniversary 
and reduced by the amount of any partial withdrawals since that 
anniversary); or (b) total purchase payments minus the sum of all 
partial withdrawals (where each purchase payment and each partial 
withdrawal accumulates daily at a rate equivalent to 5% per year until 
the first day of the month following the deceased's 75th birthday or 5 
years after the date the Contract was issued, if later).
    6. Various fees and charges are deducted under the Contracts. An 
annual contract maintenance fee of $35 will be deducted from Contract 
value to reimburse Glenbrook for certain administrative expenses 
incurred in maintaining each Contract and the Variable Account. A daily 
asset-based administrative expense charge equal to an effective annual 
rate of 0.10% of the daily net assets in the Variable Account will be 
deducted to cover actual administrative expenses which exceed the 
revenues from the contract maintenance charge. These administrative 
fees are guaranteed not to increase for the duration of the Contract. 
Applicants state that the Company does not intend to profit from either 
of these charges.
    7. Applicants state that the Company intends to deduct premium 
taxes either (a) at the payout start date, or (b) when a total 
withdrawal occurs. Glenbrook reserves the right to deduct such taxes 
when incurred. Premium taxes currently range from 0% to 3.5%.
    8. Certain full or partial surrenders will be subject to a 
contingent deferred sales charge (``Withdrawal Charge'') during the 
first sic Contract years as follows:

------------------------------------------------------------------------
                                                              Applicable
     No. of complete years since purchase payment being       withdrawal
                     withdrawn was made                         charge  
                                                              percentage
------------------------------------------------------------------------
0 years....................................................            6
1 years....................................................            6
2 years....................................................            5
3 years....................................................            5
4 years....................................................            4
5 years....................................................            4
6 years....................................................            3
7 years or more............................................            0
------------------------------------------------------------------------

For purposes of calculating the Withdrawal Charge, withdrawals are 
deemed to come from purchase payments first, beginning with the oldest 
purchase payment. Withdrawals made after all purchase payments have 
been withdrawn will not be subject to a Withdrawal Charge. In any 
Contract year, a Contract owner may withdraw 10% of the Contract value 
as of the date of the first withdrawal in the Contract year without 
incurring a Withdrawal Charge.
    9. Proceeds from the Withdrawal Charge will be used to pay sales 
commissions and other promotional or distribution expenses associated 
with the marketing of the Contracts. Applicants state that the 
Withdrawal Charge may be insufficient to cover all costs relating to 
the distribution of the Contracts. To the extent that the Withdrawal 
Charge is insufficient to cover all distribution expenses, the 
deficiency will be met from Glenbrook's general account, which may 
include profits derived from the mortality and expense risk charge.
    10. Applicants state that Glenbrook will assess a $10 charge on 
each transfer or other reallocation of Contract value among the sub-
accounts in excess of 12 per Contract year.
    11. Applicants state that shares of the Fund are sold to the 
Variable Account at net asset value. The Fund will impose certain 
expenses, such as an investment advisory fee, which Contract owners 
will bear indirectly.
    12. A daily charge equal to an effective annual rate of 1.35% of 
the assets in the Variable Account will be deducted to compensate 
Glenbrook for bearing certain mortality and expense risks under the 
Contracts. Of that amount, approximately 0.95% is for mortality risks 
(0.85% for the standard death benefit and 0.10% for the enhanced death 
benefit) and approximately 0.40% is for the expense risk. The mortality 
risk arises from Glenbrook's guarantee to cover all death benefits and 
to make income payments in accordance with the annuity tables contained 
in the Contracts, thereby relieving the annuitants of the risk of 
outliving funds accumulated for retirement. The expense risk assumed by 
Glenbrook is the risk that its actual administrative costs will exceed 
the amount recovered through the 

[[Page 56383]]
administrative expense and contract maintenance charges. Applicants 
guarantee that the level of this charge will not increase for the 
duration of the Contract. If the mortality and expense risk charge is 
insufficient to cover the actual mortality costs and excess expenses, 
Glenbrook will bear the loss.

Applicant's Legal Analysis

    1. Section 6(c) of the 1940 Act authorizes the Commission to grant 
an exemption from any provision, rule or regulation of the 1940 Act to 
the extent that it is necessary or appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act. Sections 
26(a)(2)(C) and 27(c)(2) of the 1940 Act, in relevant part, prohibit a 
registered unit investment trust, its depositor or principal 
underwriter, from selling periodic payment plan certificates unless the 
proceeds of all payments, other than sales loads, are deposited with a 
qualified bank and held under arrangements which prohibit any payment 
to the depositor or principal underwriter except a reasonable fee, as 
the Commission may prescribe, for performing bookkeeping and other 
administrative duties normally performed by the bank itself.
    2. Applicants request exemptions from Sections 26(a)(2)(C) and 
27(c)(2) of the 1940 Act to the extent necessary to permit the 
deduction of a 1.35% charge from the assets of the Variable Account to 
compensate Glenbrook for the assumption of mortality and expense risks 
under the Contracts. Applicants also request that such exemptive relief 
extend to any Other Contracts which may be issued in the future by the 
Variable Account or any Other Separate Account established by the 
Company. Applicants further request that the exemptive relief extend to 
Future Underwriters, certain other broker-dealers which may serve in 
the future as a principal underwriter of the Contracts or Other 
Contracts. Applicants assert that the requested exemptions are 
necessary and appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the 1940 Act.
    3. Glenbrook represents that the 1.25% mortality and expense risk 
charge (excluding the 0.10% risk charge for the enhanced death benefit) 
is reasonable in relation to the risks assumed by the Company under the 
Contracts and reasonable in amount as determined by industry practice 
with respect to comparable annuity products. Applicants state that 
these representations are based upon Glenbrook's analysis of publicly 
available information about comparable industry products, taking into 
consideration such factors as current charge levels and benefits 
provided, the existence of expense charge guarantees and guaranteed 
annuity rates. Glenbrook represents that it will maintain at its home 
office, a memorandum, available to the Commission, setting forth in 
detail the products analyzed in the course of, and the methodology and 
results of, its comparative review.
    4. Applicants represent that the mortality risk charge of 0.10% for 
the enhanced death benefit is reasonable in relation to the risks 
assumed by the Company under the Contracts. Applicants state that in 
making this determination, Glenbrook conducted a large number of trials 
at various issue ages to determine the expected cost of the enhanced 
death benefit. Hypothetical asset returns were projected using 
generally accepted actuarial simulation methods. For each asset return 
pattern generated, hypothetical accumulated values were calculated by 
applying the projected asset returns to the initial value in a 
hypothetical account. Each accumulated value so calculated was then 
compared to the amount of the enhanced death benefit payable in the 
event of the hypothetical owner's death during the year in question. By 
analyzing the results of several such simulations, Applicants state 
that Glenbrook was able to determine actuarially the level cost of 
providing the enhanced death benefit. Based on this analysis, Glenbrook 
determined that a 0.10% mortality risk charge was reasonable for 
providing the enhanced death benefit. Glenbrook represents that the 
basis for this determination will be set forth in a memorandum which 
will be maintained at its home office and will be available to the 
Commission upon request.
    5. Prior to issuing any Other Contracts, Applicants will determine 
that the aggregate mortality and expense risk charge under any Other 
Contracts is reasonable in relation to the risks assumed by Glenbrook 
and/or reasonable in amount as determined by industry practice with 
respect to comparable annuity products. Applicants represent that the 
basis for this conclusion will be set forth in a memorandum which will 
be maintained at Glenbrook's home office and will be available to the 
Commission upon request.
    6. Applicants state that, if a profit is realized from the 
mortality and expense risk charge, all or a portion of such profit may 
be available to pay distribution expenses not reimbursed by the 
Withdrawal Charge. The Company represents that there is a reasonable 
likelihood that the proposed distribution financing arrangements under 
the Contracts will benefit the Variable Account and Contract owners. 
Glenbrook represents that the basis for that conclusion is set forth in 
a memorandum which will be maintained at its home office and will be 
available to the Commission upon request.
    7. Prior to issuing any Other Contracts, Applicants will determine 
that there is a reasonable likelihood that the proposed distribution 
financing arrangement under any Other Contracts will benefit the 
Variable Account or any Other Separate Account and Other Contract 
owners. Glenbrook represents that the basis for this conclusion will be 
set forth in a memorandum which will be maintained at its home office 
and will be available to the Commission upon request.
    8. Applicants assert that the terms of the future relief request 
with respect to Other Separate Accounts, Other Contracts and Future 
Underwriters are consistent with the standards set forth in Section 
6(c) of the 1940 Act. Applicants submit that, if Glenbrook were to seek 
exemptive relief repeatedly with respect to the issues addressed in 
this application, investors would not receive additional protection or 
benefit. Applicants assert that the requested relief will promote 
competitiveness in the variable annuity market by eliminating the need 
for the filing of redundant exemptive applications, thereby reducing 
administrative expenses and maximizing efficient use of resources. 
Applicants represent that both the delay and the expense of repeatedly 
seeking exemptive relief would impair the Company's ability to 
effectively take advantage of business opportunities as they arise.
    9. Glenbrook also represents that the Variable Account or any Other 
Separate Accounts will invest only in management investment companies 
which undertake, in the event they should adopt a plan under Rule 12b-1 
of the 1940 Act to finance distribution expenses, to have a board of 
directors or trustees, a majority of whom are not ``interested 
persons'' of the company within the meaning of Section 2(a)(19) of the 
1940 Act, formulate and approve any such plan.

Conclusion

    For the reasons set forth above, Applicants represent that the 
exemptions requested are necessary and appropriate in the public 
interest and consistent with the protection of 

[[Page 56384]]
investors and the purposes fairly intended by the policy and provisions 
of the 1940 Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27652 Filed 11-7-95; 8:45 am]
BILLING CODE 8010-01-M