<Page>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

Registrant meets the conditions set forth in General Instruction I (1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.

                /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                                       OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       OR

              / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                                       OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER: 333-88870

                       GLENBROOK LIFE AND ANNUITY COMPANY
             (Exact name of registrant as specified in its charter)

              ARIZONA                                   35-1113325
     (State of Incorporation)               (I.R.S. Employer Identification No.)

         3100 SANDERS ROAD
        NORTHBROOK, ILLINOIS                              60062
(Address of principal executive offices)               (zip code)

Registrant's telephone number, including area code: 847-402-5000

Securities registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes /X/  No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes / / No /X/

None of the common equity of the registrant is held by non-affiliates.
Therefore, the aggregate market value of common equity held by non-affiliates of
the registrant is zero.

<Page>

As of March 15, 2004, the registrant had 5,000 common shares, $500 par value,
outstanding, all of which are held by Allstate Life Insurance Company.

Part III of this Form 10-K incorporates by reference certain information from
The Allstate Corporation's Notice of Annual Meeting and Proxy Statement dated
March 26, 2004, SEC File Number 1-11840.

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                        PAGE
                                                                                                        ----
PART I
<S>         <C>                                                                                          <C>
Item 1.     Business *                                                                                     2
Item 2.     Properties *                                                                                   3
Item 3.     Legal Proceedings                                                                              3
Item 4.     Submission of Matters to a Vote of Security Holders **                                       N/A
PART II
Item 5.     Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
            Purchases of Equity Securities                                                                 3
Item 6.     Selected Financial Data **                                                                   N/A
Item 7.     Management's Discussion and Analysis of Financial Condition and Results of
            Operations                                                                                     3
Item 7A.    Quantitative and Qualitative Disclosures about Market Risk                                    16
Item 8.     Financial Statements and Supplementary Data                                                   17
Item 9.     Change in and Disagreements with Accountants on Accounting and Financial Disclosure           34
Item 9A.    Controls and Procedures                                                                       34
PART III
Item 10.    Directors and Executive Officers of the Registrant **                                        N/A
Item 11.    Executive Compensation **                                                                    N/A
Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related
            Stockholder Matters**                                                                        N/A
Item 13.    Certain Relationships and Related Transactions **                                            N/A
Item 14     Principal Accountant Fees and Services                                                        34
PART IV
Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K                              35
            Signatures                                                                                    37
            Supplemental Information to be Furnished With Reports Filed Pursuant to Section
            15(d) of the Securities Exchange Act of 1934 by Registrants Which Have Not
            Registered Securities Pursuant to Section 12 of the Securities Exchange Act of 1934           38
            Financial Statement Schedules                                                                S-1
</Table>

            * Item prepared in accordance with General Instruction I(2) of Form
              10-K
            ** Omitted pursuant to General Instruction I(2) of Form 10-K

<Page>

PART I

ITEM 1. BUSINESS

     Glenbrook Life and Annuity Company ("Glenbrook Life", "we", "our" or "us"),
a single segment entity, was incorporated under the laws of the State of Indiana
in 1965 and redomesticated to Arizona in 1998. Glenbrook Life, acquired in 1992,
is a wholly owned subsidiary of Allstate Life Insurance Company ("ALIC"), a
wholly owned subsidiary of Allstate Insurance Company, a stock
property-liability insurance company organized under the laws of the State of
Illinois. All of the outstanding capital stock of Allstate Insurance Company is
owned by The Allstate Corporation (the "Corporation"), a publicly owned holding
company incorporated under the laws of the State of Delaware. The Corporation is
the largest publicly held personal lines insurer in the United States. Widely
known through the "You're In Good Hands With Allstate(R)" slogan, the
Corporation provides insurance products to more than 16 million households and
has approximately 12,900 exclusive agencies and exclusive financial specialists
in the United States and Canada. The Corporation is the second-largest personal
property and casualty insurer in the United States on the basis of 2002
statutory premiums earned and the nation's 13th-largest life insurance business
on the basis of 2002 ordinary life insurance in force and 19th on the basis of
2002 statutory admitted assets.

     We are authorized to sell life insurance, savings and retirement products
in all states except New York, as well as in the District of Columbia and Puerto
Rico.

     Our mission is to assist financial services professionals in meeting their
clients' financial protection, savings and retirement needs by providing
top-tier products delivered with reliable and efficient service. Our product
line includes a wide variety of financial protection, savings and retirement
products aimed at serving the financial needs of our customers. Products include
interest-sensitive life, variable life and both variable and fixed annuities.
Products are sold through a variety of distribution channels including financial
institutions and broker/dealers.

     Under our reinsurance agreements with ALIC, we reinsure substantially all
general account liabilities to ALIC via a 100% coinsurance agreement. Assets
which support these liabilities are owned and managed by ALIC. Under the
coinsurance agreement, contract charges, interest credited to contractholder
funds, contract benefits and certain expenses under all general account
contracts are reinsured with ALIC. Separate accounts liabilities related to
variable annuity and life contracts are ceded to ALIC via a 100% modified
coinsurance agreement whereby assets are maintained in our legally segregated
unitized separate accounts. Contract charges assessed against the separate
accounts assets and contract benefits are reinsured to ALIC. The obligations of
ALIC under the reinsurance agreements are to us. We continue to have primary
liability as the direct insurer for risks reinsured.

     The assets and liabilities relating to variable annuities and variable life
products are legally segregated and reflected as assets and liabilities of the
separate accounts in the financial statements. Assets of the separate accounts
are only available for the benefit of the holders of these products and are not
available to other creditors or policyholders with a claim solely against our
general account assets. Absent any contract provision specifying either a
guaranteed minimum return or account value upon death or annuitization, variable
annuity and variable life contractholders bear the investment risk that the
underlying mutual funds of the separate accounts may not meet their stated
investment objectives. The assets and liabilities relating to variable products
issued with fixed fund options are divided between the applicable separate
accounts for the variable portion of the product and the general account for the
fixed portion of the product.

     The assets and liabilities relating to the other (non-variable) life
insurance and annuity products are reflected in our general account.

       With regard to our personal life insurance, savings and retirement
products, we compete principally on the basis of the scope of our distribution
systems, the breadth of our product offerings, our financial strength and
ratings as well as those of ALIC, our product features and prices, and the level
of customer service that we provide. In addition, with respect to variable life
and variable annuity products, we compete on the basis of the variety of
providers and choices of funds for our separate accounts and the management and
performance of those funds within our separate accounts.

     The market for these products continues to be highly fragmented and
competitive. As of December 31, 2002, there were approximately 780 groups of
life insurance companies in the United States, most of which offered one or more
products similar to our personal life insurance, savings and retirement
products. In some states, we

                                        2
<Page>

compete with banks and savings and loan associations in the sale of life
insurance products. In addition, because many of our personal life insurance,
savings and retirement products include a savings or investment component, our
competition includes securities firms, investment advisors, mutual funds, banks
and other financial institutions. Competitive pressure is growing due to several
factors, including cross marketing alliances between unaffiliated businesses and
demutualization and consolidation activity in the financial services industry.

     Glenbrook Life is subject to extensive regulation. In the U.S. the method,
extent and substance of such regulation varies by state but generally has its
source in statutes that delegate regulatory authority to a state regulatory
agency and define standards of conduct. In general, such regulation is intended
for the protection of insurance policyholders rather than security holders.
These rules have a substantial effect on our business and relate to a wide
variety of matters including insurance company licensing and examination, agent
licensing, price setting, trade practices, policy forms, accounting methods, the
nature and amount of investments, claims practices, participation in guaranty
funds, reserve adequacy, insurer solvency, transactions with affiliates, the
payment of dividends, and underwriting standards. For discussion of statutory
financial information, see Note 9 to the financial statements. For discussion of
regulatory contingencies, see Note 7 to the financial statements. Notes 9 and 7
are incorporated in this Part I, Item 1 by reference.

     In recent years the state insurance regulatory framework has come under
increased federal scrutiny and legislation that would provide for federal
chartering of insurance companies has been proposed. In addition, state
legislators and insurance regulators continue to examine the appropriate nature
and scope of state insurance regulation. We cannot predict whether any state or
federal measures will be adopted to change the nature or scope of the regulation
of the insurance business or what effect any such measures would have on
Glenbrook Life.

ITEM 2.   PROPERTIES

     We occupy office space provided by AIC, in Northbrook, Illinois. We are
allocated expenses associated with these offices through a service and expense
agreement with AIC.

ITEM 3.   LEGAL PROCEEDINGS

     Incorporated in this Item 3 by reference to the discussion under the
heading "Regulation and legal proceedings" in Note 7 to the financial
statements.

PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
  ISSUER PURCHASES OF EQUITY SECURITIES

     There is no public trading market for our common stock. All of our
outstanding common stock is owned by our parent, ALIC. All of ALIC's outstanding
common stock is owned by AIC. All of the outstanding common stock of AIC is
owned by the Corporation. Within the past three years, no equity securities have
been sold or repurchased by us.

     From January 1, 2002 through March 15, 2004, we paid no dividends on our
common stock to ALIC.

     For additional information on dividends, including restrictions on the
payment of dividends, see the "Liquidity" subsection of the "Capital Resources
and Liquidity" section of our "Management's Discussion and Analysis of Financial
Condition and Results of Operations". These items are incorporated herein by
reference.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS

     THE FOLLOWING DISCUSSION HIGHLIGHTS SIGNIFICANT FACTORS INFLUENCING THE
FINANCIAL POSITION AND RESULTS OF OPERATIONS OF GLENBROOK LIFE (REFERRED TO IN
THIS DOCUMENT AS "WE", "OUR", "US" OR THE "COMPANY"). IT SHOULD BE READ IN
CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES BEGINNING ON
PAGE 17. WE ARE MANAGED AS A SINGLE SEGMENT ENTITY.

     The most important matters that we monitor to evaluate the financial
 condition and performance of our company include:
     -  For operations: premiums and deposits; invested assets and face amount
        of life insurance in force;
     -  For Investments: credit quality/experience, stability of long-term
        returns, cash flows and asset and liability duration;
     -  For financial condition: our financial strength ratings.

                                        3
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)

APPLICATION OF CRITICAL ACCOUNTING POLICIES

     We have identified two accounting policies that require us to make
assumptions and estimates that are significant to the financial statements. It
is reasonably likely that changes in these assumptions and estimates could occur
from period to period and have a material impact on our financial statements. A
brief summary of each of these critical accounting policies follows. For a more
complete discussion of the effect of these policies on our financial statements,
and the judgments and estimates relating to these policies, see the referenced
sections of Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A"). For a complete summary of our significant
accounting policies see Note 2 of the financial statements.

INVESTMENT VALUATION The fair value of publicly traded fixed income securities
is based on independent market quotations, whereas the fair value of
non-publicly traded securities is based on either widely accepted pricing
valuation models which use internally developed ratings and independent third
party data as inputs or independent third party pricing sources. Factors used in
our internally developed models, such as liquidity risk associated with
privately-placed securities are difficult to observe and to characterize.
Because of this, judgment is required in developing certain of these estimates
and, as a result, the estimated fair value of non-publicly traded securities may
differ from amounts that would be realized upon an immediate sale of the
securities.

     Periodic changes in fair values of investments classified as available for
sale are reported as a component of accumulated other comprehensive income on
the Statements of Financial Position and are not reflected in the operating
results of any period until reclassified to net income upon the consummation of
a transaction, or when declines in fair values are deemed other than temporary.
The assessment of other than temporary impairment of a security's fair value is
performed on a case-by-case basis considering a wide range of factors. There are
a number of assumptions and estimates inherent when assessing impairments and
determining if they are other than temporary, including 1) our ability and
intent to retain the investment for a period of time sufficient to allow for an
anticipated recovery in value; 2) the expected recoverability of principal and
interest; 3) the duration and extent to which the fair value has been less than
amortized cost; 4) the financial condition, near-term and long-term prospects of
the issuer, including relevant industry conditions and trends, and implications
of rating agency actions and offering prices; and 5) the specific reasons that a
security is in significant unrealized loss position, including market conditions
which could affect liquidity. Additionally, once assumptions and estimates are
made, any number of changes in facts and circumstances could cause us to later
determine that an impairment is other than temporary, including 1) general
economic conditions that are worse than assumed or that have a greater adverse
effect on a particular issuer than originally estimated; 2) changes in the facts
and circumstances related to a particular issuer's ability to meet all of its
contractual obligations; and 3) changes in facts and circumstances or new
information that we obtain which causes a change in our ability or intent to
hold a security to maturity or until it recovers in value. Changes in
assumptions, facts and circumstances could result in charges to earnings in
future periods to the extent that losses are realized. The charge to earnings,
while potentially significant to net income, would not have a significant effect
on shareholder's equity since our portfolio is held at fair value and as a
result, the related unrealized loss, net of tax, would already be reflected as
accumulated other comprehensive income in shareholder's equity.

     For a more detailed discussion of the risks relating to changes in
investment values and levels of investment impairment, and the potential causes
of such changes, see Note 4 to the financial statements and the Financial
Position, Market Risk and Forward-looking Statements and Risk Factors sections
of the MD&A.

RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS ESTIMATION Long-term actuarial
assumptions of future investment yields, mortality, morbidity, policy
terminations and expenses are used when estimating the reserve for
life-contingent contract benefits. These assumptions include provisions for
adverse deviation and generally vary by such characteristics as type of
coverage, year of issue and policy duration. Future investment yield assumptions
are determined at the time the policy is issued based upon prevailing investment
yields as well as estimated reinvestment yields. Mortality, morbidity and policy
termination assumptions are based on our experience and industry experience
prevailing at the time the policies are issued. Expense assumptions include the
estimated effects of inflation and expenses to be incurred beyond the
premium-paying period.

     For further discussion of these policies see Note 6 of the financial
statements and the Forward-looking Statements and Risk Factors sections of the
MD&A.

OVERVIEW AND STRATEGY We are a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is a wholly owned subsidiary of Allstate
Insurance Company ("AIC"), a wholly owned subsidiary of The

                                        4
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)


Allstate Corporation (the "Corporation"). ALIC, along with its wholly owned
subsidiaries, is a leading provider of life insurance, annuities and other
financial services to a broad spectrum of individual and institutional
customers.

     Our mission is to assist financial services professionals in meeting their
clients' financial protection, savings and retirement needs by providing
top-tier products delivered with reliable and efficient service.

     We will pursue the following to grow our business organically: develop
focused, top-tier products; deepen distribution partner relationships; improve
our cost structure and implement a systematic risk management program.

     Our product line includes a wide variety of financial protection, savings
and retirement products aimed at serving the financial needs of our customers.
Products currently sold include variable and fixed annuities. Products are sold
through a variety of distribution channels including financial institutions and
broker/dealers.

RESULTS OF OPERATIONS

<Table>
<Caption>
                                                              FOR THE YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------
 (IN THOUSANDS)                                           2003           2002            2001
                                                       -----------     ---------     ------------
 <S>                                                   <C>             <C>           <C>
 Net investment income                                 $    10,150     $  10,335     $     10,715
 Realized capital gains and losses                              79        (1,984)             435
 Income tax expense                                          3,283         2,839            3,896
                                                       -----------     ---------     ------------
 Net income                                            $     6,946     $   5,512     $      7,254
                                                       ===========     =========     ============
</Table>

     We have reinsurance agreements whereby contract charges, interest credited
to contractholder funds, contract benefits and certain expenses are ceded to
ALIC and reflected net of such reinsurance in the Statements of Operations and
Comprehensive Income. Our results of operations include net investment income
and realized capital gains and losses earned on the assets that are not
transferred under the reinsurance agreements.

NET INCOME increased 26.0% in 2003 compared to 2002 and decreased 24.0% in 2002
compared to 2001. The increase in 2003 was due to realized capital gains in 2003
compared to realized capital losses in 2002 partially offset by an increase in
income tax expense and a decrease in net investment income. The decrease in 2002
was due to realized capital losses in 2002 compared to realized capital gains in
2001 and a decrease in net investment income.

NET INVESTMENT INCOME decreased 1.8% in 2003 compared to 2002 and 3.5% in 2002
compared to 2001. The decreases were due to lower portfolio yields. Investment
balances as of December 31, 2003, excluding unrealized net capital gains,
increased 2.6% from December 31, 2002 and were comparable as of December 31,
2002 and 2001. The lower portfolio yields were primarily due to purchases of
fixed income securities with yields lower than the current portfolio average.

NET REALIZED CAPITAL GAINS were $79 thousand in 2003, compared to realized
capital losses of $2.0 million in 2002 and realized capital gains of $435
thousand in 2001. In 2003 and 2001, realized capital gains resulted from the
sale of fixed income securities. The losses in 2002 were primarily the result of
$1.9 million in write-downs on fixed income securities. Period to period
fluctuations in realized capital gains and losses are the result of timing of
sales decisions reflecting our decision on positioning the portfolio,
assessments of individual securities, overall market conditions and write-downs
when we make an assessment that a decline in value of a security is other than
temporary.

                                        5
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)


FINANCIAL POSITION


         (IN THOUSANDS)

<Table>
<Caption>
                                                                             2003                 2002
                                                                       ----------------      ---------------
        <S>                                                            <C>                   <C>
        Fixed income securities (1)                                    $        174,301      $       173,611
        Short-term                                                                3,230                2,778
                                                                       ----------------      ---------------
            Total investments                                          $        177,531      $       176,389
                                                                       ================      ===============
        Cash                                                           $          3,895      $         1,235
                                                                       ================      ===============
        Reinsurance recoverable from ALIC, net                         $      7,418,603      $     6,203,516
                                                                       ================      ===============
        Contractholder funds                                           $      7,409,386      $     6,195,649
                                                                       ================      ===============
        Reserve for life-contingent contract benefits                  $          9,217      $         7,867
                                                                       ================      ===============
        Separate accounts assets and liabilities                       $      1,228,327      $     1,155,112
                                                                       ================      ===============
</Table>

     (1) Fixed income securities are carried at fair value. Amortized cost for
these securities was $162.8 million and $159.0 million at December 31, 2003 and
2002, respectively.

     Total investments increased to $177.5 million at December 31, 2003 from
$176.4 million at December 31, 2002 due to the investment of positive cash flows
from operating activities. At December 31, 2003, unrealized gains on fixed
income securities decreased to $11.5 million from $14.6 million at December 31,
2002.

FIXED INCOME SECURITIES

     See Note 4 of the financial statements for a table showing the amortized
cost, unrealized gains, unrealized losses and fair values for each type of fixed
income securities for the years ended December 31, 2003 and 2002.

     U.S. government and agencies of the U.S. government securities were all
rated investment grade at December 31, 2003.

     Municipal bonds, including tax-exempt and taxable securities, totaled $455
thousand and were rated Aaa at December 31, 2003 due to insurance by a bond
insurer.

     Corporate bonds totaled $74.4 million and 99.0% were rated as investment
grade at December 31, 2003. As of December 31, 2003, the fixed income securities
portfolio contained $3.7 million of privately placed corporate obligations or
5.0% of the total corporate obligations in the portfolio, compared with $3.7
million at December 31, 2002. The benefits of privately placed securities when
compared to publicly issued securities are generally higher yields, improved
cash flow predictability through pro-rata sinking funds on many bonds, and a
combination of covenant and call protection features designed to better protect
the holder against losses resulting from credit deterioration, reinvestment risk
and fluctuations in interest rates. A relative disadvantage of privately placed
securities when compared to publicly issued securities is reduced liquidity. At
December 31, 2003, all of the privately placed securities were rated as
investment grade.

     Mortgage-backed securities ("MBS") totaled $35.0 million at December 31,
2003. In our MBS portfolio, the credit risk is mitigated due to the fact that
57.9% of the portfolio consists of securities that were issued by, or have
underlying collateral that is guaranteed by U.S. government agencies or U.S.
government sponsored entities. The MBS portfolio is also subject to interest
rate risk since price volatility and ultimate realized yield are affected by the
rate of repayment of the underlying mortgages. We attempt to limit interest rate
risk on these securities by investing a portion of the portfolio in securities
that provide prepayment protection. At December 31, 2003, 17.8% of the MBS
portfolio was invested in planned amortization class bonds or the equivalent.
Though these security types offer greater relative prepayment protection than
other MBS securities, the degree of protection has been limited in this interest
rate environment. Based on market conditions and potential changes in portfolio
management objectives, the value of this protection and the significance of
these holdings relative to the entire portfolio may be reduced in future
periods.

     Asset-backed securities ("ABS") totaled $11.0 million at December 31, 2003.
Our ABS portfolio is subject to credit and interest rate risk. Credit risk is
mitigated by monitoring the performance of collateral. The entire

                                        6
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)


ABS portfolio had a Moody's rating of Aaa or a Standard & Poor's ("S&P") rating
of AAA, the highest category. The ABS portfolio is also subject to interest rate
risk since price volatility and ultimate realized yield are affected by the rate
of repayment of the underlying assets. The entire ABS portfolio is invested in
securitized utilities receivables.

     At December 31, 2003, 99.6% of our fixed income securities portfolio was
rated investment grade, which is defined as a security having a rating from The
National Association of Insurance Commissioners ("NAIC") of 1 or 2, a Moody's
equivalent rating of Aaa, Aa, A or Baa; an S&P equivalent rating of AAA, AA, A
or BBB; or a comparable internal rating.

     The following table summarizes the credit quality of the fixed income
securities portfolio at December 31, 2003.

(IN THOUSANDS)

<Table>
<Caption>
   NAIC                                                                       PERCENT OF
  RATINGS        MOODY'S, S&P OR EQUIVALENT                 FAIR VALUE           TOTAL
----------     ----------------------------------         -------------     --------------
    <S>          <C>                                      <C>                       <C>
    1            Aaa/Aa/A                                 $  145,886                 83.7%
    2            Baa                                          27,644                 15.9
    4            B                                               771                  0.4
                                                          -------------     --------------
                                                          $  174,301                100.0%
                                                          =============     ==============
</Table>

UNREALIZED GAINS AND LOSSES See Note 4 of the financial statements for further
disclosures regarding unrealized losses on fixed income securities and factors
considered in determining that they are not other than temporarily impaired. The
unrealized net capital gains on fixed income securities at December 31, 2003
were $11.5 million, a decrease of $3.1 million or 21.3% since December 31, 2002.
Gross unrealized losses were primarily concentrated in the MBS portfolio.

     The fixed income security portfolio is comprised of securities in the
following sectors.


<Table>
<Caption>
                                                                                        GROSS UNREALIZED
                                                                       AMORTIZED    -----------------------      FAIR
(IN THOUSANDS)                                                            COST        GAINS        LOSSES        VALUE
                                                                      -----------   ----------   ----------    ----------
<S>                                                                    <C>          <C>          <C>           <C>
AT DECEMBER 31, 2003
Corporate:
   Banking                                                             $   24,311   $    2,141   $      (35)   $   26,417
   Utilities                                                               11,823          936            -        12,759
   Financial services                                                       9,129          523           (6)        9,646
   Communications/media                                                     6,464          346          (24)        6,786
   Capital goods                                                            3,536          459          (88)        3,907
   Transportation                                                           3,411          273            -         3,684
   Consumer cyclical                                                        3,030           42          (21)        3,051
   Other                                                                    2,957          467            -         3,424
   Energy                                                                   2,926          281            -         3,207
   Basic industry                                                           1,447          114            -         1,561
                                                                       ----------   ----------   ----------    ----------
Total corporate fixed income portfolio                                     69,034        5,582         (174)       74,442

U.S. government and agencies                                               48,718        4,832         (127)       53,423
Municipal                                                                     409           46            -           455
Asset-backed securities                                                    10,070          946            -        11,016
Mortgage-backed securities                                                 34,540          805         (380)       34,965
                                                                       ----------   ----------   ----------    ----------
   Total fixed income securities                                       $  162,771   $   12,211   $     (681)   $  174,301
                                                                       ==========   ==========   ==========    ==========
</Table>

     The capital goods sector had the highest concentration of unrealized losses
in our corporate fixed income securities portfolio at December 31, 2003. The
gross unrealized losses in this sector are primarily company specific or
interest rate related. While we expect eventual recovery of these securities and
the related sector, we included every security in our portfolio monitoring
process at December 31, 2003.

                                        7
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)


     At December 31, 2003, all of the gross unrealized losses were related to
investment grade fixed income securities. Unrealized losses on investment grade
securities principally relate to changes in interest rates or changes in
sector-related credit spreads since the securities were acquired.

     The scheduled maturity dates for fixed income securities in an unrealized
loss position at December 31, 2003 is shown below. Actual maturities may differ
from those scheduled as a result of prepayments by the issuers.

<Table>
<Caption>
(IN THOUSANDS)                                                         UNREALIZED     PERCENT       FAIR        PERCENT
                                                                          LOSS       OF TOTAL       VALUE      OF TOTAL
                                                                       ----------   ----------   ----------   -----------
<S>                                                                    <C>               <C>     <C>                <C>
Due after five years through ten years                                 $     (214)        31.4%  $   13,745          44.6%
Due after ten years                                                           (87)        12.8          955           3.1
Mortgage- and asset- backed securities(1)                                    (380)        55.8       16,136          52.3
                                                                       ----------   ----------   ----------   -----------
Total                                                                  $     (681)       100.0%  $   30,836         100.0%
                                                                       ==========   ==========   ==========   ===========
</Table>

(1)Because of the potential for prepayment, mortgage- and asset-backed
securities are not categorized based on their contractual maturities.

PORTFOLIO MONITORING We have a comprehensive portfolio monitoring process to
identify and evaluate fixed income securities whose carrying value may be other
than temporarily impaired. The process includes a quarterly review of all
securities using a screening process to identify those securities whose fair
value compared to amortized cost is below established thresholds for certain
time periods, or which are identified through other monitoring criteria such as
ratings downgrades or payment defaults. The securities identified, in addition
to other securities for which we may have concern, are evaluated based on facts
and circumstances for inclusion on our watch-list. The watch-list is reviewed in
detail to determine whether any other than temporary impairment exists.

     We also monitor the quality of our fixed income portfolio by categorizing
certain investments as "problem", "restructured" or "potential problem". Problem
fixed income securities are securities in default with respect to principal or
interest and/or securities issued by companies that have gone into bankruptcy
subsequent to our acquisition of the security. Restructured fixed income
securities have rates and terms that are not consistent with market rates or
terms prevailing at the time of the restructuring. Potential problem fixed
income securities are current with respect to contractual principal and/or
interest, but because of other facts and circumstances, we have serious concerns
regarding the borrower's ability to pay future principal and interest, which
causes us to believe these securities may be classified as problem or
restructured in the future.

     At December 31, 2003, we did not have any fixed income securities
categorized as problem, restructured or potential problem.

NET REALIZED CAPITAL GAINS AND LOSSES The following table presents the
components of realized capital gains and losses and the related tax effect for
the years ended December 31.

<Table>
<Caption>
     (IN THOUSANDS)                                          2003         2002         2001
                                                         -----------   -----------  ----------
     <S>                                                 <C>           <C>          <C>
     Investment write-downs                              $       -     $   (1,904)  $        -
     Sales - fixed income securities                            79            (80)         435
                                                         -----------   -----------  ----------
     Realized capital gains and losses, pretax                  79         (1,984)         435
     Income tax (expense) benefit                              (28)           694         (152)
                                                         -----------   -----------  ----------
     Realized capital gains and losses, after-tax        $      51     $   (1,290)  $      283
                                                         ===========   ===========  ==========
</Table>

     We recorded realized capital gains on fixed income securities of $79
thousand for the year ended December 31, 2003 resulting from sales of fixed
income securities. We recorded realized capital losses on fixed income
securities of $2.0 million for the year ended December 31, 2002, primarily
driven by write-downs of $1.9 million. In the fourth quarter of 2002, there was
a write-down of $904 thousand of a major international energy and utility
company. In the third quarter of 2002, a security issued by a global energy and
utility company was written down in the amount of $1.0 million.

SHORT-TERM INVESTMENTS Our short-term investment portfolio was $3.2 million and
$2.8 million at December 31, 2003 and 2002, respectively. We invest available
cash balances primarily in taxable short-term securities having a final maturity
date or redemption date of one year or less.

                                        8
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)


CASH At December 31, 2003, the cash balance was $3.9 million compared to $1.2
million at December 31, 2002. The increase is primarily a result of timing
differences related to when deposits for fixed annuity sales are received and
when these deposits are transferred to ALIC under our reinsurance agreement.

REINSURANCE RECOVERABLE FROM ALIC, CONTRACTHOLDER FUNDS AND RESERVE FOR
LIFE-CONTINGENT CONTRACT BENEFITS Under accounting principles generally accepted
in the United States of America ("GAAP"), when reinsurance contracts do not
relieve the ceding company of legal liability to contractholders, the ceding
company is required to report reinsurance recoverables arising from these
contracts separately as assets. The liabilities for the contracts are reported
as contractholder funds, reserves for life-contingent contract benefits or
separate accounts liabilities depending on the characteristics of the contracts.
We reinsure all reserve liabilities with ALIC. Reinsurance recoverable and the
related reserve for life-contingent contract benefits and contractholder funds
are reported separately in the Statements of Financial Position, while the
assets which support the separate account liabilities are reflected as separate
accounts assets.

     At December 31, 2003, contractholder funds increased to $7.41 billion from
$6.20 billion at December 31, 2002 as a result of additional deposits from fixed
annuities and interest credited to contractholder funds partially offset by
surrenders and withdrawals. The reserve for life-contingent contract benefits
increased $1.4 million to $9.2 million at December 31, 2003 due to increased
immediate annuity contracts with life-contingencies. Reinsurance recoverable
from ALIC increased correspondingly by $1.22 billion due to the increase in
contractholder obligations discussed above.

SEPARATE ACCOUNTS Separate accounts assets and liabilities increased 6.3% to
$1.23 billion compared to the December 31, 2002 balance. The increase was
primarily attributable to increases in the fair value of the separate accounts'
fund values due to improved equity market conditions compared to 2002, sales of
variable annuity contracts and transfers from the general account to the
separate accounts funds partially offset by surrenders and withdrawals, and
expense charges.

     The assets related to variable contracts are legally segregated and
reflected as separate accounts assets. The assets of the separate accounts are
carried at fair value. Separate accounts liabilities represent the
contractholders' claims to the related assets and are carried at the fair value
of the assets. Investment income and realized capital gains and losses of the
separate accounts accrue directly to the contractholders and therefore, are not
included in our Statements of Operations and Comprehensive Income. Our revenues
from the separate accounts consist of contract charges related to maintenance
and administration, mortality, early surrender and expenses, which are then
ceded to ALIC.

     Absent any contract provision wherein we guarantee either a minimum return
or account value upon death or annuitization, variable annuity and variable life
insurance contractholders bear the investment risk that the underlying mutual
funds of the separate accounts may not meet their stated investment objectives.
The risk and associated cost of these contract guarantees are ceded to ALIC in
accordance with the reinsurance agreements.

MARKET RISK

     Market risk is the risk that we will incur losses due to adverse changes in
equity prices or interest rates. Our primary market risk exposure is to changes
in interest rates. Although we also have certain exposures to changes in equity
prices in our separate accounts liabilities, this risk is transferred to ALIC in
accordance with the reinsurance agreements.

OVERVIEW Investment guidelines define the overall framework for managing market
and other investment risks, including accountability and control over these risk
management activities. In addition, we follow guidelines that have been approved
by our board of directors and that specify the investment limits and strategies
that are appropriate given our liquidity, surplus, product, and regulatory
requirements. Executive oversight of investment risk management processes is
conducted primarily through the board of directors and investment committee.
Administration and detailed managerial oversight of investment risk, including
market risk, is provided through our credit and risk management committee
("CRMC"). We also have an enterprise-wide committee called the Enterprise Risk
Council ("ERC") that is responsible for assessing risks, including market and
other investment risks, on an integrated basis across subsidiaries and
organizations.

     We manage our exposure to market risk through the use of asset allocation
limits and duration limits and, as appropriate, through the use of stress tests.
We have asset allocation limits that place restrictions on the total funds that
may be invested within an asset class. We have duration limits on our investment
portfolio, and, as

                                        9
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)


appropriate, on individual components of these portfolios. These duration limits
place restrictions on the amount of interest rate risk that may be taken.
Comprehensive day-to-day management of market risk within defined tolerance
ranges occurs as portfolio managers buy and sell within their respective markets
based upon the acceptable boundaries established by the investment guidelines.

INTEREST RATE RISK is the risk that we will incur an economic loss due to
adverse changes in interest rates. This risk arises as we invest funds in
interest-sensitive assets.

     One of the measures used to quantify exposure is duration. Duration
measures the sensitivity of assets to changes in interest rates. For example, if
interest rates increase by 100 basis points, the fair value of an asset with a
duration of 5 is expected to decrease in value by approximately 5%. Our asset
duration was approximately 4.8 and 4.3 at December 31, 2003 and 2002,
respectively.

     To calculate duration, we project asset cash flows and calculate their net
present value using a risk-free market interest rate adjusted for credit
quality, sector attributes, liquidity and other specific risks. Duration is
calculated by revaluing these cash flows at alternative levels of interest rates
and determining the percentage change in aggregate fair value. The projections
include assumptions (based upon historical market experience and our experience)
that reflect the effect of changing interest rates on the prepayment, lapse,
leverage and/or option features of instruments, where applicable. Such
assumptions relate primarily to mortgage-backed securities, collateralized
mortgage obligations, and municipal and corporate obligations.

     Based upon the information and assumptions we use in our duration
calculation and interest rates in effect at December 31, 2003, we estimate that
a 100 basis point immediate, parallel increase in interest rates ("rate shock")
would decrease the net fair value of the assets by approximately $8.4 million
compared to $7.4 million at December 31, 2002. The selection of a 100 basis
point immediate parallel change in interest rates should not be construed as our
prediction of future market events, but only as an illustration of the potential
impact of such an event.

     To the extent that conditions differ from the assumptions we used in these
calculations, duration and rate shock measures could be significantly impacted.
Additionally, our calculation assumes that the current relationship between
short-term and long-term interest rates (the term structure of interest rates)
will remain constant over time. As a result, these calculations may not fully
capture the impact of non-parallel changes in the term structure of interest
rates and/or large changes in interest rates.

EQUITY PRICE RISK is the risk that we will incur economic losses due to adverse
changes in a mutual fund or stock index.

     At December 31, 2003 and 2002, we had separate accounts assets with account
values totaling $1.23 billion and $1.16 billion, respectively. We earn contract
charges as a percentage of these account values. In the event of an immediate
decline of 10% in the account values due to equity market declines, we would
have earned approximately $1.8 million and $1.9 million less in fee income at
December 31, 2003 and 2002, respectively, which would be ceded to ALIC.

     Variable annuity contracts we sell have a guaranteed minimum death benefit
("GMDB") and customers may choose to purchase an enhanced GMDB or guaranteed
minimum income benefit ("GMIB") on certain contracts. These guarantees subject
us to additional equity risk because the beneficiary or contractholder may
receive a benefit that is greater than the current account value, which would be
ceded to ALIC. GMDBs are payable upon death, while GMIBs are payable on or after
the ten-year anniversary of the contract if the contractholder elects to receive
a defined stream of payments ("annuitize"). All variable annuity contract
charges and fees, liabilities and benefits, including the GMDBs and GMIBs are
ceded to ALIC in accordance with the reinsurance agreement, thereby limiting our
equity risk exposure.

                                       10
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)


CAPITAL RESOURCES AND LIQUIDITY

CAPITAL RESOURCES consist of shareholder's equity. The following table
summarizes our capital resources at December 31:

<Table>
<Caption>
(IN THOUSANDS)                                                 2003                2002               2001
                                                         ---------------     ---------------      -------------
<S>                                                      <C>                 <C>                  <C>
Common stock, additional capital paid-in and
     retained income                                     $       170,343     $       163,397      $     157,885
Accumulated other comprehensive income                             7,494               9,521              4,433
                                                         ---------------     ---------------      -------------
     Total shareholder's equity                          $       177,837     $       172,918      $     162,318
                                                         ===============     ===============      =============
</Table>

SHAREHOLDER'S EQUITY increased $4.9 million during the year ended December 31,
2003 when compared to December 31, 2002, due to net income of $6.9 million and
partially offset by a decrease in unrealized net capital gains resulting in an
other comprehensive loss of $2.0 million. Shareholder's equity increased during
2002 as well as 2001, due to net income of $5.5 million and $7.3 million in 2002
and 2001, respectively, and an increase in unrealized net capital gains of $5.1
million and $1.6 million in 2002 and 2001, respectively.

FINANCIAL RATINGS AND STRENGTH We share the insurance financial strength ratings
of our parent, ALIC, because business is reinsured to ALIC. Our insurance
financial strength was rated Aa2, AA, and A+(r) by Moody's, Standard & Poor's
and A.M. Best, respectively, at December 31, 2003.

     Our ratings are influenced by many factors including our operating and
financial performance, asset quality, liquidity, asset/liability management,
overall portfolio mix, the amount of financial leverage (i.e., debt), exposure
to risks, as well as the current level of operating leverage. In February 2004,
A.M. Best revised the outlook to stable from positive for the insurance
financial strength ratings of ALIC and certain rated subsidiaries and
affiliates.

     State laws specify regulatory actions if an insurer's risk-based capital
("RBC"), a measure of an insurer's solvency, falls below certain levels. The
NAIC has a standard formula for assessing RBC. The formula for calculating RBC
takes into account factors relating to insurance, business, asset and interest
rate risks. At December 31, 2003, our RBC was above levels that would require
regulatory actions.

     The NAIC has also developed a set of financial relationships or tests known
as the Insurance Regulatory Information System to assist state regulators in
monitoring the financial condition of insurance companies and identifying
companies that require special attention or action from insurance regulatory
authorities. The NAIC analyzes financial data provided by insurance companies
using prescribed ratios, each with defined "usual ranges." Generally, regulators
will begin to monitor an insurance company if its ratios fall outside the usual
ranges for four or more of the ratios. If an insurance company has insufficient
capital, regulators may act to reduce the amount of insurance it can issue. Our
ratios are within these ranges.

LIQUIDITY SOURCES AND USES Our potential sources of funds principally include
the following activities:


       Receipt of insurance premiums
       Contractholder fund deposits
       Reinsurance recoveries
       Receipts of principal and interest on investments
       Sales of investments
       Inter-company loans and tax refunds/settlements
       Capital contributions from parent

                                       11
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)

Our potential uses of funds principally include the following activities:


       Payment of contract benefits, maturities, surrenders and withdrawals
       Reinsurance cessions and payments
       Operating costs and expenses
       Purchase of investments
       Repayment of inter-company loans
       Dividends to shareholder


     Under the terms of reinsurance agreements, all premiums and deposits,
excluding those relating to variable contracts, are transferred to ALIC, which
maintains the investment portfolios supporting our products. Payments of
contractholder claims, benefits (including GMDBs and GMIBs), contract
maturities, contract surrenders and withdrawals and certain operating costs
(excluding investment-related expenses), are also reimbursed by ALIC, under the
terms of the reinsurance agreements. We continue to have primary liability as a
direct insurer for risks reinsured. Our ability to meet liquidity demands is
dependent on ALIC's ability to meet those obligations under the reinsurance
program.

     Our ability to pay dividends is dependent on business conditions, income,
cash requirements and other relevant factors. The payment of shareholder
dividends without the prior approval of the state insurance regulator is limited
by Arizona law to formula amounts based on statutory surplus and statutory net
gain from operations, as well as the timing and amount of dividends paid in the
preceding twelve months. The maximum amount of dividends that we can distribute
during 2004 without prior approval of the Arizona Department of Insurance is
$8.0 million.

     We have entered into an intercompany loan agreement with the Corporation.
The amount of funds available to us is at the discretion of the Corporation. The
maximum amount of loans the Corporation will have outstanding to all its
eligible subsidiaries at any given point in time is limited to $1.00 billion. No
amounts were outstanding for the intercompany loan agreement at December 31,
2003 or 2002, respectively. The Corporation uses commercial paper borrowings and
bank lines of credit to fund intercompany borrowings.

     Certain remote events and circumstances could constrain the Corporation's
liquidity. Those events and circumstances include, for example, a catastrophe
resulting in extraordinary losses, a downgrade in the Corporation's long-term
debt rating of A1 and A+ (from Moody's and Standard & Poor's, respectively) to
non-investment grade status of below Baa3/BBB-, a downgrade in AIC's financial
strength rating from Aa2, AA and A+ (from Moody's, Standard & Poor's and A.M.
Best, respectively) to below Baa/BBB/A-, or a downgrade in ALIC's or our
financial strength ratings from Aa2, AA and A+ (from Moody's, Standard & Poor's
and A.M. Best, respectively) to below Aa3/AA-/A-. The rating agencies also
consider the interdependence of the Corporation's individually rated entities,
and therefore, a rating change in one entity could potentially affect the
ratings of other related entities.

REGULATION AND LEGAL PROCEEDINGS

REGULATION We are subject to changing social, economic and regulatory
conditions. Recent state and federal regulatory initiatives and proceedings have
included efforts to remove barriers preventing banks from engaging in the
securities and insurance businesses, change tax laws affecting the taxation of
insurance companies and the tax treatment of insurance products or competing
non-insurance products that may impact the relative desirability of various
personal investment products and otherwise expand overall regulation of
insurance products and the insurance industry. The ultimate changes and eventual
effects of these initiatives on our business, if any, are uncertain.

LEGAL PROCEEDINGS We are involved in various legal and regulatory actions that
could have an effect on specific aspects of our business. Like other members of
the insurance industry, we are the target of an increasing number of lawsuits,
some of which involve claims for substantial or indeterminate amounts. For a
description of these actions, see Note 7 of the financial statements.

PENDING ACCOUNTING STANDARDS

     As of December 31, 2003, there are several pending and proposed accounting
standards that we have not implemented either because the standard has not been
finalized or the implementation date has not yet occurred.

                                       12
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)


These standards include Statement of Position 03-01 and Emerging Issues Task
Force Topic number 03-01. For a discussion of these pending and proposed
standards, see Note 2 of the financial statements. The effect of implementing
certain accounting standards on our financial results and financial condition is
often based in part on market conditions at the time of implementation and other
factors we are unable to determine prior to implementation. For this reason, we
are sometimes unable to estimate the effect of certain pending accounting
standards until the relevant authoritative body finalizes these standards or
until we implement them.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

     This document contains "forward-looking statements" that anticipate results
based on our estimates, assumptions and plans that are subject to uncertainty.
These statements are made subject to the safe-harbor provisions of the Private
Securities Litigation Reform Act of 1995. We assume no obligation to update any
forward-looking statements as a result of new information or future events or
developments.

     These forward-looking statements do not relate strictly to historical or
current facts and may be identified by their use of words like "plans," "seeks,"
"expects," "will," "should," "anticipates," "estimates," "intends," "believes,"
"likely," "targets" and other words with similar meanings. These statements may
address, among other things, our strategy for growth, product development,
regulatory approvals, market position, expenses, financial results, litigation
and reserves. We believe that these statements are based on reasonable
estimates, assumptions and plans. However, if the estimates, assumptions or
plans underlying the forward-looking statements prove inaccurate or if other
risks or uncertainties arise, actual results could differ materially from those
communicated in these forward-looking statements. Factors which could cause
actual results to differ materially from those suggested by such forward-looking
statements include but are not limited to those discussed or identified in this
document (including the risks described below) and in our public filings with
the SEC.

     In addition to the normal risks of business, we are subject to significant
risks and uncertainties, including those listed below, which apply to us as an
insurer and a provider of other financial services.

RISKS RELATING TO THE COMPANY

CHANGES IN RESERVE ESTIMATES MAY REDUCE PROFITABILITY
     Reserve for life-contingent contract benefits is computed on the basis of
long-term actuarial assumptions of future investment yields, mortality,
morbidity, policy terminations and expenses. We periodically review and revise
our estimates and if future experience differs from assumptions, adjustments to
reserves may be required which could have a material adverse effect on our
financial condition and operating results ceded to ALIC.

CHANGES IN MARKET INTEREST RATES MAY LEAD TO A SIGNIFICANT DECREASE IN THE SALES
AND PROFITABILITY OF SPREAD-BASED PRODUCTS CEDED TO ALIC
     ALIC's ability to manage the investment margin for spread-based products is
dependent upon maintaining profitable spreads between investment yields and
interest crediting rates on business ceded to ALIC. As interest rates decrease
or remain at historically low levels, assets may be reinvested at lower yields,
reducing investment margin. For example, during 2003 the average pre-tax
investment yield on assets we retain declined to 6.3% from 6.5% in 2002. ALIC
manages the spread on the business assumed from us. Our ability to lower
interest crediting rates can offset decreases in investment margin on some
products. However, these changes could be limited by market conditions,
regulatory minimum rates or contractual minimum rate guarantees on many
contracts and may not match the timing or magnitude of changes in asset yields.
Decreases in the rates offered on products could make those products less
attractive, leading to lower sales and/or changes in the level of surrenders and
withdrawals for these products. Increases in market interest rates can also have
negative effects on the business ceded to ALIC, for example by increasing the
attractiveness of other investments, which can lead to higher surrenders at a
time when its investment asset values are lower as a result of the increase in
interest rates. Unanticipated surrenders could result in deferred policy
acquisition costs ("DAC") unlocking or affect the recoverability of DAC and
thereby increase expenses ceded to ALIC and reduce profitability of ALIC.

DECLINING EQUITY MARKETS MAY REDUCE BOTH SALES OF PRODUCTS AND INCOME FROM
CONTRACT CHARGES AND MAY ADVERSELY AFFECT OPERATING RESULTS AND FINANCIAL
CONDITION OF ALIC
     Conditions in the United States and international stock markets affect our
sales of variable annuities. Recent allegations of improper or illegal trading
activities at large mutual fund complexes could affect the stock markets. In
general, sales of variable annuities decrease when stock markets are declining
over an extended period of time. The effect of decreasing separate accounts
balances resulting from volatile equity markets, lower underlying fund
performance or declining consumer confidence could cause contract charges earned
and ceded to ALIC to decrease. In addition, it is possible that the assumptions
and projections we use to establish prices for GMDB and

                                       13
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)


GMIB products, particularly assumptions and projections about investment
performance, do not accurately reflect the level of costs that we will
ultimately incur and cede to ALIC in providing those benefits, resulting in
adverse margin trends that may have a material effect on ALIC's results of
operations. These factors may result in accelerated DAC amortization at ALIC and
require increases in reserves, which would reduce ALIC's statutory capital and
surplus and/or net income. Poor fund performance could also result in higher
partial withdrawals of account value which, for some contracts, do not reduce
the GMDB by a proportional amount.

CHANGES IN ESTIMATES OF PROFITABILITY ON INTEREST-SENSITIVE PRODUCTS MAY HAVE AN
ADVERSE EFFECT ON RESULTS THROUGH INCREASED AMORTIZATION OF DAC FOR ALIC
     DAC related to interest-sensitive life, variable annuity and investment
contracts is amortized in proportion to estimated gross profits over the
estimated lives of the contracts. Assumptions underlying estimated gross
profits, including those relating to margins from mortality, investment margin,
contract administration, surrender and other contract charges, are updated from
time to time in order to reflect actual and expected experience and its
potential effect on the valuation of DAC. Updates to these assumptions could
result in DAC unlocking, which in turn could adversely affect our operating
results ceded to ALIC.

A LOSS OF KEY PRODUCT DISTRIBUTION RELATIONSHIPS COULD MATERIALLY AFFECT SALES
     Certain products are distributed under agreements with other members of the
financial services industry that are not affiliated with us. Termination of one
or more of these agreements due to, for example, a change in control of one of
these distributors, could have a detrimental effect on our sales. This risk may
be heightened by the enactment of the Gramm-Leach-Bliley Act of 1999 (the "GLB
Act"), which eliminated many federal and state law barriers to affiliations
among banks, securities firms, insurers and other financial service providers.

CHANGES IN TAX LAWS MAY DECREASE SALES AND PROFITABILITY OF PRODUCTS
     Under current federal and state income tax law, certain products (primarily
life insurance and annuities) we offer receive favorable tax treatment. This
favorable treatment may give certain of our products a competitive advantage
over noninsurance products. Congress from time to time considers legislation
that would reduce or eliminate the favorable policyholder tax treatment
currently applicable to life insurance and annuities. Congress also considers
proposals to reduce the taxation of certain products or investments that may
compete with life insurance and annuities. One such proposal was enacted in May
2003 when President Bush signed the Jobs and Growth Tax Relief Reconciliation
Act of 2003, which reduced the federal income tax rates applicable to certain
dividends and capital gains realized by individuals. Legislation that increases
the taxation on insurance products or reduces the taxation on competing products
could lessen the advantage of certain of our products as compared to competing
products. Such proposals, if adopted, could have an adverse effect on our
financial position or ability to sell such products and could result in the
surrender of some existing contracts and policies.

RISKS RELATING TO THE INSURANCE INDUSTRY

OUR FUTURE RESULTS ARE DEPENDENT IN PART ON OUR ABILITY TO SUCCESSFULLY OPERATE
IN AN INSURANCE INDUSTRY THAT IS HIGHLY COMPETITIVE
     The insurance industry is highly competitive. Many of our competitors have
well-established national reputations and market similar insurance products.
Because of the competitive nature of the insurance industry, including
competition for producers such as exclusive and independent agents, there can be
no assurance that we will continue to effectively compete with our industry
rivals, or that competitive pressure will not have a material adverse effect on
our business, operating results or financial condition. In addition, we may face
increased competition from banks. Until passage of the GLB Act, the ability of
banks to engage in securities-related businesses was limited and banks were
restricted from being affiliated with insurers. With the passage of the GLB Act,
mergers that combine commercial banks, insurers and securities firms under one
holding company are now permitted. The ability of banks to affiliate with
insurers may have a material adverse effect on all of our product lines by
substantially increasing the number, size and financial strength of potential
competitors. Furthermore, certain competitors operate using a mutual insurance
company structure and therefore, may have dissimilar profitability and return
targets.

CHANGING INTEREST RATES AND DECLINES IN CREDIT QUALITY MAY HAVE ADVERSE EFFECTS
     A decline in market interest rates could have an adverse effect on our
investment income as we invest cash in new investments that may yield less than
the portfolio's average rate. In a declining interest rate environment,
borrowers may prepay or redeem securities we hold more quickly than expected as
they seek to refinance at lower rates. An increase in market interest rates
could have an adverse effect on the value of our investment portfolio, for
example, by decreasing the fair values of the fixed income securities that
comprise a substantial majority of our investment portfolio. Increases in
interest rates also may lead to an increase in surrenders and withdrawals

                                       14
<Page>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS (CONT.)


that generally would be funded at a time when fair values of fixed income
securities are lower. A decline in the quality of our investment portfolio as a
result of adverse economic conditions or otherwise could cause additional
realized losses on securities.

WE MAY SUFFER LOSSES FROM LITIGATION
     As is typical for an insurance company, we are involved in litigation.
Among other things, we, like other participants in the insurance industry, have
been subject in recent years to an increasing volume of class action litigation
challenging a range of industry practices. Our litigation exposure could result
in a material adverse effect on our financial condition and operating results
ceded to ALIC in a future period in the event of an unexpected adverse outcome
or if additional reserves are required to be established for such litigation.
For a description of our current material litigation matters, see Note 7 of the
financial statements.

WE ARE SUBJECT TO EXTENSIVE REGULATION AND POTENTIAL FURTHER RESTRICTIVE
REGULATION MAY INCREASE OUR OPERATING COSTS AND LIMIT OUR GROWTH
     We are subject to extensive regulation by state insurance regulators. This
regulation is focused on the protection of policyholders and not investors. In
many cases, state regulations limit our ability to grow and improve the
profitability of our business. The laws regulating securities products and
activities are complex, numerous and subject to change. Further, in recent
years, the state insurance regulatory framework has come under increased federal
scrutiny, and proposals that would provide for optional federal chartering of
insurance companies have been discussed by members of Congress. We can make no
assurances as to whether further state or federal measures will be adopted to
change the nature or scope of the regulation of the insurance industry or as to
the effect that any such measures would have on us.

THE CONTINUED THREAT OF TERRORISM AND ONGOING MILITARY ACTIONS MAY ADVERSELY
AFFECT THE LEVEL OF CLAIM EXPENSE WE INCUR AND THE VALUE OF OUR INVESTMENT
PORTFOLIO
     The continued threat of terrorism, both within the United States and
abroad, and ongoing military and other actions and heightened security measures
in response to these types of threats, may cause significant volatility and
declines in the equity markets in the United States, Europe and elsewhere, and
result in loss of life, property damage, additional disruptions to commerce and
reduced economic activity. Some of the assets in our investment portfolio may be
adversely affected by declines in the equity markets and reduced economic
activity caused by the continued threat of terrorism. In the event that a
terrorist act occurs, we may be adversely affected, depending on the nature of
the event.

ANY DECREASE IN OUR FINANCIAL STRENGTH RATINGS MAY HAVE AN ADVERSE EFFECT ON OUR
COMPETITIVE POSITION
     Financial strength ratings are important factors in establishing the
competitive position of insurance companies and generally will have an effect on
an insurance company's business. On an ongoing basis, rating agencies review the
financial performance and condition of insurers and could downgrade or change
the outlook on an insurer's ratings due to, for example, a decline in the value
of an insurer's investment portfolio or increased liabilities for variable
contracts arising from additional GMDB or GMIB exposure resulting from market
declines. Currently, the insurance financial strength ratings of the
Corporation, AIC and ALIC are Aa2, AA and A+ (from Moody's, Standard & Poor's
and A.M. Best, respectively). Because these ratings are subject to periodic
review, the continued retention of these ratings cannot be assured. A multiple
level downgrade in the ratings of the Corporation, AIC or ALIC could have a
material adverse effect on our sales, including the competitiveness and
marketability of our product offerings, as well as our liquidity, financial
condition and operating results ceded to ALIC.

CHANGES IN ACCOUNTING STANDARDS ISSUED BY THE FASB OR OTHER STANDARD-SETTING
BODIES MAY ADVERSELY AFFECT OUR FINANCIAL STATEMENTS
     Our financial statements are subject to the application of GAAP, which is
periodically revised and/or expanded. Accordingly, we are required to adopt new
or revised accounting standards issued from time to time by recognized
authoritative bodies, including the Financial Accounting Standards Board (the
"FASB"). It is possible that future changes we are required to adopt could
change the current accounting treatment that we apply to our financial
statements and that such changes could have a material adverse effect on our
financial condition and results ceded to ALIC. For a description of potential
changes in accounting standards that could affect us currently, see Note 2 of
the financial statements.

                                       15
<Page>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Incorporated in this Item 7a by reference to the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" Item 7.

                                       16
<Page>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       GLENBROOK LIFE AND ANNUITY COMPANY
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

<Table>
<Caption>
                                                                     YEAR ENDED DECEMBER 31,
                                                              -------------------------------------
(IN THOUSANDS)
                                                                 2003         2002         2001
                                                              ----------   ----------    ----------
<S>                                                           <C>          <C>           <C>
REVENUES
Net investment income                                         $   10,150   $   10,335    $   10,715
Realized capital gains and losses                                     79       (1,984)          435
                                                              ----------   ----------    ----------

INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE                  10,229        8,351        11,150
Income tax expense                                                 3,283        2,839         3,896
                                                              ----------   ----------    ----------

NET INCOME                                                         6,946        5,512         7,254
                                                              ----------   ----------    ----------

OTHER COMPREHENSIVE (LOSS) INCOME, AFTER-TAX
Change in unrealized net capital gains and losses                 (2,027)       5,088         1,633
                                                              ----------   ----------    ----------

COMPREHENSIVE INCOME                                          $    4,919   $   10,600    $    8,887
                                                              ==========   ==========    ==========
</Table>

                       See notes to financial statements.

                                       17
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                        STATEMENTS OF FINANCIAL POSITION

<Table>
<Caption>
                                                                                             DECEMBER 31,
                                                                                   -------------------------------
                                                                                       2003             2002
                                                                                   --------------   --------------
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
<S>                                                                                <C>              <C>
ASSETS
Investments
   Fixed income securities, at fair value (amortized cost $162,771 and $158,963)   $      174,301   $      173,611
   Short-term                                                                               3,230            2,778
                                                                                   --------------   --------------
      Total investments                                                                   177,531          176,389

Cash                                                                                        3,895            1,235
Reinsurance recoverable from Allstate Life Insurance Company, net                       7,418,603        6,203,516
Other assets                                                                                3,559            3,388
Current income taxes receivable                                                               689               20
Receivable from affiliates, net                                                                 -            5,680
Separate accounts                                                                       1,228,327        1,155,112
                                                                                   --------------   --------------
        TOTAL ASSETS                                                               $    8,832,604   $    7,545,340
                                                                                   ==============   ==============

LIABILITIES
Contractholder funds                                                               $    7,409,386   $    6,195,649
Reserve for life-contingent contract benefits                                               9,217            7,867
Deferred income taxes                                                                       3,940            4,629
Other liabilities and accrued expenses                                                      2,226            9,165
Payable to affiliates, net                                                                  1,671                -
Separate accounts                                                                       1,228,327        1,155,112
                                                                                   --------------   --------------
        TOTAL LIABILITIES                                                               8,654,767        7,372,422
                                                                                   --------------   --------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 7)

SHAREHOLDER'S EQUITY
Common stock, $500 par value, 10 thousand shares authorized, 5 thousand shares
   issued and outstanding                                                                   2,500            2,500
Additional capital paid-in                                                                119,241          119,241
Retained income                                                                            48,602           41,656
Accumulated other comprehensive income:
   Unrealized net capital gains and losses                                                  7,494            9,521
                                                                                   --------------   --------------
        Total accumulated other comprehensive income                                        7,494            9,521
                                                                                   --------------   --------------
        TOTAL SHAREHOLDER'S EQUITY                                                        177,837          172,918
                                                                                   --------------   --------------
        TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY                                 $    8,832,604   $    7,545,340
                                                                                   ==============   ==============
</Table>

                       See notes to financial statements.

                                       18
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                       STATEMENTS OF SHAREHOLDER'S EQUITY

<Table>
<Caption>
                                                                      YEAR ENDED DECEMBER 31,
                                                              -------------------------------------
(IN THOUSANDS)
                                                                 2003         2002          2001
                                                              ----------   ----------    ----------
<S>                                                           <C>          <C>           <C>
COMMON STOCK                                                  $    2,500   $    2,500    $    2,500
                                                              ----------   ----------    ----------

ADDITIONAL CAPITAL PAID-IN                                       119,241      119,241       119,241
                                                              ----------   ----------    ----------

RETAINED INCOME
Balance, beginning of year                                        41,656       36,144        28,890
Net income                                                         6,946        5,512         7,254
                                                              ----------   ----------    ----------
Balance, end of year                                              48,602       41,656        36,144
                                                              ----------   ----------    ----------

ACCUMULATED OTHER COMPREHENSIVE INCOME

Balance, beginning of year                                         9,521        4,433         2,800
Change in unrealized net capital gains and losses                 (2,027)       5,088         1,633
                                                              ----------   ----------    ----------
Balance, end of year                                               7,494        9,521         4,433
                                                              ----------   ----------    ----------

TOTAL SHAREHOLDER'S EQUITY                                    $  177,837   $  172,918    $  162,318
                                                              ==========   ==========    ==========
</Table>

                       See notes to financial statements.

                                       19
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                            STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                     YEAR ENDED DECEMBER 31,
                                                              -------------------------------------
(IN THOUSANDS)                                                   2003         2002          2001
                                                              ----------   ----------    ----------
<S>                                                           <C>          <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                    $    6,946   $    5,512    $    7,254
Adjustments to reconcile net income to net cash provided by
      operating activities:
          Amortization and other non-cash items                       97           (6)          (77)
          Realized capital gains and losses                          (79)       1,984          (435)
          Changes in:
             Income taxes                                           (267)      (4,585)            4
             Receivable/payable to affiliates, net                 7,351       (7,878)       (2,903)
             Other operating assets and liabilities               (7,110)       9,181        (1,491)
                                                              ----------   ----------    ----------
                Net cash provided by operating activities          6,938        4,208         2,352
                                                              ----------   ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
          Proceeds from sales                                     23,670        4,885        14,535
          Investment collections                                  16,280       18,720         9,553
          Investments purchases                                  (43,776)     (30,392)      (36,433)
Change in short-term investments                                    (452)       3,814        (3,507)
                                                              ----------   ----------    ----------
                Net cash used in investing activities             (4,278)      (2,973)      (15,852)
                                                              ----------   ----------    ----------

NET INCREASE (DECREASE) IN CASH                                    2,660        1,235       (13,500)
CASH AT BEGINNING OF YEAR                                          1,235            -        13,500
                                                              ----------   ----------    ----------
CASH AT END OF YEAR                                           $    3,895   $    1,235    $        -
                                                              ==========   ==========    ==========
</Table>
                       See notes to financial statements.

                                       20
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

1.   GENERAL

BASIS OF PRESENTATION

     The accompanying financial statements include the accounts of Glenbrook
Life and Annuity Company ("Glenbrook Life" or the "Company"), a wholly owned
subsidiary of Allstate Life Insurance Company ("ALIC"), which is wholly owned by
Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate
Corporation (the "Corporation"). These financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America ("GAAP"). Management has identified the Company as a single segment
entity.

     To conform to the 2003 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.

     The preparation of financial statements in conformity with GAAP 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.

NATURE OF OPERATIONS

     The mission of Glenbrook Life is to assist financial services professionals
in meeting their clients' financial protection, savings and retirement needs by
providing top-tier products delivered with reliable and efficient service. The
Company's product line includes a wide variety of financial protection, savings
and retirement products aimed at serving the financial needs of the Company's
customers. Products currently sold include variable and fixed annuities.
Products are sold through a variety of distribution channels including financial
institutions and broker/dealers. Although the Company currently benefits from
agreements with financial services entities that market and distribute its
products, change in control or other factors affecting these non-affiliated
entities with which the Company has distribution agreements could negatively
impact the Company's sales.

     The Company is authorized to sell life insurance and investment products in
all states except New York, as well as in the District of Columbia and Puerto
Rico. For 2003, the top geographic locations for statutory premiums and annuity
considerations for the Company were Pennsylvania, California, Texas, Florida,
Illinois, Michigan, and New Jersey. No other jurisdiction accounted for more
than 5% of statutory premiums and annuity considerations. All statutory premiums
and annuity considerations are ceded to ALIC under reinsurance agreements.

     The Company monitors economic and regulatory developments that have the
potential to impact its business. Federal legislation has allowed banks and
other financial organizations to have greater participation in the securities
and insurance businesses. This legislation may present an increased level of
competition for sales of the Company's products. Furthermore, state and federal
laws and regulations affect the taxation of insurance companies and life
insurance and annuity products. Congress and various state legislatures have
considered proposals that, if enacted, could impose a greater tax burden on the
Company or could have an adverse impact on the tax treatment of some insurance
products offered by the Company, including favorable policyholder tax treatment
currently applicable to life insurance and annuities. Recent legislation that
reduced the federal income tax rates applicable to certain dividends and capital
gains realized by individuals, or other proposals, if adopted, that reduce the
taxation, or permit the establishment, of certain products or investments that
may compete with life insurance or annuities could have an adverse effect on the
Company's financial position or ability to sell such products.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS

     Fixed income securities include bonds, mortgage-backed and asset-backed
securities. Fixed income securities are carried at fair value and may be sold
prior to their contractual maturity ("available for sale"). The fair value of
publicly traded fixed income securities is based upon independent market
quotations. The fair value of non-publicly traded securities is based on either
widely accepted pricing valuation models which utilize internally developed
ratings and independent third party data (e.g., term structures and current
publicly traded bond prices) as inputs or independent third party pricing
sources. The valuation models use indicative information such as ratings,
industry, coupon, and maturity along with related third party data and publicly
traded bond prices to determine security specific spreads. These spreads are
then adjusted for illiquidity based on

                                       21
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

historical analysis and broker surveys. Periodic changes in fair values, net of
deferred income taxes, are reflected as a component of other comprehensive
income. Short-term investments are carried at cost or amortized cost, which
approximates fair value.

     Investment income consists of interest and is recognized on an accrual
basis. Interest income on mortgage-backed and asset-backed securities is
determined using the effective yield method, based on 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 include gains and losses on investment
dispositions, and write-downs in value due to other than temporary declines in
fair value. Realized capital gains and losses on investment dispositions are
determined on a specific identification basis.

     The Company writes down, to fair value, any fixed income security that is
classified as other than temporarily impaired in the period the security is
deemed to be other than temporarily impaired.

RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES, AND RELATED BENEFITS AND
INTEREST CREDITED

     The Company has reinsurance agreements whereby substantially all contract
charges, contract benefits, interest credited to contractholder funds and
certain expenses are ceded to ALIC (see Note 3). These amounts are reflected net
of such reinsurance in the Statements of Operations and Comprehensive Income.

     Immediate annuities with life contingencies provide insurance protection
over a period that extends beyond the period during which premiums are
collected. Gross premiums in excess of the net premium on immediate annuities
with life contingencies are deferred and recognized over the contract period.
Contract benefits are recognized in relation to such revenues so as to result in
the recognition of profits over the life of the contract.

     Interest-sensitive life contracts are insurance contracts whose terms are
not fixed and guaranteed. The terms that may be changed include premiums paid by
the contractholder, interest credited to the contractholder account balance and
any amounts assessed against the contractholder account balance. Premiums from
these contracts are reported as contractholder funds deposits. Contract charges
consist of fees assessed against the contractholder account balance for cost of
insurance (mortality risk), contract administration and early surrender. These
revenues are recognized when assessed against the contractholder account
balance. Contract benefits include life-contingent benefit payments in excess of
the contractholder account balance.

     Contracts that do not subject the Company to significant risk arising from
mortality or morbidity are referred to as investment contracts. Fixed annuities,
market value adjusted annuities, equity-indexed annuities and immediate
annuities without life contingencies are considered investment contracts.
Deposits received for such contracts are reported as contractholder funds
deposits. Contract charges for investment contracts consist of fees assessed
against the contractholder account balance for contract administration and early
surrender. These revenues are recognized when assessed against the
contractholder account balance.

     Interest credited to contractholder funds represents interest accrued or
paid for interest-sensitive life contracts and investment contracts. Crediting
rates for fixed annuities and interest-sensitive life contracts are adjusted
periodically by the Company to reflect current market conditions subject to
contractually guaranteed minimum rates. Crediting rates for indexed annuities
are based on a specified interest rate index, such as LIBOR or an equity index,
such as the S&P 500.

     Separate accounts products include variable annuities and variable life
insurance contracts. The assets supporting these products are legally segregated
and available only to settle separate accounts contract obligations. Deposits
received are reported as separate accounts liabilities. Contract charges for
these products consist of fees assessed against the contractholder account
values for contract maintenance, administration, mortality, expense and early
surrender. Contract benefits incurred include guaranteed minimum death benefits
paid on variable annuity contracts.

REINSURANCE RECOVERABLE

     Reinsurance recoverable and the related reserve for life-contingent
contract benefits and contractholder funds are reported separately in the
Statements of Financial Position. The Company continues to have primary
liability as the direct insurer for risks reinsured.

                                       22
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

     Investment income earned on the assets that support contractholder funds
and the reserve for life-contingent contract benefits is not included in the
Company's financial statements as those assets are owned and managed by ALIC
under terms of reinsurance agreements.

GOODWILL

     Goodwill represents the excess of amounts paid for acquiring businesses
over the fair value of the net assets acquired. The Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and other Intangible Assets", effective January 1, 2002. The statement
eliminates the requirement to amortize goodwill, and requires that goodwill and
separately identified intangible assets with indefinite lives be evaluated for
impairment on an annual basis (or more frequently if impairment indicators
arise) on a fair value basis. The Company analyzed the unamortized goodwill
balance of December 31, 2003 for impairment using the fair value impairment
approach prescribed by SFAS No. 142 and has determined that the balance is not
impaired. The goodwill balance was $1.2 million at December 31, 2003 and 2002
and is reported in other assets on the Statements of Financial Position.

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 at the enacted tax
rates. The principal assets and liabilities giving rise to such differences are
unrealized capital gains and losses on certain investments and differences in
the tax bases of investments. A deferred tax asset valuation allowance is
established when there is uncertainty that such assets would be realized.

SEPARATE ACCOUNTS

     The Company issues variable annuities and variable life insurance
contracts, the assets and liabilities of which are legally segregated and
recorded as assets and liabilities of the separate accounts. The assets of the
separate accounts are carried at fair value. Separate accounts liabilities
represent the contractholders' claims to the related assets and are carried at
the fair value of the assets. Investment income and realized capital gains and
losses of the separate accounts accrue directly to the contractholders and
therefore, are not included in the Company's Statements of Operations and
Comprehensive Income. Revenues to the Company from the separate accounts consist
of contract charges for maintenance and administration services, mortality,
early surrender and expenses, which are ceded to ALIC. Deposits to the separate
accounts are not included in the Statements of Cash Flows.

     Absent any contract provision wherein the Company guarantees either a
minimum return or account value upon death or annuitization, variable annuity
and variable life insurance contractholders bear the investment risk that the
separate accounts' funds may not meet their stated investment objectives. The
risk and associated cost of these contract guarantees are ceded to ALIC in
accordance with the reinsurance agreements.

RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS

     The reserve for life-contingent contract benefits, which relates to
immediate annuities with life contingencies, is computed on the basis of
long-term actuarial assumptions as to future investment yields, mortality,
morbidity, terminations and expenses. These assumptions include provisions for
adverse deviation and generally vary by such characteristics as type of
coverage, year of issue and policy duration. Detailed reserve assumptions and
reserve interest rates are outlined in Note 6.

CONTRACTHOLDER FUNDS

     Contractholder funds arise from the issuance of interest-sensitive life
policies and investment contracts. Deposits received are recorded as
interest-bearing liabilities. Contractholder funds are equal to deposits
received and interest credited to the benefit of the contractholder less
surrenders and withdrawals, mortality charges and administrative expenses.
Detailed information on crediting rates and surrender and withdrawal provisions
on contractholder funds are outlined in Note 6.

                                       23
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

PENDING ACCOUNTING STANDARDS

STATEMENT OF POSITION 03-01, "ACCOUNTING AND REPORTING BY INSURANCE ENTERPRISES
FOR CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND FOR SEPARATE ACCOUNTS"
("SOP NO. 03-01")

     In July 2003, the American Institute of Certified Public Accountants issued
SOP 03-01 which applies to several of the Company's insurance products and
product features. The effective date of the SOP is for fiscal years beginning
after December 15, 2003. A provision of the SOP requires the establishment of
reserves in addition to the account balance for contracts containing certain
features that provide guaranteed death or other insurance benefits and
guaranteed income benefits. These reserves are not currently established by the
Company. When established, these reserves will be ceded to ALIC under the terms
of the reinsurance agreements.

PROPOSED ACCOUNTING STANDARDS

EMERGING ISSUES TASK FORCE TOPIC NO. 03-01, "THE MEANING OF OTHER-THAN-TEMPORARY
IMPAIRMENT AND ITS APPLICATION TO CERTAIN Investments" ("EITF NO. 03-01")

     The Emerging Issues Task Force ("EITF") is currently deliberating EITF No.
03-01, which attempts to define other-than-temporary impairment and highlight
its application to investment securities accounted for under both SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115") and Accounting Principles Board Opinion No. 18, "The Equity Method of
Accounting for Investments in Common Stocks"("APB No. 18"). The current issue
summary, which has yet to be finalized, proposes that if, at the evaluation
date, the fair value of an investment security is less than its carrying value
then an impairment exists for which a determination must be made as to whether
the impairment is other-than-temporary. If it is determined that an impairment
is other-than-temporary, then an impairment loss should be recognized equal to
the difference between the investment's carrying value and its fair value at the
reporting date. In recent deliberations, the EITF discussed different models to
assess whether impairment is other-than-temporary for different types of
investments (e.g. SFAS No. 115 marketable equity securities, SFAS No. 115 debt
securities, and equity and cost method investments subject to APB No. 18) and
subsequently decided to use a unified model. Due to the uncertainty of the final
model (or models) that may be adopted, the estimated impact to the Company's
Statements of Operations and Comprehensive Income and Financial Position is
presently not determinable. In November 2003, the EITF reached a consensus with
respect to certain disclosures effective for fiscal years ending after December
15, 2003. Quantitative and qualitative disclosures are required for fixed income
and marketable equity securities classified as available-for-sale or
held-to-maturity under SFAS No. 115. The Company has included those disclosures
at December 31, 2003 (see Note 4).

3.  RELATED PARTY TRANSACTIONS

BUSINESS OPERATIONS

     The Company utilizes services performed by its affiliates, AIC, ALIC and
Allstate Investments, LLC, and business facilities owned or leased and operated
by AIC in conducting its business activities. In addition, the Company shares
the services of employees with AIC. The Company reimburses its affiliates for
the operating expenses incurred on behalf of the Company. The Company is charged
for the cost of these operating expenses based on the level of services
provided. Operating expenses, including compensation and retirement and other
benefit programs, allocated to the Company were $39.1 million, $38.8 million and
$48.6 million in 2003, 2002 and 2001, respectively. Of these costs, the Company
retains investment related expenses on the invested assets of the Company. All
other costs are ceded to ALIC under reinsurance agreements.

BROKER/DEALER SERVICES

     During 2003, the Company entered into a service agreement with Allstate
Distributors, LLC ("ADLLC"), a broker/dealer affiliate of the Company, whereby
ADLLC promotes and markets the fixed and variable annuities sold by the Company
to unaffiliated financial services firms. In addition, ADLLC also acts as the
underwriter of variable annuities sold by the Company. In return for these
services, the Company recorded commission expense of $9.3 million for the year
ended December 31, 2003 that was ceded to ALIC under the terms of the
reinsurance agreements.

                                       24
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

REINSURANCE

     The following table summarizes amounts that were ceded to ALIC under
reinsurance agreements:

<Table>
<Caption>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                         -------------------------------------------
(IN THOUSANDS)                                                              2003            2002            2001
                                                                         -----------     -----------     -----------
<S>                                                                      <C>             <C>             <C>
Contract charges                                                         $    28,057     $    30,368     $    31,771
Interest credited to contractholder funds, contract benefits and
     certain expenses                                                        423,587         364,379         384,825
</Table>

INCOME TAXES

     The Company is a party to a federal income tax allocation agreement with
the Corporation (Note 8).

DEBT

     The Company has entered into an intercompany loan agreement with the
Corporation. The amount of funds available to the Company at a given point in
time is dependent upon the debt position of the Corporation. No amounts were
outstanding for the Company under the intercompany loan agreement during the
three years ended December 31, 2003.

4.  INVESTMENTS

FAIR VALUES

     The amortized cost, gross unrealized gains and losses, and fair value for
fixed income securities are as follows:

<Table>
<Caption>
                                                                           GROSS UNREALIZED
                                                   AMORTIZED       -------------------------------        FAIR
(IN THOUSANDS)                                       COST             GAINS             LOSSES            VALUE
                                                 ------------     --------------    --------------    --------------
<S>                                              <C>              <C>               <C>               <C>
AT DECEMBER 31, 2003
U.S. government and agencies                     $     48,718     $        4,832    $         (127)   $       53,423
Municipal                                                 409                 46                 -               455
Corporate                                              69,034              5,582              (174)           74,442
Asset-backed securities                                10,070                946                 -            11,016
Mortgage-backed securities                             34,540                805              (380)           34,965
                                                 ------------     --------------    --------------    --------------
  Total fixed income securities                  $    162,771     $       12,211    $         (681)   $      174,301
                                                 ============     ==============    ==============    ==============
</Table>

<Table>
<Caption>
                                                                           GROSS UNREALIZED
                                                   AMORTIZED       -------------------------------        FAIR
(IN THOUSANDS)                                       COST             GAINS             LOSSES            VALUE
                                                 -------------    --------------    --------------    --------------
<S>                                              <C>              <C>               <C>               <C>
AT DECEMBER 31, 2002
U.S. government and agencies                     $      49,529    $        6,661    $            -    $       56,190
Municipal                                                  412                45                 -               457
Corporate                                               67,717             6,105              (991)           72,831
Asset-backed securities                                 10,079             1,025                 -            11,104
Mortgage-backed securities                              31,226             1,809                (6)           33,029
                                                 -------------    --------------    --------------    --------------
  Total fixed income securities                  $     158,963    $       15,645    $         (997)   $      173,611
                                                 =============    ==============    ==============    ==============
</Table>

                                       25
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

SCHEDULED MATURITIES

     The scheduled maturities for fixed income securities are as follows at
December 31, 2003:

<Table>
<Caption>
                                                                     AMORTIZED          FAIR
(IN THOUSANDS)                                                         COST             VALUE
                                                                  --------------    --------------
<S>                                                               <C>               <C>
Due in one year or less                                           $       11,464    $       11,799
Due after one year through five years                                     37,645            41,040
Due after five years through ten years                                    51,926            55,142
Due after ten years                                                       17,126            20,339
                                                                  --------------    --------------
                                                                         118,161           128,320
Mortgage and asset-backed securities                                      44,610            45,981
                                                                  --------------    --------------
        Total                                                     $      162,771    $      174,301
                                                                  ==============    ==============
</Table>

     Actual maturities may differ from those scheduled as a result of
prepayments by the issuers. Because of the potential for prepayment on mortgage
and asset-backed securities, they are not categorized by contractual maturity.

NET INVESTMENT INCOME

     Net investment income for the years ended December 31 is as follows:

<Table>
<Caption>
(IN THOUSANDS)                                                         2003              2002              2001
                                                                  --------------    --------------    --------------
<S>                                                               <C>               <C>               <C>
Fixed income securities                                           $       10,223    $       10,381    $       10,566
Short-term investments                                                        99               135               409
                                                                  --------------    --------------    --------------
         Investment income, before expense                                10,322            10,516            10,975
         Investment expense                                                  172               181               260
                                                                  --------------    --------------    --------------
         Net investment income                                    $       10,150    $       10,335    $       10,715
                                                                  ==============    ==============    ==============
</Table>

REALIZED CAPITAL GAINS AND LOSSES, AFTER-TAX

     Realized capital gains and losses by security type for the years ended
December 31 are as follows:

<Table>
<Caption>
(IN THOUSANDS)                                                         2003              2002             2001
                                                                  --------------    --------------    --------------
<S>                                                               <C>               <C>               <C>
Fixed income securities                                           $           79    $       (1,984)   $          435
Income tax (expense) benefit                                                 (28)              694              (152)
                                                                  --------------    --------------    --------------
Realized capital gains and losses, after-tax                      $           51    $       (1,290)   $          283
                                                                  ==============    ==============    ==============
</Table>

     Realized capital gains and losses by transaction type for the years ended
December 31 are as follows:

<Table>
<Caption>
(IN THOUSANDS)                                                         2003              2002              2001
                                                                  --------------    --------------    --------------
<S>                                                               <C>               <C>               <C>
Write-downs in value                                              $            -    $       (1,904)   $            -
Sales - Fixed income securities                                               79               (80)              435
                                                                  --------------    --------------    --------------
    Realized capital gains and losses                                         79            (1,984)              435
    Income tax (expense) benefit                                             (28)              694              (152)
                                                                  --------------    --------------    --------------
    Realized capital gains and losses, after-tax                  $           51    $       (1,290)   $          283
                                                                  ==============    ==============    ==============
</Table>

     Excluding the effects of calls and prepayments, gross gains of $806
thousand, $54 thousand and $636 thousand and gross losses of $727 thousand, $134
thousand, and $201 thousand were realized on sales of fixed income securities
during 2003, 2002 and 2001, respectively.

                                       26
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

UNREALIZED NET CAPITAL GAINS AND LOSSES

     Unrealized net capital gains and losses on fixed income securities included
in accumulated other comprehensive income at December 31, 2003 are as follows:

<Table>
<Caption>
                                                                 GROSS UNREALIZED
                                                  FAIR       -------------------------      UNREALIZED
(IN THOUSANDS)                                   VALUE          GAINS        LOSSES         NET GAINS
                                              ------------   -----------   -----------    -------------
<S>                                           <C>            <C>           <C>            <C>
Fixed income securities                       $    174,301   $    12,211   $      (681)   $      11,530
Deferred income taxes                                                                            (4,036)
                                                                                          -------------
Unrealized net capital gains and losses                                                   $       7,494
                                                                                          =============
</Table>

CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES

     The change in unrealized net capital gains and losses for the years ended
December 31 are as follows:

<Table>
<Caption>
(IN THOUSANDS)                                                          2003              2002             2001
                                                                    -------------     ------------     -------------
<S>                                                                 <C>               <C>              <C>
Fixed income securities                                             $      (3,118)    $      7,828     $       2,512
Deferred income taxes                                                       1,091           (2,740)             (879)
                                                                    -------------     ------------     -------------
(Decrease) increase in unrealized net capital gains and losses      $      (2,027)    $      5,088     $       1,633
                                                                    =============     ============     =============
</Table>

PORTFOLIO MONITORING

     Inherent in the Company's evaluation of a particular security are
assumptions and estimates about the operations of the issuer and its future
earnings potential. Some of the factors considered in evaluating whether a
decline in fair value is other than temporary are: 1) the Company's ability and
intent to retain the investment for a period of time sufficient to allow for an
anticipated recovery in value; 2) the recoverability of principal and interest;
3) the duration and extent to which the fair value has been less than amortized
cost; 4) the financial condition, near-term and long-term prospects of the
issuer, including relevant industry conditions and trends, and implications of
rating agency actions and offering prices; and 5) the specific reasons that a
security is in a significant unrealized loss position, including market
conditions which could affect access to liquidity.

     At December 31, 2003, the Company has unrealized losses of $681 thousand
which relate to 14 holdings of fixed income securities with a fair value of
$30.8 million, all of which are investment grade and which have been in an
unrealized loss position for a period less than 12 months. Investment grade is
defined as a security having a rating from the National Association of Insurance
Commissioners ("NAIC") of 1 or 2; a Moody's rating of Aaa, Aa, A or Baa; a
Standard & Poor's ("S&P") rating of AAA, AA, A or BBB; or a comparable internal
rating. Unrealized losses on investment grade securities are principally related
to changes in interest rates or changes in issuer and sector related credit
spreads since the securities were acquired. As of December 31, 2003, the Company
has the intent and ability to hold these investments for a period of time
sufficient for them to recover in value.

SECURITIES ON DEPOSIT

     At December 31, 2003, fixed income securities with a carrying value of
$10.1 million were on deposit with regulatory authorities as required by law.

5.   FINANCIAL INSTRUMENTS

     In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable, net) and liabilities (including reserve for
life-contingent contract benefits and deferred income taxes) are not considered
financial instruments and are not carried at fair value. Other assets and
liabilities considered financial

                                       27
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

instruments such as accrued investment income and cash are generally of a
short-term nature. Their carrying values are deemed to approximate fair value.

FINANCIAL ASSETS

<Table>
<Caption>
                                                         DECEMBER 31, 2003                   DECEMBER 31, 2002
                                                  -------------------------------     ------------------------------
                                                    CARRYING            FAIR            CARRYING            FAIR
(IN THOUSANDS)                                        VALUE             VALUE             VALUE             VALUE
                                                  -------------     -------------     -------------    -------------
<S>                                               <C>               <C>               <C>              <C>
Fixed income securities                           $     174,301     $     174,301     $     173,611    $     173,611
Short-term investments                                    3,230             3,230             2,778            2,778
Separate accounts                                     1,228,327         1,228,327         1,155,112        1,155,112
</Table>

     Fair values of publicly traded fixed income securities are based upon
quoted market prices or dealer quotes. The fair value of non-publicly traded
securities, primarily privately placed corporate obligations, is based on either
widely accepted pricing valuation models, which use internally developed ratings
and independent third party data (e.g., term structures and current publicly
traded bond prices) as inputs, or independent third party pricing sources.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying values are deemed to approximate fair value.
Separate accounts assets are carried in the Statements of Financial Position at
fair value based on quoted market prices.

FINANCIAL LIABILITIES

<Table>
<Caption>
                                                         DECEMBER 31, 2003                   DECEMBER 31, 2002
                                                  -------------------------------     ------------------------------
                                                    CARRYING            FAIR            CARRYING            FAIR
(IN THOUSANDS)                                        VALUE             VALUE             VALUE             VALUE
                                                  -------------     -------------     -------------    -------------
<S>                                               <C>               <C>               <C>              <C>
Contractholder funds on investment contracts      $   7,223,165     $   6,962,714     $   6,105,536    $   5,863,243
Separate accounts                                     1,228,327         1,228,327         1,155,112        1,155,112
</Table>

     Contractholder funds include interest-sensitive life insurance contracts
and investment contracts. Interest-sensitive life insurance contracts are not
considered financial instruments subject to fair value disclosure requirements.
The fair value of investment contracts is based on the terms of the underlying
contracts. Fixed annuities are valued at the account balance less surrender
charges and immediate annuities without life contingencies are valued at the
present value of future benefits at current interest rates. Market value
adjusted annuities' fair value is estimated to be the market adjusted surrender
value. Equity-indexed annuity contracts' fair value approximates carrying value
since the embedded equity options are carried at market value in the financial
statements. Separate accounts liabilities are carried at the fair value of the
underlying assets.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

     There were no off-balance-sheet financial instruments at December 31, 2003
or 2002.

6.   RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS

     The reserve for life-contingent contract benefits consists of immediate
annuities with life contingencies. The reserve calculation equals the present
value of contractually fixed future benefits based on mortality and interest
assumptions. The assumptions utilized for mortality generally include industry
standard tables, such as the 1983 group annuity mortality table, and tables
based on historical company experience. Interest rate assumptions range from
1.9% to 7.7%.

                                       28
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

     At December 31, contractholder funds consists of the following:

<Table>
<Caption>
(IN THOUSANDS)                                          2003                2002
                                                  ----------------    ----------------
<S>                                               <C>                 <C>
Interest-sensitive life                           $        216,593    $        121,760
Investment contracts:
   Immediate annuities                                      30,834              27,565
   Fixed annuities                                       7,161,959           6,046,324
                                                  ----------------    ----------------
   Total contractholder funds                     $      7,409,386    $      6,195,649
                                                  ================    ================
</Table>

     The following table highlights the key contract provisions relating to
contractholder funds:

<Table>
<Caption>
           PRODUCT                           INTEREST RATE                      WITHDRAWAL/SURRENDER CHARGES
------------------------------   ---------------------------------------   ---------------------------------------
<S>                              <C>                                       <C>
Interest-sensitive life          Interest rates credited range from        Either a percentage of account
                                 2.7% - 5.2%                               balance or dollar amount grading off
                                                                           generally over 20 years

Investment contracts             Interest rates credited range from        Either a declining or a level
                                 1.3% to 7.3% for immediate annuities      percentage charge generally over nine
                                 and 0.0% to 10.0% for fixed annuities     years or less.  Additionally,
                                 (which include equity-indexed             approximately 5.0% of fixed annuities
                                 annuities whose returns are indexed       are subject to market value
                                 to the S&P 500)                           adjustment for discretionary
                                                                           withdrawals.
</Table>

     Contractholder funds activity for the years ended December 31 is as
follows:

<Table>
<Caption>
(IN THOUSANDS)                                          2003                2002
                                                  ----------------    ----------------
<S>                                               <C>                 <C>
Balance, beginning of year                        $      6,195,649    $      5,370,475
Deposits                                                 1,688,005           1,143,977
Benefits and withdrawals                                  (753,787)           (573,478)
Interest credited to contractholder funds                  284,068             289,746
Transfers (to) from separate accounts                       (5,825)            (29,602)
Other adjustments                                            1,276              (5,469)
                                                  ----------------    ----------------
Balance, end of year                              $      7,409,386    $      6,195,649
                                                  ================    ================
</Table>

7.   COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES

GUARANTEES

     In the normal course of business, the Company provides standard
indemnifications to counterparties in contracts in connection with numerous
transactions, including indemnifications for breaches of representations and
warranties, taxes and certain other liabilities, such as third party lawsuits.
The indemnification clauses are often standard contractual terms and were
entered into in the normal course of business based on an assessment that the
risk of loss would be remote. The terms of the indemnifications vary in duration
and nature. In many cases, the maximum obligation is not explicitly stated and
the contingencies triggering the obligation to indemnify have not occurred and
are not expected to occur. Because the obligated amounts of the indemnifications
are not explicitly stated in many cases, the maximum amount of the obligation
under such indemnifications is not determinable. Historically, the Company has
not made any material payments pursuant to these obligations.

     In addition, the Company indemnifies its directors, officers and other
individuals serving at the request of the Company as a director or officer to
the extent provided in its charter and by-laws. Since these indemnifications

                                       29
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

are generally not subject to limitation with respect to duration or amount, the
Company does not believe that it is possible to determine the maximum potential
amount due under these indemnifications.

     The aggregate liability balance related to all guarantees was not material
as of December 31, 2003.

REGULATION

     The Company is subject to changing social, economic and regulatory
conditions. Recent state and federal regulatory initiatives and proceedings have
included efforts to remove barriers preventing banks from engaging in the
securities and insurance businesses, change tax laws affecting the taxation of
insurance companies and the tax treatment of insurance products or competing
non-insurance products that may impact the relative desirability of various
personal investment products and otherwise expand overall regulation of
insurance products and the insurance industry. The ultimate changes and eventual
effects of these initiatives on the Company's business, if any, are uncertain.

LEGAL PROCEEDINGS

     Various legal and regulatory actions are currently pending that involve the
Company and specific aspects of its conduct of business. Like other members of
the insurance industry, the Company is the target of an increasing number of
lawsuits, some of which involve claims for substantial or indeterminate amounts.
This litigation is based on a variety of issues including insurance and claim
settlement practices. The outcome of these disputes is currently unpredictable.
However, at this time, based on their present status and the existence of the
reinsurance agreement with ALIC, it is the opinion of management that the
ultimate liability, if any, in one or more of these actions in excess of amounts
currently reserved is not expected to have a material effect on the results of
operations, liquidity or financial position of the Company.

8.   INCOME TAXES

     The Company joins the Corporation and its other eligible domestic
subsidiaries (the "Allstate Group") in the filing of a consolidated federal
income tax return and is party to a federal income tax allocation agreement (the
"Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the
Company pays to or receives from the Corporation the amount, if any, by which
the Allstate Group's federal income tax liability is affected by virtue of
inclusion of the Company in the consolidated federal income tax return. The
Company has also entered into a supplemental tax sharing agreement with respect
to reinsurance ceded to ALIC to allocate the tax benefits and detriments related
to such reinsurance. Effectively, these agreements result in the Company's
annual income tax provision being computed as if the Company filed a separate
return, adjusted for the reinsurance ceded to ALIC.

     The Internal Revenue Service ("IRS") has completed its review of the
Allstate Group's federal income tax returns through the 1996 tax year. Any
adjustments that may result from IRS examinations of tax returns are not
expected to have a material impact on the financial position, liquidity or
results of operations of the Company.

     The components of the deferred income tax assets and liabilities at
December 31 are as follows:

     (IN THOUSANDS)

<Table>
<Caption>
                                                             2003            2002
                                                         ------------    ------------
     <S>                                                 <C>             <C>
     DEFERRED ASSETS
     Other assets                                        $        281    $          -
     Difference in tax bases of investments                         -             501
                                                         ------------    ------------
         Total deferred assets                                    281             501

     DEFERRED LIABILITIES
     Unrealized net capital gains                              (4,036)         (5,127)
     Difference in tax bases of investments                      (185)              -
     Other liabilities                                              -              (3)
                                                         ------------    ------------
         Total deferred liabilities                            (4,221)         (5,130)
                                                         ------------    ------------
             Net deferred liabilities                    $     (3,940)   $     (4,629)
                                                         ============    ============
</Table>

                                       30
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

     Although realization is not assured, management believes it is more likely
than not that the deferred tax assets will be realized based on the assumption
that certain levels of income will be achieved.

     The components of income tax expense for the years ended December 31 are as
follows:

<Table>
<Caption>
     (IN THOUSANDS)                                       2003           2002            2001
                                                     -------------   ------------    ------------
     <S>                                             <C>             <C>             <C>
     Current                                         $       1,107   $      3,560    $      4,008
     Deferred                                                2,176           (721)           (112)
                                                     -------------   ------------    ------------
       Total income tax expense                      $       3,283   $      2,839    $      3,896
                                                     =============   ============    ============
</Table>

     The Company paid income taxes of $1.8 million, $7.4 million and $3.9
million in 2003, 2002 and 2001, respectively.

     A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the years ended December 31 is as
follows:

<Table>
<Caption>
                                                          2003           2002            2001
                                                     -------------   ------------    ------------
     <S>                                                      <C>            <C>             <C>
     Statutory federal income tax rate                        35.0%          35.0%           35.0%
     Adjustment to prior year tax liabilities                 (2.8)          (0.9)              -
     Other                                                    (0.1)          (0.1)           (0.1)
                                                     -------------   ------------    ------------
     Effective income tax rate                                32.1%          34.0%           34.9%
                                                     =============   ============    ============
</Table>

9. STATUTORY FINANCIAL INFORMATION

     The following table reconciles net income for the years ended December 31,
and shareholder's equity at December 31, as reported herein in conformity with
GAAP with total statutory net income and capital and surplus of the Company,
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities:

<Table>
<Caption>
                                                                 NET INCOME                   SHAREHOLDER'S EQUITY
                                                     -----------------------------------    -------------------------
(IN THOUSANDS)                                         2003         2002         2001          2003          2002
                                                     ---------    ---------    ---------    ----------    -----------
<S>                                                  <C>          <C>          <C>          <C>           <C>
Balance per GAAP                                     $   6,946    $   5,512    $   7,254    $  177,837    $   172,918
Unrealized gain on fixed income securities                   -            -            -       (11,530)       (14,648)
Deferred income taxes                                    2,176         (721)        (112)        3,755          3,524
Reserves and non-admitted assets                         1,816          155         (150)       (2,293)        (1,000)
Other                                                   (2,355)          12           (8)          281           (393)
                                                     ---------    ---------    ---------    ----------    -----------
Balance per statutory accounting practices           $   8,583    $   4,958    $   6,984    $  168,050    $   160,401
                                                     =========    =========    =========    ==========    ===========
</Table>

     The Company prepares its statutory-basis financial statements in conformity
with accounting practices prescribed or permitted by the State of Arizona. The
State of Arizona requires its domestic insurance companies to prepare
statutory-basis financial statements in conformity with the National Association
of Insurance Commissioners ("NAIC") Accounting Practices and Procedures Manual
("Codification"), subject to any deviations prescribed or permitted by the State
of Arizona insurance commissioner.

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 the Company without prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in conformity with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months.

     In the twelve-month period beginning January 1, 2003, the Company did not
pay any dividends. Based on 2003 statutory net income, the maximum amount of
dividends the Company will be able to pay without prior Arizona Insurance
Department approval at a given point in time during 2004 is $8.0 million.

                                       31
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                          NOTES TO FINANCIAL STATEMENTS

RISK-BASED CAPITAL

     The NAIC has a standard for assessing the solvency of insurance companies,
which is referred to as risk-based capital ("RBC"). The requirement consists of
a formula for determining each insurer's RBC and a model law specifying
regulatory actions if an insurer's RBC falls below specified levels. At December
31, 2003, RBC for the Company was above a level that would require regulatory
action.

10.  OTHER COMPREHENSIVE INCOME

     The components of other comprehensive income on a pretax and after-tax
basis for the years ended December 31 are as follows:

<Table>
<Caption>
(IN THOUSANDS)                                                               2003
                                                              ------------------------------------
                                                                                          After-
UNREALIZED CAPITAL GAINS AND LOSSES:                           Pretax        Tax           tax
                                                              ---------    ---------     ---------
  <S>                                                         <C>          <C>           <C>
  Unrealized holding (losses) gains arising during the
    period                                                    $  (3,016)   $   1,056     $  (1,960)
  Less: reclassification adjustments                                102          (35)           67
                                                              ---------    ---------     ---------
  Unrealized net capital gains and losses                        (3,118)       1,091        (2,027)
                                                              ---------    ---------     ---------
  Other comprehensive (loss) income                           $  (3,118)   $   1,091     $  (2,027)
                                                              =========    =========     =========

<Caption>
                                                                             2002
                                                              ------------------------------------
                                                                                          After-
UNREALIZED CAPITAL GAINS AND LOSSES:                           Pretax        Tax           tax
                                                              ---------    ---------     ---------
  <S>                                                         <C>          <C>           <C>
  Unrealized holding gains arising during the period          $   5,844    $  (2,046)    $   3,798
  Less: reclassification adjustments                             (1,984)         694        (1,290)
                                                              ---------    ---------     ---------
  Unrealized net capital gains and losses                         7,828       (2,740)        5,088
                                                              ---------    ---------     ---------
  Other comprehensive income                                  $   7,828    $  (2,740)    $   5,088
                                                              =========    =========     =========

<Caption>
                                                                             2001
                                                              ------------------------------------
                                                                                          After-
UNREALIZED CAPITAL GAINS AND LOSSES:                           Pretax        Tax           tax
                                                              ---------    ---------     ---------
  <S>                                                         <C>          <C>           <C>
  Unrealized holding gains arising during the period          $   2,948    $  (1,032)    $   1,916
  Less: reclassification adjustments                                436         (153)          283
                                                              ---------    ---------     ---------
  Unrealized net capital gains and losses                         2,512         (879)        1,633
                                                              ---------    ---------     ---------
  Other comprehensive income                                  $   2,512    $    (879)    $   1,633
                                                              =========    =========     =========
</Table>

                                       32
<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 (the "Company", an affiliate of The Allstate
Corporation) as of December 31, 2003 and 2002, and the related Statements of
Operations and Comprehensive Income, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 2003. Our audits also
included Schedule I - Summary of Investments - Other Than Investments In Related
Parties and Schedule IV - Reinsurance. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 the Company as of December 31, 2003 and
2002, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, Schedule I - Summary of Investments - Other Than Investments In Related
Parties and Schedule IV - Reinsurance, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.


/s/ Deloitte & Touche LLP

Chicago, Illinois
February 4, 2004

                                       33
<Page>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE

     None.

ITEM 9A.  CONTROLS AND PROCEDURES

     With the participation of our principal executive officer and principal
financial officer, we carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based upon this evaluation, the principal
executive officer and the principal financial officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in our periodic reports filed with
the Securities and Exchange Commission. However, the design of any system of
controls and procedures is based in part upon assumptions about the likelihood
of future events and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives and are effective at the
"reasonable assurance" level.

     During the fiscal quarter ended December 31, 2003, there have been no
changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

PART III

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

(1), (2), (3), (4) AND (5)(ii) DISCLOSURE OF FEES -

     The following fees have been, or will be, billed by Deloitte & Touche LLP,
the member firms of Deloitte & Touche Tohmatsu, and their respective affiliates,
for professional services rendered to us for the fiscal year ending December 31,
2003 and 2002.

<Table>
<Caption>
                                                PERCENTAGE OF 2003 FEES PRE-
                                                 APPROVED BY THE ALLSTATE
                               2003             CORPORATION AUDIT COMMITTEE            2002
                           -----------       -----------------------------------    -----------
<S>                        <C>                              <C>                     <C>
Audit fees (a)             $   285,946                      100%                    $   350,869
Audit related fees                   -                        -                               -
Tax fees                             -                        -                               -
All other fees                       -                        -                               -
                           -----------       -----------------------------------    -----------
TOTAL FEES                 $   285,946                      100%                    $   350,869
                           ===========       ===================================    ===========
</Table>

     (a)  Fees for audits of annual financial statements including financial
          statements for the separate accounts, reviews of quarterly financial
          statements, statutory audits, consents and review of documents filed
          with the Commission. These fees are ceded to ALIC under the Company's
          reinsurance agreement with ALIC.

(5)(i) AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES -

     The Audit Committee of The Allstate Corporation has established
pre-approval policies and procedures for itself and its consolidated
subsidiaries, including the registrant. Those policies and procedures are
incorporated into this Item 14.5(i) by reference to Appendix D to The Allstate
Corporation's Notice of Annual Meeting and Proxy Statement dated March 26, 2004.
The Board of Directors of ALIC has recently formed an audit committee, which
will be responsible for these matters in the future as they relate to ALIC and
its subsidiaries, including the registrant.

                                       34
<Page>

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a)  (1)  The following financial statements, notes thereto and related
     information of Glenbrook Life are included in Item 8.

     Statements of Operations and Comprehensive Income
     Statements of Financial Position
     Statements of Shareholder's Equity
     Statements of Cash Flows
     Notes to Financial Statements
     Independent Auditors' Report

     (2)  The following additional financial statement schedules are furnished
     herewith pursuant to the requirements of Form 10-K.

<Table>
<Caption>
     Glenbrook Life and Annuity Company                                                 Page
     ----------------------------------                                                 ----
     <S>                                                                                 <C>
     Schedules required to be filed under provisions of Regulation S-X Article 7:

     Schedule I - Summary of Investments - Other Than Investments in Related Parties     S-1
     Schedule IV - Reinsurance                                                           S-2
</Table>

     All other schedules have been omitted because they are not applicable or
     required or because the required information is included in the financial
     statements or notes thereto.

     (3)  The following is a list of the exhibits filed as part of this Form
     10-K.

<Table>
<Caption>
       Exhibit No.    Description
       -----------    -----------
       <S>            <C>
       3(i)(A)        Articles of Amendment to the Amended and Restated Articles
                      of Incorporation and Articles of Redomestication of
                      Glenbrook Life and Annuity Company dated October 20, 1999.
                      Incorporated herein by reference to Exhibit 3(i)(A) to
                      Glenbrook Life and Annuity Company's Report on Form 10-Q
                      for the quarter ended March 31, 2002.

       3(i)(B)        Amended and Restated Articles of Incorporation and
                      Articles of Redomestication of Glenbrook Life and Annuity
                      Company. Incorporated herein by reference to Exhibit 3(I)
                      to Glenbrook Life and Annuity Company's Annual Report on
                      Form 10-K for 1998. (SEC File No. 033-91916)

       3(ii)          Amended and Restated Bylaws of Glenbrook Life and Annuity
                      Company. Incorporated herein by reference to Exhibit 3(II)
                      to Glenbrook Life and Annuity Company's Annual Report on
                      Form 10-K for 1998. (SEC File No. 033-91916)

       10.1           Service and Expense Agreement among Allstate Insurance
                      Company and The Allstate Corporation and Certain Insurance
                      Subsidiaries dated January 1, 1999. Incorporated herein by
                      reference to Exhibit 10.2 to Northbrook Life Insurance
                      Company's Quarterly Report on Form 10-Q for the quarter
                      ended March 31, 2002.

       10.2           Investment Management Agreement and Amendment to Certain
                      Service and Expense Agreements Among Allstate Investments,
                      LLC and Allstate Insurance Company and The Allstate
                      Corporation and Certain Affiliates effective as of January
                      1, 2002. Incorporated herein by reference to Exhibit 10.3
                      to Northbrook Life Insurance Company's Quarterly Report on
                      Form 10-Q for the quarter ended March 31, 2002.

       10.3           Tax Sharing Agreement dated as November 12, 1996 among The
                      Allstate Corporation and
</Table>

                                       35
<Page>

<Table>
       <S>            <C>
                      certain affiliates. Incorporated herein by reference to
                      Exhibit 10.4 to Northbrook Life Insurance Company's
                      Quarterly Report on Form 10-Q for the quarter ended March
                      31, 2002.

       10.4           Underwriting Agreement for "Provider" Variable Annuity
                      Contracts between Glenbrook Life and Annuity Company and
                      ALFS, Inc. effective January 1, 1997. Incorporated herein
                      by reference to Exhibit 10.1 to Glenbrook Life and Annuity
                      Company's Quarterly Report on Form 10-Q for the quarter
                      ended June 30, 2002.

       10.5           Underwriting Agreement for "Provider" Variable Life
                      Insurance between Glenbrook Life and Annuity Company and
                      ALFS, Inc. effective January 1, 1997. Incorporated herein
                      by reference to Exhibit 10.2 to Glenbrook Life and Annuity
                      Company's Quarterly Report on Form 10-Q for the quarter
                      ended June 30, 2002.

       10.6           Coinsurance Agreement between Glenbrook Life and Annuity
                      Company and Allstate Life Insurance Company effective
                      December 31, 2001. Incorporated herein by reference to
                      Exhibit 10.6 to Glenbrook Life and Annuity Company's
                      Annual Report on Form 10-K for 2002.

       10.7           Modified Coinsurance Agreement between Glenbrook Life and
                      Annuity Company and Allstate Life Insurance Company
                      effective December 31, 2001. Incorporated herein by
                      reference to Exhibit 10.7 to Glenbrook Life and Annuity
                      Company's Annual Report on Form 10-K for 2002.

       23             Independent Auditors' Consent

       31.1           Rule 15d-14(a) Certification of Principal Executive
                      Officer

       31.2           Rule 15d-14(a) Certification of Principal Financial
                      Officer

      32              Section 1350 Certifications
</Table>

(b) No reports on Form 8-K were filed during the fourth quarter of 2003.

(c) The exhibits are listed in Item 15. (a) (3) above.

(d) The financial statement schedules are listed in Item 15. (a) (2) above.

                                       36
<Page>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                GLENBROOK LIFE AND ANNUITY COMPANY
                                (Registrant)

     March 24, 2004             /s/  Samuel H. Pilch
                                --------------------
                                By: Samuel H. Pilch
                                -------------------
                                (chief accounting officer and duly authorized
                                officer of the registrant)


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
SIGNATURE                                TITLE                                    DATE
---------                                -----                                    ----
<S>                                      <C>                                      <C>
/s/ Casey J. Sylla                       President, Chief Executive               March 24, 2004
------------------                       Officer and a Director
Casey J. Sylla                           (Principal Executive Officer)


/s/ Steven E. Shebik                     Vice President, Chief Financial          March 24, 2004
--------------------                     Officer and a Director
Steven E. Shebik                         (Principal Financial Officer)


/s/ John C. Lounds                       Director                                 March 24, 2004
------------------
John C. Lounds


/s/ J. Kevin Mccarthy                    Director                                 March 24, 2004
---------------------
J. Kevin McCarthy


/s/ Kevin R. Slawin                      Director                                 March 24, 2004
-------------------
Kevin R. Slawin


/s/ Michael J. Velotta                   Director                                 March 24, 2004
----------------------
Michael J. Velotta
</Table>

                                       37
<Page>

           SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
        PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
               BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
          PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

     All of the outstanding common stock of the Company is owned by Allstate
Life Insurance Company. The Company has not provided any of the following items
to security holders:

          (1)  annual reports to security holders covering the registrant's last
               fiscal year; or
          (2)  proxy statements, forms of proxy or other proxy soliciting
               materials.

                                       38
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
          SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS
                               IN RELATED PARTIES
                                DECEMBER 31, 2003

<Table>
<Caption>
                                                                                                              CARRYING
(IN THOUSANDS)                                                                   COST        FAIR VALUE         VALUE
                                                                           --------------   -------------   -------------
<S>                                                                        <C>              <C>             <C>
TYPE OF INVESTMENT
Fixed income securities, available for sale:
   Bonds:
      United States government, government agencies and authorities....... $       48,718   $      53,423   $      53,423
      States, municipalities and political subdivisions...................            409             455             455
      Public utilities....................................................         11,823          12,759          12,759
      All other corporate bonds...........................................         57,211          61,683          61,683
   Mortgage-backed securities.............................................         34,540          34,965          34,965
   Asset-backed securities................................................         10,070          11,016          11,016
                                                                           --------------   -------------   -------------
      Total fixed income securities.......................................        162,771   $     174,301         174,301
                                                                           --------------   =============   -------------

Short-term investments....................................................          3,230                           3,230
                                                                           --------------                   -------------
      Total investments................................................... $      166,001                   $     177,531
                                                                           ==============                   =============
</Table>

                                       S-1
<Page>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                            SCHEDULE IV--REINSURANCE

(IN THOUSANDS)

<Table>
<Caption>
                                                    GROSS                                NET
YEAR ENDED DECEMBER 31, 2003                        AMOUNT             CEDED            AMOUNT
---------------------------------------          -------------     -------------     -------------
<S>                                              <C>               <C>               <C>
Life insurance in force                          $     444,260     $     444,260     $           -
                                                 =============     =============     =============

Premiums and contract charges:
       Life and annuities                        $      28,057     $      28,057     $           -
                                                 =============     =============     =============

<Caption>
                                                    GROSS                                NET
YEAR ENDED DECEMBER 31, 2002                        AMOUNT             CEDED            AMOUNT
---------------------------------------          -------------     -------------     -------------
<S>                                              <C>               <C>               <C>
Life insurance in force                          $     283,913     $     283,913     $           -
                                                 =============     =============     =============

Premiums and contract charges:
       Life and annuities                        $      30,368     $      30,368     $           -
                                                 =============     =============     =============

<Caption>
                                                    GROSS                                NET
YEAR ENDED DECEMBER 31, 2001                        AMOUNT             CEDED            AMOUNT
---------------------------------------          -------------     -------------     -------------
<S>                                              <C>               <C>               <C>
Life insurance in force                          $     187,400     $     187,400     $           -
                                                 =============     =============     =============

Premiums and contract charges:
       Life and annuities                        $      31,711     $      31,711     $           -
                                                 =============     =============     =============
</Table>

                                       S-2