<PAGE>
THE PUTNAM ALLSTATE ADVISOR PLUS
Allstate Life Insurance Company Prospectus dated February 4, 2000
3100 Sanders Road
Northbrook, Illinois 60062
Telephone Number: 1-800-390-1277
Allstate Life Insurance Company ("Allstate") is offering The Putnam Allstate
Advisor Plus, an individual and group flexible premium deferred variable annuity
contract ("Contract"). This prospectus contains information about the Contract
that you should know before investing. Please keep it for future reference.
The Contract currently offers 25 investment alternatives ("investment
alternatives"). The investment alternatives include a fixed account option
("Standard Fixed Account Option") and 24 variable sub-accounts ("Variable
Sub-Accounts") of the Allstate Life Insurance Company Separate Account A
("Variable Account"). Each Variable Sub-Account invests exclusively in the class
IB shares of one of the following mutual fund portfolios ("Funds") of Putnam
Variable Trust:
<TABLE>
<S> <C>
Putnam VT American Government Income Fund Putnam VT International Growth Fund
Putnam VT Asia Pacific Growth Fund Putnam VT International New Opportunities Fund
Putnam VT Diversified Income Fund Putnam VT Investors Fund
Putnam VT The George Putnam Fund of Boston Putnam VT Money Market Fund
Putnam VT Global Asset Allocation Fund Putnam VT New Opportunities Fund
Putnam VT Global Growth Fund Putnam VT New Value Fund
Putnam VT Growth and Income Fund Putnam VT OTC & Emerging Growth Fund
Putnam VT Growth Opportunities Fund Putnam VT Research Fund
Putnam VT Health Sciences Fund Putnam VT Small Cap Value Fund
Putnam VT High Yield Fund Putnam VT Utilities Growth and Income Fund
Putnam VT Income Fund Putnam VT Vista Fund
Putnam VT International Growth and Income Fund Putnam VT Voyager Fund
</TABLE>
Each time you make a purchase payment, we will add to your Contract value
("CONTRACT VALUE") a credit enhancement ("CREDIT ENHANCEMENT") equal to 4% of
such purchase payment. Over time, the amount of the Credit Enhancement may be
more than offset by the fees associated with the Credit Enhancement.
We (Allstate) have filed a Statement of Additional Information, dated
February 4, 2000, with the Securities and Exchange Commission ("SEC"). It
contains more information about the Contract and is incorporated herein by
reference, which means that it is legally a part of this prospectus. Its
table of contents appears on page 31 of this prospectus. For a free copy,
please write or call us at the address or telephone number above, or go to
the SEC's Web site (www.sec.gov). You can find other information and
documents about us, including documents that are legally part of this
prospectus, at the SEC's Web site.
The Securities and Exchange Commission has not approved
or disapproved the securities described in this
prospectus, nor has it passed on the accuracy or the
adequacy of this prospectus. Any one who tells you
otherwise is committing a federal crime.
The Contracts may be distributed through broker-dealers
IMPORTANT that have relationships with banks or other financial
NOTICES institutions or by employees of such banks. However,
the Contracts are not deposits, or obligations of, or
guaranteed by such institutions or any federal
regulatory agency. Investment in the Contracts involves
investment risks, including possible loss of principal.
The Contracts are not FDIC insured.
1 PROSPECTUS
<PAGE>
TABLE OF CONTENTS
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Page
Important Terms......................................... 3
Overview The Contract At A Glance ............................... 4
How the Contract Works.................................. 6
Expense Table........................................... 7
Financial Information................................... 11
The Contract............................................ 12
Purchases............................................... 13
Contract Value.......................................... 14
Contract Features Investment Alternatives................................. 15
The Variable Sub-Accounts...................... 15
The Fixed Account.............................. 16
Transfers...................................... 16
Expenses................................................ 18
Access To Your Money.................................... 19
Income Payments......................................... 20
Death Benefits.......................................... 23
More Information........................................ 26
Other Information Taxes................................................... 28
Performance Information................................. 30
Statement of Additional Information Table of Contents.. 31
Appendix A.............................................. A-1
Appendix B.............................................. A-2
2 PROSPECTUS
<PAGE>
IMPORTANT TERMS
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This prospectus uses a number of important terms that you may not be familiar
with. The index below identifies the page that describes each term. The first
use of each term in this prospectus appears in highlights.
Page
Accumulation Phase.......................................... 6
Accumulation Unit .......................................... 11
Accumulation Unit Value .................................... 11
Allstate ("We")............................................. 1
Annuitant................................................... 12
Automatic Additions Program................................. 13
Automatic Fund Rebalancing Program.......................... 17
Beneficiary ................................................ 6
Cancellation Period ........................................ 4
*Contract .................................................. 1
Contract Anniversary........................................ 4
Contract Owner ("You") ..................................... 6
Contract Value ............................................. 14
Contract Year .............................................. 5
Credit Enhancement.......................................... 13
Dollar Cost Averaging Program............................... 17
Enhanced Beneficiary Protection Option...................... 24
Free Withdrawal Amount ..................................... 18
Funds....................................................... 1
Guarantee Period ........................................... 16
Income Base................................................. 23
Income Plan ................................................ 20
Investment Alternatives .................................... 1
Issue Date ................................................. 6
Maximum Anniversary Value................................... 23
Payout Phase................................................ 6
Payout Start Date .......................................... 20
Retirement Income Guarantee Rider........................... 22
Right to Cancel ............................................ 14
SEC......................................................... 1
Settlement Value ........................................... 24
Standard Fixed Account Option............................... 16
Systematic Withdrawal Program .............................. 20
Valuation Date.............................................. 13
Variable Account ........................................... 1
Variable Sub-Account ....................................... 1
* If you purchase a group Contract, we will issue you a certificate
that represents your ownership and that summarizes the provisions of
the group Contract. References to "Contract" in this prospectus include
certificates, unless the context requires otherwise. In certain states
the Contract is available only as a group Contract.
3 PROSPECTUS
<PAGE>
THE CONTRACT AT A GLANCE
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The following is a snapshot of the Contract. Please read the remainder of this
prospectus for more information.
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Flexible Payments You can purchase a Contract with a minimum
of $10,000. You can add to your Contract
as often and as much as you like, but each
subsequent payment must be at least $500
($50 for automatic payments). We may limit
the amount of any additional purchase
payment to a maximum of $1,000,000. You
must maintain a minimum account size of
$1,000.
Each time you make a purchase payment, we
will add to your Contract Value a Credit
Enhancement equal to 4% of such purchase
payment.
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Right to Cancel You may cancel your Contract within 20
days of receipt or any longer period as
your state may require ("Cancellation
Period"). Upon cancellation, we will
return your purchase payments adjusted, to
the extent state law permits, to reflect
the investment experience of any amounts
allocated to the Variable Account. If you
exercise your Right to Cancel the
Contract, the amount we refund to you will
not include any Credit Enhancement. See
"Right to Cancel" for details.
---------------------------------- -----------------------------------------
---------------------------------- -----------------------------------------
Expenses You will bear the following expenses:
- Mortality and expense risk charge
equal to 1.60% of average daily net
assets (higher amount applies if you
select the Enhanced Beneficiary
Protection Option)
- If you select a Retirement Income
Guarantee Rider you would pay an
additional fee at the annual rate of
0.05% or 0.30% (depending on the
option you select) of the Income Base
in effect on a Contract Anniversary
("Contract Anniversary")
- Withdrawal charges ranging from 0% to
8% of purchase payments withdrawn
(with certain exceptions)
- Transfer fee equal to 0.50% of the
amount transferred after 12th transfer
in any year
- State premium tax (if your state
imposes one)
In addition, each Fund pays expenses that
you will bear indirectly if you invest in
a Variable Sub-Account.
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Investment
Alternatives The Contract offers 25 investment
alternatives including:
- a Fixed Account Option (which credits
interest at rates we guarantee)
- 24 Variable Sub-Accounts investing in
Funds offering professional money
management by Putnam Investment
Management, Inc.
To find out current rates being paid on
the Standard Fixed Account Option, or to
find out how the Variable Sub-Accounts
have performed, please call us at
1-800-390-1277.
4 PROSPECTUS
<PAGE>
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Special Services For your convenience, we offer these
special services:
- Automatic Fund Rebalancing Program
- Automatic Additions Program
- Dollar Cost Averaging Program
- Systematic Withdrawal Program
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----------------------------------- ----------------------------------------
Income Payments You can choose fixed income payments,
variable income payments, or a combination
of the two. You can receive your income
payments in one of the following ways:
- life income with guaranteed payments
- a joint and survivor life income with
guaranteed payments
- guaranteed payments for a specified
period (5 to 30 years)
Allstate also offers 2 Retirement Income
Guarantee Riders that allow you to lock in
a dollar amount that you can apply towards
fixed income payments.
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----------------------------------- ----------------------------------------
Death Benefits If you die before income payments
begin, we will pay the death benefit
described in the Contract. We also offer
an Enhanced Beneficiary Protection Option.
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Transfers Before income payments begin, you may
transfer your Contract Value among the
Investment alternatives, with certain
restrictions. The minimum amount you may
transfer is $100 or the amount remaining
in the investment alternative, if less.
A charge may apply after the 12th transfer
in each Contract year ("Contract Year"),
which we measure from the date we issue
your Contract or a Contract Anniversary.
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----------------------------------- ----------------------------------------
Withdrawals You may withdraw some or all of your
Contract Value at anytime prior to the
date income payments begin. In general,
you must withdraw at least $50 at a time.
A 10% federal tax penalty may apply if you
withdraw before you are 59 1/2 years old.
A withdrawal charge also may apply.
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5 PROSPECTUS
<PAGE>
HOW THE CONTRACT WORKS
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The Contract basically works in two ways.
First, the Contract can help you (we assume you are the "Contract Owner")
save for retirement because you can invest in up to 25 investment alternatives
and pay no federal income taxes on any earnings until you withdraw them. You do
this during what we call the "Accumulation Phase" of the Contract. The
Accumulation Phase begins on the date we issue your Contract (we call that date
the "Issue Date") and continues until the Payout Start Date, which is the date
we apply your money to provide income payments. During the Accumulation Phase,
you may allocate your purchase payments to any combination of the Variable
Sub-Accounts and/or Standard Fixed Account Option. If you invest in the Standard
Fixed Account Option, you will earn a fixed rate of interest that we declare
periodically. If you invest in any of the Variable Sub-Accounts, your investment
return will vary up or down depending on the performance of the corresponding
Funds.
Second, the Contract can help you plan for retirement because you can use
it to receive retirement income for life and/or for a pre-set number of years,
by selecting one of the income payment options (we call these "Income Plans")
described on page 20. You receive income payments during what we call the
"Payout Phase" of the Contract, which begins on the Payout Start Date and
continues until we make the last payment required by the Income Plan you select.
During the Payout Phase, if you select a fixed income payment option, we
guarantee the amount of your payments, which will remain fixed. If you select a
variable income payment option, based on one or more of the Variable
Sub-Accounts, the amount of your payments will vary up or down depending on the
performance of the corresponding Funds. The amount of money you accumulate under
your Contract during the Accumulation Phase and apply to an Income Plan will
determine the amount of your income payments during the Payout Phase.
The timeline below illustrates how you might use your Contract.
<TABLE>
<CAPTION>
Issue Payout Start
Date Accumulation Phase Date Payout Phase
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
You buy You save for retirement You start receiving income You can receive Or you can receive
a Contract payments or receive a lump income payments income payments
sum payment for a set period for life
</TABLE>
As the Contract Owner, you exercise all of the rights and privileges
provided by the Contract. If you die, any surviving Contract Owner or, if there
is none, the Beneficiary will exercise the rights and privileges provided by the
Contract. See "The Contract." In addition, if you die before the Payout Start
Date, we will pay a death benefit to any surviving Contract Owner or, if there
is none, to your Beneficiary. See "Death Benefits."
Please call us at 1-800-390-1277 if you have any question about how the
Contract works.
6 PROSPECTUS
<PAGE>
EXPENSE TABLE
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The table below lists the expenses that you will bear directly or indirectly
when you buy a Contract. The table and the examples that follow do not reflect
premium taxes that may be imposed by the state where you reside. For more
information about Variable Account expenses, see "Expenses," below. For more
information about Fund expenses, please refer to the accompanying prospectus for
the Funds.
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CONTRACT OWNER TRANSACTION EXPENSES
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Withdrawal Charge (as a percentage of purchase payments withdrawn)*
Number of Complete Years
Since We Received the Purchase
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payment Being Withdrawn 0 1 2 3 4 5 6 7 8+
Applicable Charge: 8% 8% 8% 7% 6% 5% 4% 3% 0%
</TABLE>
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Transfer Fee..............................0.50% of the amount transferred**
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* Each Contract Year, you may withdraw up to 15% of your total purchase
payments without incurring a withdrawal charge.
**Applies solely to the thirteenth and subsequent transfers within a Contract
Year, excluding transfers due to dollar cost averaging and automatic fund
rebalancing.
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VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of average daily net
asset value deducted from each Variable Sub-Account)
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Mortality and Expense Risk Charge....................................1.60%*
Total Variable Account Annual Expenses.........1.60%
* If you select the Enhanced Beneficiary Protection Option, the mortality and
expense risk charge will be equal to 1.75% of your Contract's average daily
net assets in the Variable Account.
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Retirement Income Guarantee Rider Expenses
If you select a Retirement Income Guarantee Rider, you would pay an
additional fee at the annual rate of 0.05% or 0.30% (depending on the Option
you select) of the Income Base in effect on a Contract Anniversary. See
"Retirement Income Guarantee Riders" for details.
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7 PROSPECTUS
<PAGE>
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FUND ANNUAL EXPENSES (After Voluntary Reductions and Reimbursements) (as a
percentage of Fund average daily net assets)(1)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------- ---------------- ---------------- ------------- -------------
Management Fees Rule 12b-1 Fees Other Total
Fund Expenses Annual Fund
Expenses (1)
- ----------------------------------------------------- ---------------- ---------------- ------------- -------------
- ----------------------------------------------------- ---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Putnam VT American Government Income Fund(4) 0.41% 0.15% 0.49% 1.05%
Putnam VT Asia Pacific Growth Fund 0.80% 0.15% 0.32% 1.27%
Putnam VT Diversified Income Fund 0.67% 0.15% 0.11% 0.93%
Putnam VT The George Putnam Fund of Boston (2) 0.49% 0.15% 0.36% 1.00%
Putnam VT Global Asset Allocation Fund 0.65% 0.15% 0.13% 0.93%
Putnam VT Global Growth Fund 0.60% 0.15% 0.12% 0.87%
Putnam VT Growth and Income Fund 0.46% 0.15% 0.04% 0.65%
Putnam VT Growth Opportunities Fund(4) 0.70% 0.15% 0.20% 1.05%
Putnam VT Health Sciences Fund (2) 0.56% 0.15% 0.34% 1.05%
Putnam VT High Yield Fund 0.64% 0.15% 0.07% 0.86%
Putnam VT Income Fund 0.60% 0.15% 0.07% 0.82%
Putnam VT International Growth Fund 0.80% 0.15% 0.27% 1.22%
Putnam VT International Growth and Income Fund 0.80% 0.15% 0.19% 1.14%
Putnam VT International New Opportunities Fund (2) 1.18% 0.15% 0.42% 1.75%
Putnam VT Investors Fund (2) 0.52% 0.15% 0.33% 1.00%
Putnam VT Money Market Fund 0.45% 0.15% 0.08% 0.68%
Putnam VT New Opportunities Fund 0.56% 0.15% 0.05% 0.76%
Putnam VT New Value Fund 0.70% 0.15% 0.11% 0.96%
Putnam VT OTC & Emerging Growth Fund (2) 0.56% 0.15% 0.34% 1.05%
Putnam VT Research Fund (2) 0.37% 0.15% 0.48% 1.00%
Putnam VT Small Cap Value Fund (3) 0.80% 0.15% 0.59% 1.54%
Putnam VT Utilities Growth and Income Fund 0.65% 0.15% 0.07% 0.87%
Putnam VT Vista Fund 0.65% 0.15% 0.12% 0.92%
Putnam VT Voyager Fund 0.54% 0.15% 0.04% 0.73%
</TABLE>
(1) Figures shown in the table except for Putnam VT Small Cap Value Fund are
for the period ended December 31, 1998 and are estimates based on the
corresponding expenses for the Fund's Class IA shares for that period.
Each Fund (Class IB shares) commenced operations on April 30, 1998,
except for Putnam VT Diversified Income Fund, Putnam VT Growth and Income
Fund, and Putnam VT International Growth Fund, which commenced operations
on April 6, 1998, Putnam VT Research Fund, which commenced operations
September 29, 1998, and Putnam VT Small Cap Value Fund, which commenced
operations on April 30, 1999. Figures shown in the table include amounts
paid through expense offset and brokerage service arrangements. See the
Fund's prospectus for more information about 12b-1 fees payable under the
Fund's distribution plan.
(2) Absent voluntary reductions and reimbursements for certain Funds, advisory
fees, Rule 12b-1 fees, other expenses, and total annual fund expenses
expressed as a percentage of average net assets of the Funds would have been
as follows:
<TABLE>
- ----------------------------------------------------- ---------------- ---------------- ------------- -----------
<S> <C> <C> <C> <C>
Putnam VT The George Putnam Fund of Boston 0.65% 0.15% 0.36% 1.16%
Putnam VT Health Sciences Fund 0.70% 0.15% 0.34% 1.19%
Putnam VT International New Opportunities Fund 1.20% 0.15% 0.42% 1.77%
Putnam VT Investors Fund 0.65% 0.15% 0.33% 1.13%
Putnam VT OTC & Emerging Growth Fund 0.70% 0.15% 0.34% 1.19%
Putnam VT Research Fund 0.65% 0.15% 0.48% 1.28%
- ----------------------------------------------------- ---------------- ---------------- ------------- -----------
</TABLE>
(3) Putnam VT Small Cap Value Fund commenced operations on April 30, 1999. The
management fee, other expenses and total annual fund operating expenses are
based on estimates for the Fund's first full fiscal year.
(4) Putnam VT American Government Income Fund and Putnam VT Growth Opportunities
Fund commenced operations on January 31, 2000; therefore, the management
fees, 12b-1 fees, other expenses and total annual fund expenses are based on
estimates for the funds' first fiscal year. Absent voluntary reductions and
reimbursements, the estimated management fees, 12b-1 fees, other expenses,
and total annual fund expenses for the Putnam VT American Government Income
Fund expressed as a percentage of average net assets of the fund would have
been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Putnam VT American Government Income Fund .65% .15% .49% 1.29%
</TABLE>
8 PROSPECTUS
<PAGE>
EXAMPLE 1
The example below shows the dollar amount of expenses that you would bear
directly or indirectly if you:
- invested $1,000 in a Variable Sub-Account,
- earned a 5% annual return on your investment,
- surrendered your Contract, or began receiving income payments for a
specified period of less than 120 months, at the end of each time
period; and
- elect Retirement Income Guarantee Rider 2 (assuming Income Base B).
The example does not include any taxes or tax penalties you may be required to
pay if you surrender your Contract.
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS
- ----------- ------ -------
<S> <C> <C>
Putnam American Government Income $ 98 $161
Putnam Asia Pacific Growth $101 $168
Putnam Diversified Income $ 97 $158
The George Putnam Fund $ 98 $160
Putnam Global Asset Allocation $ 97 $158
Putnam Global Growth $ 96 $156
Putnam Growth and Income $ 94 $149
Putnam Growth Opportunities $ 98 $161
Putnam Health Sciences $ 98 $161
Putnam High Yield $ 96 $155
Putnam Income $ 96 $154
Putnam International Growth $100 $166
Putnam International Growth and Income $ 99 $164
Putnam International New Opportunities $106 $182
Putnam Investors $ 98 $160
Putnam Money Market $ 95 $150
Putnam New Opportunities $ 95 $152
Putnam New Value $ 97 $158
Putnam OTC & Emerging Growth $ 98 $161
Putnam Research $ 98 $160
Putnam Small Cap Value $103 $176
Putnam Utilities Growth and Income $ 96 $156
Putnam Vista $ 97 $157
Putnam Voyager $ 95 $151
9 PROSPECTUS
<PAGE>
EXAMPLE 2
Same assumptions as Example 1 above, except that you decide not to surrender
your Contract, or you began receiving income payments for at least 120 months if
under an Income Plan for a specified period, at the end of each period.
SUB-ACCOUNT 1 YEAR 3 YEARS
- ----------- ------ -------
<S> <C> <C>
Putnam American Government Income $30 $ 93
Putnam Asia Pacific Growth $33 $100
Putnam Diversified Income $29 $ 90
The George Putnam Fund $30 $ 92
Putnam Global Asset Allocation $29 $ 90
Putnam Global Growth $28 $ 88
Putnam Growth and Income $26 $ 81
Putnam Growth Opportunities $30 $ 93
Putnam Health Sciences $30 $ 93
Putnam High Yield $28 $ 87
Putnam Income $28 $ 86
Putnam International Growth $32 $ 98
Putnam International Growth and Income $31 $ 96
Putnam International New Opportunities $38 $114
Putnam Investors $30 $ 92
Putnam Money Market $27 $ 82
Putnam New Opportunities $27 $ 84
Putnam New Value $29 $ 90
Putnam OTC & Emerging Growth $30 $ 93
Putnam Research $30 $ 92
Putnam Small Cap Value $35 $108
Putnam Utilities Growth and Income $28 $ 88
Putnam Vista $29 $ 89
Putnam Voyager $27 $ 83
</TABLE>
Please remember that you are looking at examples and not a representation of
past or future expenses. Your actual expenses may be lower or greater than those
shown above. Similarly, your rate of return may be lower or greater than 5%,
which is not guaranteed. The above examples assume the election of the
Retirement Income Guarantee Rider 2 and that Income Base B is applied. If that
Rider were not elected, the expense figures shown above would be slightly lower.
10 PROSPECTUS
<PAGE>
FINANCIAL INFORMATION
- ------------------------------------------------------------------------------
To measure the value of your investment in the Variable Sub-Accounts during the
Accumulation Phase, we use a unit of measure we call the "Accumulation Unit."
Each Variable Sub-Account has a separate value for its Accumulation Units we
call "Accumulation Unit Value." Accumulation Unit Value is analogous to, but not
the same as, the share price of a mutual fund.
The Contracts were first offered as of the date of this prospectus. Accordingly,
there are no Accumulation Unit Values relating to the Contracts to report.
The combined statutory basis financial statements of Allstate as of
December 31, 1998 and 1997 and for the two years ended December 31, 1998,
appear in the Statement of Additional Information. The combined statutory
basis financial statements of Allstate as of September 30, 1999 and for the
nine month periods ended September 30, 1999 and 1998 are unaudited and also
appear in the Statement of Additional Information. The financial statements
of the Variable Account as of December 31, 1999 are unaudited and appear in
the Statement of Additional Information.
11 PROSPECTUS
<PAGE>
THE CONTRACT
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CONTRACT OWNER
The Putnam Allstate Advisor Plus is a contract between you, the Contract Owner,
and Allstate, a life insurance company. As the Contract Owner, you may exercise
all of the rights and privileges provided to you by the Contract. That means it
is up to you to select or change (to the extent permitted):
- the investment alternatives during the Accumulation and Payout Phases,
- the amount and timing of your purchase payments and withdrawals,
- the programs you want to use to invest or withdraw money,
- the income payment plan you want to use to receive retirement income,
- the Annuitant (either yourself or someone else) on whose life the
income payments will be based,
- the Beneficiary or Beneficiaries who will receive the benefits that
the Contract provides when the last surviving Contract Owner or the
Annuitant dies, and
- any other rights that the Contract provides.
If you die, any surviving joint Contract Owner or, if none, the Beneficiary will
exercise the rights and privileges provided to them by the Contract. The
Contract cannot be jointly owned by both a non-natural person and a natural
person.
You can use the Contract with or without a qualified plan. A qualified plan is a
personal retirement savings plan, such as an IRA or tax-sheltered annuity, that
meets the requirements of the Internal Revenue Code. Qualified plans may limit
or modify your rights and privileges under the Contract. We use the term
"Qualified Contract" to refer to a Contract issued with a qualified plan. See
"Qualified Plans" on page 29.
You may change the Contract Owner at any time. Once we have received a
satisfactory written request for a change of Contract Owner, the change will
take effect as of the date you signed it. We are not liable for any payment we
make or other action we take before receiving any written request for a change
from you.
ANNUITANT
The Annuitant is the individual whose age determines the latest Payout Start
Date and whose life determines the amount and duration of income payments (other
than under Income Plans with guaranteed payments for a specified period). You
may name a new Annuitant only upon the death of the current Annuitant. You may
designate a joint Annuitant, who is a second person on whose life income
payments depend, at the time you select an Income Plan.
If you select an Income Plan that depends on the Annuitant or a joint
Annuitant's life, we may require proof of age and sex before income payments
begin and proof that the Annuitant or joint Annuitant is still alive before we
make each payment.
BENEFICIARY
The Beneficiary is the person who may elect to receive the death benefit or
become the new Contract Owner if the sole surviving Contract Owner dies before
the Payout Start Date. If the sole surviving Contract Owner dies after the
Payout Start Date, the Beneficiary will receive any guaranteed income payments
scheduled to continue.
You may name one or more Beneficiaries when you apply for a Contract. You may
change or add Beneficiaries at any time by writing to us before income payments
begin, unless you have designated an irrevocable Beneficiary. We will provide a
change of Beneficiary form to be signed and filed with us. Any change will be
effective at the time you sign the written notice. Until we receive your written
notice to change a Beneficiary, we are entitled to rely on the most recent
Beneficiary information in our files. We will not be liable as to any payment or
settlement made prior to receiving the written notice. Accordingly, if you wish
to change your Beneficiary, you should deliver your written notice to us
promptly.
If you did not name a Beneficiary or unless otherwise provided in the
Beneficiary designation, if a Beneficiary predeceases the owner and there are no
other surviving Beneficiaries, the new Beneficiary will be:
- - your spouse or, if he or she is no longer alive,
- - your surviving children equally, or if you have no surviving children,
- - your estate.
If more than one Beneficiary survives you, we will divide the death benefit
among your Beneficiaries according to your most recent written instructions. If
you have not given us written instructions, we will pay the death benefit in
equal amounts to the Beneficiaries. If one of the Beneficiaries dies before you,
we will divide the death benefit among the surviving Beneficiaries.
MODIFICATION OF THE CONTRACT
Only an Allstate officer may approve a change in or waive any provision of the
Contract. Any change or waiver must be in writing. None of our agents has the
authority to change or waive the provisions of the Contract. We may not change
the terms of the Contract without your consent, except to conform the Contract
to applicable law or changes in the law. If a provision of the Contract is
inconsistent with state law, we will follow state law.
12 PROSPECTUS
<PAGE>
ASSIGNMENT
We will not honor an assignment of an interest in a Contract as collateral or
security for a loan. No Beneficiary may assign benefits under the Contract until
they are due. We will not be bound by any assignment until the assignor signs it
and files it with us. We are not responsible for the validity of any assignment.
Federal law prohibits or restricts the assignment of benefits under many types
of retirement plans and the terms of such plans may themselves contain
restrictions on assignments. An assignment may also result in taxes or tax
penalties. You should consult with an attorney before trying to assign your
Contract.
PURCHASES
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- ------------------------------------------------------------------------------
MINIMUM PURCHASE PAYMENTS
Your initial purchase payment must be at least $10,000. All subsequent purchase
payments must be $500 or more. You may make purchase payments at any time prior
to the Payout Start Date. The most we accept without our prior approval is $1
million. We reserve the right to limit the availability of the investment
alternatives for additional investments. We also reserve the right to reject any
application.
AUTOMATIC ADDITIONS PROGRAM
You may make subsequent purchase payments of $50 or more per month by
automatically transferring money from your bank account. Please consult with
your sales representative for detailed information.
ALLOCATION OF PURCHASE PAYMENTS
At the time you apply for a Contract, you must decide how to allocate your
purchase payment among the investment alternatives. The allocation you specify
on your application will be effective immediately. All allocations must be in
whole percents that total 100% or in whole dollars. You can change your
allocations by calling 1-800-390-1277.
We will allocate your purchase payments to the investment alternatives according
to your most recent instructions on file with us. Unless you notify us in
writing otherwise, we will allocate subsequent purchase payments according to
the allocation for the previous purchase payment. We will effect any change in
allocation instructions at the time we receive oral or written notice of the
change in good order.
We will allocate the initial purchase payment that accompanies your completed
application to your Contract within 2 business days after we receive the payment
at our home office. If your application is incomplete, we will ask you to
complete your application within 5 business days. If you do so, we will allocate
your initial purchase payment to your Contract within that 5 business day
period. If you do not, we will return your purchase payment at the end of the 5
business day period unless you expressly allow us to hold it until you complete
the application. We will allocate subsequent purchase payments to the Contract
at the close of the business day on which we receive the purchase payment at our
home office.
We use the term "business day" to refer to each day Monday through Friday
that the New York Stock Exchange is open for business. We also refer to these
days as "Valuation Dates." Our business day closes when the New York Stock
Exchange closes, usually 4 p.m. Eastern Time (3 p.m. Central Time). If we
receive your purchase payment after 3 p.m. Central Time on any Valuation
Date, we will allocate your purchase payment using the Accumulation Unit
Values computed on the next Valuation Date.
CREDIT ENHANCEMENT
Each time you make a purchase payment, we will add to your Contract Value a
Credit Enhancement equal to 4% of the purchase payment. If you exercise your
Right to Cancel the Contract, the amount we refund to you will not include any
Credit Enhancement. See "Right to Cancel" below for details. The Credit
Enhancement may not be available in all states.
We will allocate any Credit Enhancements to the investment alternatives
according to the allocation instructions you have on file with us at the time we
receive your purchase payment. We will allocate each Credit Enhancement among
the investment alternatives in the same proportions as the corresponding
purchase payment. For purposes of determining the death benefit and the amount
applied to an Income Plan, Credit Enhancements will be included with purchase
payments. We do not consider Credit Enhancements to be investments in the
Contract for income tax purposes.
We use a portion of the withdrawal charge and mortality and expense risk charge
to help recover the cost of providing the Credit Enhancement under the Contract.
See "Expenses." Under certain circumstances (such as a period of poor market
performance) the cost associated with the Credit Enhancement may exceed the sum
of the Credit Enhancement and any related earnings. You should consider this
possibility before purchasing the Contract.
13 PROSPECTUS
<PAGE>
RIGHT TO CANCEL
You may cancel the Contract by returning it to us within the Cancellation
Period, which is the 20 day period after you receive the Contract, or such
longer period that your state may require. You may return it by delivering it or
mailing it to us. If you exercise this "Right to Cancel," the Contract
terminates and we will pay you the full amount of your purchase payments
allocated to the Fixed Account. We also will return your purchase payments
allocated to the Variable Account adjusted, to the extent state law permits, to
reflect investment gain or loss that occurred from the date of allocation
through the date of cancellation.
We are applying for regulatory relief to enable us to recover the amount of
any Credit Enhancement applied to Contracts that are cancelled during the
Cancellation Period. Until we receive such relief, we will return, upon
cancellation, the amount you would have received had there been no Credit
Enhancement. That means that except in states where we are required by law to
return the amount of your purchase payments, the amount we return will
reflect any investment gain or loss associated with your Variable Account
purchase payments, will include any charges deducted that reduced contract
value prior to cancellation, and will reflect any investment gain on the
Credit Enhancement but will not include any investment loss associated with
the Credit Enhancement. After we receive the requested regulatory relief, the
amount we return to you upon exercise of this Right to Cancel will not
include any Credit Enhancement or the amount of charges deducted prior to
cancellation but will reflect, except in states where we are required to
return the amount of your purchase payments, any investment gain or loss
associated with your Variable Account purchase payments and with the Credit
Enhancement. We reserve the right to allocate your purchase payments to the
Putnam Money Market Variable Sub-Account during the Cancellation Period.
CONTRACT VALUE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
On the Issue Date, the Contract Value is equal to the initial purchase payment
plus the Credit Enhancement. Thereafter, your Contract Value at any time during
the Accumulation Phase is equal to the sum of the value of your Accumulation
Units in the Variable Sub-Accounts you have selected, plus the value of your
interest in the Standard Fixed Account Option.
ACCUMULATION UNITS
To determine the number of Accumulation Units of each Variable Sub-Account to
allocate to your Contract, we divide (i) the amount of the purchase payment you
have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of
that Variable Sub-Account next computed after we receive your payment. For
example, if we receive a $10,000 purchase payment allocated to a Variable
Sub-Account when the Accumulation Unit Value for the Sub-Account is $10, we
would credit 1,000 Accumulation Units of that Variable Sub-Account to your
Contract. We also would credit you with an additional 40 Accumulation Units of
the Variable Sub-Account to reflect the 4% Credit Enhancement on your purchase
payment. See "Credit Enhancement." Withdrawals and transfers from a Variable
Sub-Account would, of course, reduce the number of Accumulation Units of that
Sub-Account allocated to your Contract.
ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account
will rise or fall to reflect:
- changes in the share price of the Fund in which the Variable Sub-Account
invests, and
- the deduction of amounts reflecting the mortality and expense risk
charge, and any provision for taxes that have accrued since we last
calculated the Accumulation Unit Value.
We determine withdrawal charges, Retirement Income Guarantee charges (if
applicable), and transfer fees separately for each Contract. They do not
affect the Accumulation Unit Value. Instead, we obtain payment of those
charges and fees by redeeming Accumulation Units. For details on how we
compute Accumulation Unit Value, please refer to the Statement of Additional
Information.
We determine a separate Accumulation Unit Value for each Variable Sub-Account on
each Valuation Date. We also determine separate sets of Accumulation Unit Values
that reflect the cost of the Enhanced Beneficiary Protection Option described on
page 24 below.
You should refer to the prospectus for the Funds that accompanies this
prospectus for a description of how the assets of each Fund are valued, since
that determination directly bears on the Accumulation Unit Value of the
corresponding Variable Sub-Account and, therefore, your Contract Value.
14 PROSPECTUS
<PAGE>
INVESTMENT ALTERNATIVES: The Variable Sub-Accounts
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
You may allocate your purchase payments to up to 24 Variable Sub-Accounts. Each
Variable Sub-Account invests in the shares of a corresponding Fund. Each Fund
has its own investment objective(s) and policies. We briefly describe the Funds
below.
For more complete information about each Fund, including expenses and risks
associated with the Fund, please refer to the accompanying prospectus for the
Fund. You should carefully review the Fund prospectuses before allocating
amounts to the Variable Sub-Accounts. Putnam Investment Management, Inc.
("Putnam Management") serves as the investment adviser to each Fund.
<TABLE>
<CAPTION>
- -------------------------------------------------- -----------------------------
Fund: Each Fund Seeks:
- -------------------------------------------------- -----------------------------
<S> <C>
Putnam VT American Government Income Fund High current income with
preservation of capital as
a secondary objective
Putnam VT Asia Pacific Growth Fund Capital appreciation Fund
- -------------------------------------------------- -----------------------------
Putnam VT Diversified Income Fund High current income
consistent with capital
preservation
- -------------------------------------------------- -----------------------------
Putnam VT The George Putnam Fund of Boston To provide a balanced
investment composed of a
well- diversified
portfolio of stocks and
bonds that will produce
both capital growth and
current income
- -------------------------------------------------- -----------------------------
Putnam VT Global Asset Allocation Fund A high level of long-term
total return consistent
with preservation of
capital
- -------------------------------------------------- -----------------------------
Putnam VT Global Growth Fund Capital appreciation
- -------------------------------------------------- -----------------------------
Putnam VT Growth and Income Fund Capital growth and current
income
Putnam VT Growth Opportunities Fund Capital appreciation
- -------------------------------------------------- -----------------------------
Putnam VT Health Sciences Fund Capital appreciation
- -------------------------------------------------- -----------------------------
Putnam VT High Yield Fund High current income.
Capital growth is a
secondary objective when
consistent with high
current income.
- -------------------------------------------------- -----------------------------
Putnam VT Income Fund Current income consistent
with preservation of
capital
- -------------------------------------------------- -----------------------------
Putnam VT International Growth Fund Capital appreciation
- -------------------------------------------------- -----------------------------
Putnam VT International Growth and Income Fund Capital growth. Current
income is a secondary
objective.
- -------------------------------------------------- -----------------------------
Putnam VT International New Opportunities Fund Long-term capital
appreciation
- -------------------------------------------------- -----------------------------
Putnam VT Investors Fund Long-term growth of
capital and any increased
income that results from
this growth
- -------------------------------------------------- -----------------------------
Putnam VT Money Market Fund As high a rate of current
income as Putnam
Management believes is
consistent with
preservation of capital
and maintenance of
liquidity.
- -------------------------------------------------- -----------------------------
Putnam VT New Opportunities Fund Long-term capital
appreciation
- -------------------------------------------------- -----------------------------
Putnam VT New Value Fund Long-term capital
appreciation
- -------------------------------------------------- -----------------------------
Putnam VT OTC & Emerging Growth Fund Capital appreciation
- -------------------------------------------------- -----------------------------
Putnam VT Research Fund Capital appreciation
- -------------------------------------------------- -----------------------------
Putnam VT Small Cap Value Fund Capital appreciation
- -------------------------------------------------- -----------------------------
Putnam VT Utilities Growth and Income Fund Capital growth and current
- -------------------------------------------------- -----------------------------
Putnam VT Vista Fund Capital appreciation
- -------------------------------------------------- -----------------------------
Putnam VT Voyager Fund Capital appreciation
- -------------------------------------------------- -----------------------------
</TABLE>
Amounts you allocate to Variable Sub-Accounts may grow in value, decline in
value, or grow less than you expect, depending on the investment performance of
the Funds in which those Variable Sub-Accounts invest. You bear the investment
risk that the Funds might not meet their investment objectives. Shares of the
Funds are not deposits, or obligations of, or guaranteed or endorsed by any bank
and are not insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency.
15 PROSPECTUS
<PAGE>
INVESTMENT ALTERNATIVES: The Fixed Account
- ------------------------------------------------------------------------------
You may allocate all or a portion of your purchase payments to the Fixed
Account. We are currently offering only a Standard Fixed Account Option,
described below. We may offer additional Fixed Account options in the future.
Allstate may limit the availability of the Standard Fixed Account Option. Please
consult with your Financial Advisor for current information. The Fixed Account
supports our insurance and annuity obligations. The Fixed Account consists of
our general assets other than those in segregated asset accounts. We have sole
discretion to invest the assets of the Fixed Account, subject to applicable law.
Any money you allocate to the Fixed Account does not entitle you to share in the
investment experience of the Fixed Account.
STANDARD FIXED ACCOUNT OPTION
Each payment or transfer allocated to the Standard Fixed Account Option earns
interest at the current rate in effect at the time of allocation. We guarantee
that rate for a period of years we call Guarantee Periods. We are currently
offering Guarantee Periods of 1 year in length. In the future we may offer
Guarantee Periods of different lengths or stop offering some Guarantee Periods.
You select a Guarantee Period for each purchase or transfer. After the initial
Guarantee Period, we will guarantee a renewal rate.
We will credit interest daily at a rate that will compound over the year to the
annual interest rate we guaranteed at the time of allocation.
INVESTMENT ALTERNATIVES: Transfers
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer Contract Value among the
investment alternatives. You may request transfers in writing on a form that we
provided or by telephone according to the procedure described below.
You may make 12 transfers per Contract Year without charge. A transfer fee equal
to 0.50% of the amount transferred applies to each transfer after the 12th
transfer in any Contract Year.
The minimum amount that you may transfer from the Standard Fixed Account Option
or a Variable Sub-Account is $100 or the total remaining balance in the Standard
Fixed Account Option or the Variable Sub-Account, if less.
The most you can transfer from the Standard Fixed Account Option during any
Contract Year is the greater of (i) 30% of the Standard Fixed Account Option
balance as of the last Contract Anniversary or (ii) the greatest dollar amount
of any prior transfer from the Standard Fixed Account Option. This limitation
does not apply to the Dollar Cost Averaging Program. Also, if the interest rate
on any renewed Guarantee Period is at least one percentage point less than the
previous interest rate, you may transfer up to 100% of the monies receiving that
reduced rate within 60 days of the notification of the interest rate decrease.
We will process transfer requests that we receive before 3:00 p.m. Central Time
on any Valuation Date using the Accumulation Unit Values for that Date. We will
process requests completed after 3:00 p.m. on any Valuation Date using the
Accumulation Unit Values for the next Valuation Date. The Contract permits us to
defer transfers from the Standard Fixed Account Option for up to six months from
the date we receive your request. If we decide to postpone transfers from the
Standard Fixed Account Option for 30 days or more, we will pay interest as
required by applicable law. Any interest would be payable from the date we
receive the transfer request to the date we make the transfer.
We reserve the right to waive any transfer restrictions.
TRANSFERS DURING THE PAYOUT PHASE
During the Payout Phase, you may make transfers among the Variable Sub-Accounts
so as to change the relative weighting of the Variable Sub-Accounts on which
your variable income payments will be based. You may not convert any portion of
your fixed income payments into variable income payments. You may make transfers
from the Variable Sub-Accounts to increase the proportion of your income
payments consisting of fixed income payments if Income Plan 3, described below,
is in effect. You may make up to 12 such transfers per Contract Year.
TELEPHONE TRANSFERS
You may make transfers by telephone by calling 1-800-390-1277. The cut off time
for telephone transfer requests is 3:00 p.m. Central time. In the event that the
New York Stock Exchange closes early, i.e., before 3:00 p.m. Central Time, or in
the event that the Exchange closes early for a period of time but then reopens
for trading on the same day, we will process telephone transfer requests as of
the close of the Exchange on that particular day. We will not accept telephone
requests received from you at any telephone number other than the number that
appears in this paragraph or received after the close of trading on the
Exchange. If you own the Contract with a joint Contract Owner, unless we receive
contrary instructions, we will
16 PROSPECTUS
<PAGE>
accept instructions from either you or the other Contract Owner.
We use procedures that we believe provide reasonable assurance that the
telephone transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
EXCESSIVE TRADING LIMITS
We reserve the right to limit transfers in any Contract Year, or to refuse any
transfer request for a Contract Owner or certain Contract Owners, if:
- - we believe, in our sole discretion, that excessive trading by such Contract
Owner or Owners, or a specific transfer request or group of transfer
requests, may have a detrimental effect on the Accumulation Unit Values of
any Variable Sub-Account or the share prices of the corresponding Funds or
would be to the disadvantage of other Contract Owners; or
- - we are informed by one or more of the corresponding Funds that they intend
to restrict the purchase or redemption of Fund shares because of excessive
trading or because they believe that a specific transfer or group of
transfers would have a detrimental effect on the prices of Fund shares.
We may apply the restrictions in any manner reasonably designed to prevent
transfers that we consider disadvantageous to other Contract Owners.
DOLLAR COST AVERAGING PROGRAM
You may automatically transfer a set amount from any Variable Sub-Account or
Standard Fixed Account Option to any of the other Variable Sub-Accounts through
our Dollar Cost Averaging Program. The Program is available only during the
Accumulation Phase.
We will not charge a transfer fee for transfers made under this Program, nor
will such transfers count against the 12 transfers you can make each Contract
Year without paying a transfer fee.
The theory of dollar cost averaging is that if purchases of equal dollar amounts
are made at fluctuating prices, the aggregate average cost per unit will be less
than the average of the unit prices on the same purchase dates. However,
participation in this Program does not assure you of a greater profit from your
purchases under the Program nor will it prevent or necessarily reduce losses in
a declining market.
AUTOMATIC FUND REBALANCING PROGRAM
Once you have allocated your money among the Variable Sub-Accounts, the
performance of each Sub-Account may cause a shift in the percentage you
allocated to each Sub-Account. If you select our Automatic Fund Rebalancing
Program, we will automatically rebalance the Contract Value in each Variable
Sub-Account and return it to the desired percentage allocations. Money you
allocate to the Fixed Account will not be included in the rebalancing.
We will rebalance your account quarterly, semi-annually, or annually. We will
measure these periods according to your instructions. We will transfer amounts
among the Variable Sub-Accounts to achieve the percentage allocations you
specify. You can change your allocations at any time by contacting us in writing
or by telephone. The new allocation will be effective with the first rebalancing
that occurs after we receive your written or telephone request. We are not
responsible for rebalancing that occurs prior to receipt of proper notice of
your request.
Example:
Assume that you want your initial purchase payment split among 2
Variable Sub-Accounts. You want 40% to be in the Putnam Income Variable
Sub-Account and 60% to be in the Putnam Global Growth Variable
Sub-Account. Over the next 2 months the bond market does very well
while the stock market performs poorly. At the end of the first
quarter, the Putnam Income Variable Sub-Account now represents 50% of
your holdings because of its increase in value. If you choose to have
your holdings rebalanced quarterly, on the first day of the next
quarter we would sell some of your units in the Putnam Income Variable
Sub-Account and use the money to buy more units in the Putnam Global
Variable Sub-Account so that the percentage allocations would again be
40% and 60% respectively.
The Automatic Fund Rebalancing Program is available only during the Accumulation
Phase. The transfers made under the program do not count towards the 12
transfers you can make without paying a transfer fee, and are not subject to a
transfer fee. We may sometimes refer to this Program as the "Putnam Automatic
Rebalancing Program."
Fund rebalancing is consistent with maintaining your allocation of investments
among market segments, although it is accomplished by reducing your Contract
Value allocated to the better performing segments.
17 PROSPECTUS
<PAGE>
EXPENSES
- ------------------------------------------------------------------------------
As a Contract Owner, you will bear, directly or indirectly, the charges and
expenses described below.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily at an annual rate of 1.60%
of the average daily net assets you have invested in the Variable Sub-Accounts.
The mortality and expense risk charge is for all the insurance benefits
available with your Contract (including our guarantee of annuity rates and the
death benefits), for certain expenses of the Contract, and for assuming the risk
(expense risk) that the current charges will be sufficient in the future to
cover the cost of administering the Contract and the cost of the Credit
Enhancement. We expect to make a profit from this fee. However, if the charges
under the Contract are not sufficient, then Allstate will bear the loss. If you
select the Enhanced Beneficiary Protection Option, Allstate will deduct a
mortality and expense risk charge equal, on an annual basis, to 1.75% of the
average daily net assets you have invested in the Variable Sub-Accounts (1.60%
plus 0.15% for the Option). Allstate reserves the right to raise the Enhanced
Beneficiary Protection Option charge to up to 0.25%. However, once your Option
is in effect, Allstate cannot change the fee that applies to your Contract. We
charge the additional fee for the Enhanced Beneficiary Protection Option to
compensate us for the additional risk that we accept by providing the Option.
We guarantee the mortality and expense risk charge and we cannot increase it.
We assess the mortality and expense risk charge during both during the
Accumulation Phase and the Payout Phase.
RETIREMENT INCOME GUARANTEE CHARGE
We impose a separate charge for each Retirement Income Guarantee Rider. The
charges equal, on an annual basis, 0.05% of the income base for Retirement
Income Guarantee Rider 1 and 0.30% of the income base for Retirement Income
Guarantee Rider 2. We reserve the right to change the Rider fee. However, once
we issue your Rider, we cannot change the Rider fee that applies to your
Contract. The Rider 1 fee will never exceed 0.15% and the Rider 2 fee will never
exceed 0.50%. See "Retirement Income Guarantee Riders" for details.
TRANSFER FEE
We impose a fee upon transfers in excess of 12 during any Contract Year. The fee
is equal to 0.50% of the dollar amount transferred. We will not charge a
transfer fee on transfers that are part of a Dollar Cost Averaging Program or
Automatic Fund Rebalancing Program.
WITHDRAWAL CHARGE
We may assess a withdrawal charge of up to 8% of the purchase payment(s) you
withdraw. The charge declines to 0% after 8 years from the date we received the
purchase payment being withdrawn. A schedule showing how the charge declines
appears on page 7, above. During each Contract Year, you can withdraw up to
15% of your total purchase payments without paying the charge. Unused portions
of this 15% "Free Withdrawal Amount" are not carried forward to future Contract
Years. Credit Enhancements are not considered Purchase Payments when determining
the Free Withdrawal Amount.
We will deduct withdrawal charges, if applicable, from the amount paid. For
purposes of the withdrawal charge, we will treat withdrawals as coming from the
oldest purchase payments first. However, for federal income tax purposes,
earnings are considered to come out first, which means you pay taxes on the
earnings portion of your withdrawal.
We do not apply a withdrawal charge in the following situations:
- - on the Payout Start Date (a withdrawal charge may apply if you elect to
receive income payments for a specified period of less than 120 months);
- - the death of the Contract Owner or Annuitant (unless the Settlement Value
is used);
- - withdrawals taken to satisfy IRS minimum distribution rules; or
- - withdrawals that qualify for one of the waivers described below.
We use the amounts obtained from the withdrawal charge to pay sales commissions
and other promotional or distribution expenses associated with marketing the
Contracts and to help defray the cost of the Credit Enhancement. To the extent
that the withdrawal charge does not cover all sales commissions and other
promotional or distribution expenses, or the cost of the Credit Enhancement, we
may use any of our corporate assets, including potential profit which may arise
from the mortality and expense risk charge or any other charges or fee described
above, to make up any difference.
Withdrawals also may be subject to tax penalties or income tax. You should
consult your own tax counsel or other tax advisers regarding any withdrawals.
18 PROSPECTUS
<PAGE>
Confinement Waiver. We will waive the withdrawal charge on any withdrawal taken
prior to the Payout Start Date under your Contract if the following conditions
are satisfied:
1) you or the Annuitant, if the Contract Owner is not a living individual,
are first confined to a long term care facility or a hospital for at least
90 consecutive days. You or the Annuitant must enter the long term care
facility or hospital at least 30 days after the Issue Date,
2) we receive your request for withdrawal and written proof of the stay no
later than 90 days following the end of your or the Annuitant's stay at the
long term care facility or hospital, and
3) a physician must have prescribed the stay and the stay must be medically
necessary (as defined in the Contract).
Terminal Illness Waiver. We will waive the withdrawal charge on any withdrawal
under your Contract taken prior to the Payout Start Date if:
1) you or the Annuitant, if the Contract Owner is not a living individual,
are diagnosed by a physician as having a terminal illness (as defined in
the Contract) at least 30 days after the Issue Date, and
2) you provide adequate proof of diagnosis to us before or at the time you
request the withdrawal.
Unemployment Waiver. We will waive the withdrawal charge on one partial or full
withdrawal from your Contract, if you meet the following requirements:
1) you or the Annuitant, if the Contract Owner is not a living individual,
become unemployed at least one year after the Issue Date,
2) you or the Annuitant receive unemployment compensation (as defined in
the Contract) for at least 30 days as a result of that unemployment, and
3) you or the Annuitant claim this benefit within 180 days of your or the
Annuitant's initial receipt of unemployment compensation.
You may exercise this benefit once before the Payout Start Date.
Please refer to your Contract for more detailed information about the terms and
conditions of these waivers.
The laws of your state may limit the availability of these waivers and may also
change certain terms and/or benefits available under the waivers. You should
consult your Contract for further details on these variations. Also, even if you
do not need to pay our withdrawal charge because of these waivers, you still may
be required to pay taxes or tax penalties on the amount withdrawn. You should
consult your tax adviser to determine the effect of a withdrawal on your taxes.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for paying these taxes and
will deduct them from your Contract Value. Some of these taxes are due when the
Contract is issued, others are due when income payments begin or upon surrender.
Our current practice is not to charge anyone for these taxes until income
payments begin or when a total withdrawal occurs including payment upon death.
We may some time in the future discontinue this practice and deduct premium
taxes from the purchase payments. Premium taxes generally range from 0% to 4%,
depending on the state.
At the Payout Start Date, we deduct the charge for premium taxes from each
investment alternative in the proportion that the Contract Owner's value in the
investment alternative bears to the total Contract Value.
OTHER EXPENSES
Each Fund deducts advisory fees and other expenses from its assets. You
indirectly bear the charges and expenses of the Fund whose shares are held by
the Variable Sub-Accounts. These fees and expenses are described in the
accompanying prospectus for the Funds. For a summary of current estimates of
those charges and expenses, see page 8 above. We may receive compensation
from the Funds' investment adviser, distributor, or their affiliates for
administrative services we provide to the Funds.
ACCESS TO YOUR MONEY
- ------------------------------------------------------------------------------
You can withdraw some or all of your Contract Value at any time prior to the
Payout Start Date. Withdrawals also are available under limited circumstances
on or after the Payout Start Date. See "Income Plans" on page 20.
The amount payable upon withdrawal is the Contract Value next computed after we
receive the request for a withdrawal at our home office, less any withdrawal
charges, income tax withholding, and any premium taxes. We will pay withdrawals
from the Variable Account within 7 days of receipt of the request, subject to
postponement in certain circumstances.
You can withdraw money from the Variable Account or the Standard Fixed Account
Option. To complete a partial
19 PROSPECTUS
<PAGE>
withdrawal from the Variable Account, we will cancel Accumulation Units in an
amount equal to the withdrawal and any applicable withdrawal charge and
premium taxes.
You must name the investment alternative from which you are taking the
withdrawal. If none is named, then the withdrawal request is incomplete and
cannot be honored.
In general, you must withdraw at least $50 at a time. If you request a total
withdrawal, we may require that you return your Contract to us.
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under
the Contract if:
1) the New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted,
2) an emergency exists as defined by the SEC, or
3) the SEC permits delay for your protection.
In addition, we may delay payments or transfers from the Standard Fixed Account
Option for up to 6 months or shorter period if required by law. If we delay
payment or transfer for 30 days or more, we will pay interest as required by
law.
SYSTEMATIC WITHDRAWAL PROGRAM
You may choose to receive systematic withdrawal payments on a monthly,
quarterly, semi-annual, or annual basis at any time prior to the Payout Start
Date. Please consult your sales representative or call us at 1-800-390-1277 for
more information. Depending on fluctuations in the value of the Variable
Sub-Accounts and the value of the Standard Fixed Account Option, systematic
withdrawals may reduce or even exhaust the Contract Value. Income taxes may
apply to systematic withdrawals. Please consult your tax adviser before taking
any withdrawal.
MINIMUM CONTRACT VALUE
If your request for a partial withdrawal would reduce the Contract Value to less
than $1,000, we may treat it as a request to withdraw your entire Contract
Value. Your Contract will terminate if you withdraw all of your Contract Value.
We will, however, ask you to confirm your withdrawal request before terminating
your Contract. If we terminate your Contract, we will distribute to you its
Contract Value, less withdrawal and other charges and taxes.
INCOME PAYMENTS
- ------------------------------------------------------------------------------
PAYOUT START DATE
The Payout Start Date is the day that income payments start under an Income
Plan. The Payout Start Date must be at least one month after the Issue Date and
on or before the later of:
- - the Annuitant's 90th birthday, or
- - the 10th Contract Anniversary.
You may change the Payout Start Date at any time by notifying us in writing of
the change at least 30 days before the scheduled Payout Start Date. Absent a
change, we will use the Payout Start Date stated in your Contract.
INCOME PLANS
You may choose and change your choice of Income Plan until 30 days before the
Payout Start Date. If you do not select an Income Plan, we will make income
payments in accordance with Income Plan 1 with guaranteed payments for 10 years.
After the Payout Start Date, you may not make withdrawals (except as described
below) or change your choice of Income Plan.
Three Income Plans are available under the Contract. Each is available to
provide:
- - fixed income payments;
- - variable income payments; or
- - a combination of the two.
The three Income Plans are:
Income Plan 1 -- Life Income with Guaranteed Payments. Under this plan,
we make periodic income payments for at least as long as the Annuitant
lives. If the Annuitant dies before we have made all of the guaranteed
income payments, we will continue to pay the remainder of the
guaranteed income payments as required by the Contract.
Income Plan 2 -- Joint and Survivor Life Income with Guaranteed
Payments. Under this plan, we make periodic income payments for at
least as long as either the Annuitant or the joint Annuitant, named at
the time the plan was selected, is alive. If both the Annuitant and the
joint Annuitant die before we have made all of the guaranteed income
payments, we will continue to pay the remainder of the guaranteed
income payments as required by the Contract.
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Income Plan 3 -- Guaranteed Payments for a Specified Period (5 Years to
30 Years). Under this plan, we make periodic income payments for the
period you have chosen. These payments do not depend on the Annuitant's
life. Income payments for less than 120 months may be subject to a
withdrawal charge. We will deduct the mortality and expense risk charge
from the assets of the Variable Sub-Accounts supporting this Plan even
though we may not bear any mortality risk.
The length of any guaranteed payment period under your selected Income Plan
generally will affect the dollar amount of each income payment. As a general
rule, longer guarantee periods result in lower income payments, all other things
being equal. For example, if you choose an Income Plan with payments that depend
on the life of the Annuitant but with no minimum specified period for guaranteed
payments, the income payments generally will be greater than the income payments
made under the same Income Plan with a minimum specified period for guaranteed
payments.
If you choose Income Plan 1 or 2, or, if available, another Income Plan with
payments that continue for the life of the Annuitant or joint Annuitant, we may
require proof of age and sex of the Annuitant or joint Annuitant before starting
income payments, and proof that the Annuitant or joint Annuitant are alive
before we make each payment. Please note that under such Income Plans, if you
elect to take no minimum guaranteed payments, it is possible that the payee
could receive only 1 income payment if the Annuitant and any joint Annuitant
both die before the second income payment, or only 2 income payments if they die
before the third income payment, and so on.
Generally, you may not make withdrawals after the Payout Start Date. One
exception to this rule applies if you are receiving income payments that do not
depend on the life of the Annuitant (such as under Income Plan 3). In that case
you may terminate the income payments at any time and receive a lump sum equal
to the present value of the remaining payments due. A withdrawal charge may
apply. We also assess applicable premium taxes against all income payments.
We may make other Income Plans available. You may obtain information about them
by writing or calling us.
You must apply at least the Contract Value in the Fixed Account on the Payout
Start Date to fixed income payments. If you wish to apply any portion of your
Fixed Account balance to provide variable income payments, you should plan ahead
and transfer that amount to the Variable Sub-Accounts prior to the Payout Start
Date. If you do not tell us how to allocate your Contract Value among fixed and
variable income payments, we will apply your Contract Value in the Variable
Account to variable income payments and your Contract Value in the Fixed Account
to fixed income payments.
We will apply your Contract Value, less applicable taxes, to your Income Plan on
the Payout Start Date. We can make income payments in monthly, quarterly,
semi-annual or annual installments, as you select. If the Contract Owner has not
made any purchase payments for at least 2 years preceding the Payout Start Date,
and either the Contract Value is less than $2,000, or not enough to provide an
initial payment of at least $20, and state law permits, we may:
- terminate the Contract and pay you the Contract value, less any
applicable taxes, in a lump sum instead of the periodic payments you
have chosen, or
- we may reduce the frequency of your payments so that each payment will
be at least $20.
VARIABLE INCOME PAYMENTS
The amount of your variable income payments depends upon the investment results
of the Variable Sub-Accounts you select, the premium taxes you pay, the age and
sex of the Annuitant, and the Income Plan you choose. We guarantee that the
payments will not be affected by (a) actual mortality experience and (b) the
amount of our administration expenses.
We cannot predict the total amount of your variable income payments. Your
variable income payments may be more or less than your total purchase payments
because (a) variable income payments vary with the investment results of the
underlying Funds; and (b) the Annuitant could live longer or shorter than we
expect based on the tables we use.
In calculating the amount of the periodic payments in the annuity tables in the
Contract, we assumed an annual investment rate of 3%. (We reserve the right to
offer other assumed investment rates). If the actual net investment return of
the Variable Sub-Accounts you choose is less than this assumed investment rate,
then the dollar amount of your variable income payments will decrease. The
dollar amount of your variable income payments will increase, however, if the
actual net investment return exceeds the assumed investment rate. The dollar
amount of the variable income payments stays level if the net investment return
equals the assumed investment rate. Please refer to the Statement of Additional
Information for more detailed information as to how we determine variable income
payments.
FIXED INCOME PAYMENTS
We guarantee income payment amounts derived from the Standard Fixed Account
Option for the duration of the Income Plan. We calculate the fixed income
payments by:
1) deducting any applicable premium tax; and
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2) applying the resulting amount to the greater of (a) the appropriate
value from the income payment table in your Contract or (b) such other
value as we are offering at that time.
We may defer making fixed income payments for a period of up to six months or
whatever shorter time state law may require. If we defer payments for 30 days or
more, we will pay interest as required by law from the date we receive the
withdrawal request to the date we make payment.
RETIREMENT INCOME GUARANTEE RIDERS
For owners up to and including age 75, you have the option to add to your
Contract one of two Retirement Income Guarantee Riders (Rider 1 or Rider 2).
Each Rider guarantees a minimum dollar amount (we call the "guaranteed income
benefit") to be applied to an Income Plan. The Riders may not be available in
all states.
Eligibility. To qualify for this benefit, you must meet the following conditions
as of the Payout Start Date:
- You must elect a Payout Start Date that is on or after the 10th
anniversary of the date we issued the Rider (the "Rider Date");
- The Payout Start Date must occur during the 30 day period following a
Contract Anniversary;
- You must elect to receive fixed income payments; and
- The Income Plan you have selected must provide for payments guaranteed
for either a single life or joint lives with a specified period of at
least:
- 10 years, if the youngest Annuitant's age is 80 or less on the date
the amount is applied, or
- 5 years, if the youngest Annuitant's age is greater than 80 on the
date the amount is applied.
Retirement Income Guarantee Rider 1. This Rider guarantees that the amount
you apply to an Income Plan will not be less than the total of your purchase
payments including any Credit Enhancements less any withdrawal adjustment
described below and any applicable taxes.
The current charge for this Rider, on an annual basis, is 0.05% multiplied by
the Income Base in effect on each Contract Anniversary. We deduct the fee only
from your assets in the Variable Sub-Account(s). In the case of a full
withdrawal of the Contract Value on any date other than the Contract
Anniversary, we will deduct from the amount paid upon withdrawal a Rider fee
that is pro rated to reflect the number of days the rider was in effect during
the current Contract Year. In the case of a full withdrawal, the Rider fee is
equal to 0.05% multiplied by the Income Base immediately prior to the
withdrawal.
We calculate the Income Base that we use to determine the value of the
guaranteed income benefit as follows:
1) On the Rider Date, the Income Base is equal to the Contract Value.
2) After the Rider Date, we
recalculate the Income Base when a purchase payment or withdrawal is made as
follows:
(a) For purchase payments, the Income Base is equal to the most
recently calculated Income Base plus the purchase payment and any
Credit Enhancement.
(b) For withdrawals, the Income Base is equal to the most recently
calculated Income Base reduced by a withdrawal adjustment,
described below.
In the absence of any withdrawals or purchase payments, the Income Base will be
equal to the Contract Value as of the Rider Date.
The withdrawal adjustment is equal to (1) divided by (2), with the result
multiplied by (3), where:
1) = withdrawal amount,
2) = the Contract Value immediately prior to the withdrawal, and
3) = the most recently calculated Income Base.
See Appendix B for an example representative of how the withdrawal adjustment
applies.
The guaranteed income benefit amount is determined by applying the Income Base,
less any applicable taxes, to the guaranteed rates for the Income Plan that you
select. On the Payout Start Date, the income payment will be the greater of (i)
the income payment produced by the guaranteed income benefit and (ii) the income
payment provided in the fixed amount income payment provision of the Contract.
Retirement Income Guarantee Rider 2. This Rider guarantees that the amount you
apply to an Income Plan will not be less than the greater of Income Base A or
Income Base B described below.
The current annual charge for this Rider is 0.30% multiplied by the Income Base
in effect on each Contract Anniversary. We deduct the fee only from your assets
in the Variable Sub-Account(s). In the case of a full withdrawal of the Contract
Value on any date other than the Contract Anniversary, we will deduct from the
amount paid upon withdrawal a Rider fee that is pro rated to reflect the number
of days the rider was in effect during the current Contract Year. In the case of
a full withdrawal, the Rider fee is equal to 0.30% multiplied by the Income Base
immediately prior to the withdrawal.
The Income Base is the greater of Income Base A and Income Base B. We determine
each Income Base as follows:
Income Base A. On the Rider Date, Income Base A is equal to the Contract
Value. After the Rider Date, we
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recalculate Income Base A as follows on the Contract Anniversary and when a
purchase payment or withdrawal is made:
1) For purchase payments, Income Base A is equal to the most
recently calculated Income Base plus the purchase payment and any
Credit Enhancement.
2) For withdrawals, Income Base A is equal to the most recently
calculated Income Base reduced by a withdrawal adjustment.
3) On each Contract Anniversary, Income Base A is equal to the
greater of the Contract Value on that date or the most recently
calculated Income Base A.
In the absence of any withdrawals or purchase payments, Income Base A will be
equal to the greatest Contract Value as of the date and all Contract Anniversary
Contract Values between the Rider Date and the Payout Start Date. We will
recalculate Income Base A for purchase payments, for withdrawals and on Contract
Anniversaries until the first Contract Anniversary after the 85th birthday of
the oldest Contract Owner or, if no Contract Owner is a living individual, the
oldest Annuitant. After that date, we will recalculate Income Base A for
purchase payments and withdrawals.
Income Base B. On the Rider Date, Income Base B is equal to the Contract
Value. After the Rider Date, Income Base B, plus any subsequent purchase
payments and any Credit Enhancement and less a withdrawal adjustment for any
subsequent withdrawals, will accumulate daily at a rate equal to 6% per year
until the first day of the month following the oldest Contract Owner's or, if
the Contract Owner is not a living individual, the Annuitant's 85th birthday.
For purposes of computing Income Base A or B, the withdrawal adjustment is equal
to (1) divided by (2), with the result multiplied by (3), where:
1) = withdrawal amount,
2) = the Contract Value immediately prior to the withdrawal, and
3) = the most recently calculated Income Base.
See Appendix B for an example representative of how the withdrawal adjustment
applies.
We determine the guaranteed income benefit amount by applying the Income Base,
less any applicable taxes, to the guaranteed rates for the Income Plan that you
select. On the Payout Start Date, the income payment will be the greater of (i)
the income payment provided by the guaranteed income benefit or (ii) the income
payment provided in the fixed amount income payment provision of the Contract.
CERTAIN EMPLOYEE BENEFIT PLANS
The Contracts offered by this prospectus contain income payment tables that
provide for different payments to men and women of the same age, except in
states that require unisex tables. We reserve the right to use income payment
tables that do not distinguish on the basis of sex to the extent permitted by
applicable law. In certain employment-related situations, employers are required
by law to use the same income payment tables for men and women. Accordingly, if
the Contract is to be used in connection with an employment-related retirement
or benefit plan and we do not offer unisex annuity tables in your state, you
should consult with legal counsel as to whether the purchase of a Contract is
appropriate.
DEATH BENEFITS
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We will pay a death benefit prior to the Payout Start Date on:
1) the death of any Contract Owner or
2) the death of the Annuitant.
We will pay the death benefit to the new Contract Owner as determined
immediately after the death. The new Contract Owner would be a surviving
Contract Owner or, if none, the Beneficiary. In the case of the death of the
Annuitant, we will pay the death benefit to the current Contract Owner.
Death Benefit Amount
Prior to the Payout Start Date, the death benefit is equal to the greatest of
the following death benefit alternatives:
1) the Contract Value as of the date we determine the death benefit, or
2) the sum of all purchase payments and Credit Enhancements, less any
withdrawals, or
3) the most recent Maximum Anniversary Value prior to the date we
determine the death benefit (see "Maximum Anniversary Value" below).
We will determine the value of the death benefit as of the end of the Valuation
Date on which we receive a complete
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request for payment of the death benefit. If we receive a request after 3
p.m. Central Time on a Valuation Date, we will process the request as of the
end of the following Valuation Date. A request for payment of the death
benefit must include Due Proof of Death. We will accept the following
documentation as "Due Proof of Death":
- a certified copy of a death certificate,
- a certified copy of a decree of a court of competent jurisdiction as
to the finding of death, or
- other documentation as we may accept in our sole discretion.
Maximum Anniversary Value. On the Issue Date, the Maximum Anniversary Value is
equal to the initial purchase payment including Credit Enhancement. After the
Issue Date, we recalculate the Maximum Anniversary Value when a purchase payment
or withdrawal is made or on a Contract Anniversary as follows:
1) For purchase payments, the Maximum Anniversary Value is equal to the
most recently calculated Maximum Anniversary Value plus the purchase
payment including Credit Enhancement.
2) For withdrawals, the Maximum Anniversary Value is equal to the most
recently calculated Maximum Anniversary Value reduced by a withdrawal
adjustment, as defined below.
3) On each Contract Anniversary, the Maximum Anniversary Value is equal
to the greater of the Contract Value or the most recently calculated
Maximum Anniversary Value.
In the absence of any withdrawals or purchase payments, the Maximum Anniversary
Value will be the greatest of all anniversary Contract Values on or prior to the
date we calculate the death benefit.
We will recalculate the Maximum Anniversary Value until the first Contract
Anniversary after the 80th birthday of the oldest Contract Owner or, if no
Contract Owner is a living individual, the Annuitant. After that date, we will
recalculate the Maximum Anniversary Value only for purchase payments and
withdrawals. The Maximum Anniversary Value will never be greater than the
maximum death benefit allowed by any applicable state non-forfeiture laws.
Withdrawal Adjustment. The withdrawal adjustment is equal to (a) divided by (b),
with the result multiplied by (c), where:
(a) = the withdrawal amount,
(b) = the Contract Value immediately prior to the withdrawal, and
(c) = the value of the applicable death benefit alternative immediately
prior to the withdrawal.
See Appendix A for an example of a withdrawal adjustment.
ENHANCED BENEFICIARY PROTECTION OPTION
For Owners up to and including age 75, the Enhanced Beneficiary Protection
Option is an optional benefit that you may elect. If you elect the Option, the
death benefit will be the greater of the death benefit alternatives (1) through
(3) listed above, or (4) the Enhanced Beneficiary Protection Option. The
Enhanced Beneficiary Protection Option may not be available in all states.
We will issue a rider to your Contract if you elect the Option. The Enhanced
Beneficiary Protection Option on the date we issue the Contract rider ("Rider
Date") is equal to the Contract Value on that date. After the Rider Date, the
Enhanced Beneficiary Protection Option, plus any subsequent payments including
Credit Enhancements and less a withdrawal adjustment, will accumulate daily at
the rate of 5% per year until the earlier of:
1) the date we determine the death benefit, or
2) the first Contract Anniversary following the 80th birthday of the
oldest Contract Owner or, if no Contract Owner is a living individual,
the 80th birthday of the Annuitant.
We will determine the death benefit under the Enhanced Beneficiary Protection
Option in the same manner as described under "Death Benefit Amount."
Death Benefit Payments
Death of Contract Owner. Within 180 days of the date of your death, the new
Contract Owner may elect to:
1) receive the death benefit in a lump sum, or
2) apply an amount equal to the death benefit to one of the available
Income Plans described above. The Payout Start Date must be within one
year of the date of your death. Income payments must be:
(a) over the life of the new Contract Owner,
(b) for a guaranteed number of payments from 5 to 30 years but not to
exceed the life expectancy of the new Contract Owner, or
(c) over the life of new Contract Owner with a guaranteed number of
payments from 5 to 30 years but not to exceed the life expectancy
of the new Contract Owner.
Otherwise, the new Contract Owner will receive the Settlement Value. The
"Settlement Value" is the Contract Value, less any applicable withdrawal charge
and premium tax. The new Contract Owner may make a single withdrawal of any
amount within one year of the date of death without incurring a withdrawal
charge. We will calculate the Settlement Value as of the end of the Valuation
Date coinciding with the requested distribution date for payment
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or on the mandatory distribution date of 5 years after the date of your
death, whichever is earlier. If we receive a request after 3 p.m. Central
Time on a Valuation Date, we will process the request as of the end of the
following Valuation Date. We are currently waiving the 180 day limit, but we
reserve the right to enforce the limitation in the future.
In any event, the entire value of the Contract must be distributed within 5
years after the date of death unless an Income Plan is elected or a surviving
spouse continues the Contract in accordance with the provisions described below.
If the new Contract Owner is your spouse, then he or she may elect one of the
options listed above or may continue the Contract in the Accumulation Phase as
if the death had not occurred. On the date the Contract is continued, the
Contract Value will equal the amount of the death benefit as determined as of
the Valuation Date on which we received Due Proof of Death (the next Valuation
Date if we receive Due Proof of Death after 3 p.m. Central Time). The Contract
may only be continued once. If the surviving spouse continues the Contract in
the Accumulation Phase, the surviving spouse may make a single withdrawal of any
amount within 1 year of the date of death without incurring a withdrawal charge.
Prior to the Payout Start Date, the death benefit of the continued Contract will
be the greater of:
- the sum of all purchase payments including Credit Enhancements
less any withdrawals; or
- the Contract Value on the date we determine the death benefit; or
- the Maximum Anniversary Value as defined in the "Death Benefit
Amount" section, with the following changes:
- "Issue Date" is replaced by the date the Contract is continued,
- "initial purchase payment including Credit Enhancement" is
replaced with the death benefit as described at the end of the
Valuation Period during which we received Due Proof of Death.
For Contracts with the optional Enhanced Beneficiary Protection Option.
- the Enhanced Beneficiary Protection value as defined in the
Rider, with the following changes:
- "Rider Date" is replaced by the date the Contract is continued,
- "Contract Value" is replaced with the death benefit as described
at the end of the Valuation Period during which we received Due
Proof of Death.
If the new Contract Owner is a corporation, trust, or other non-natural person,
then the new Contract Owner may elect, within 180 days of your death, to receive
the death benefit in a lump sum or may elect to receive the Settlement Value in
a lump sum within 5 years of death. We are currently waiving the 180 day limit,
but we reserve the right to enforce the limitation in the future.
Death of Annuitant. If the Annuitant who is not also the Contract Owner dies
prior to the Payout Start Date, the Contract Owner must elect one of the
applicable options described below.
If the Contract Owner is a natural person, the Contract Owner may elect to
continue the Contract as if the death had not occurred, or, if we receive Due
Proof of Death within 180 days of the date of the Annuitant's death, the
Contract Owner may choose to:
1) receive the death benefit in a lump sum; or
2) apply the death benefit to an Income Plan that must begin within
1 year of the date of death.
If the Contract Owner elects to continue the Contract or to apply the death
benefit to an Income Plan, the new Annuitant will be the youngest Contract
Owner, unless the Contract Owner names a different Annuitant.
If the Contract Owner is a non-natural person, the non-natural Contract Owner
may elect, within 180 days of the Annuitant's date of death, to receive the
death benefit in a lump sum or may elect to receive the Settlement Value payable
in a lump sum within 5 years of the Annuitant's date of death. If the
non-natural Contract Owner does not make one of the above described elections,
the Settlement Value must be withdrawn by the non-natural Contract Owner on or
before the mandatory distribution date 5 years after the Annuitant's death. We
are currently waiving the 180 day limit, but we reserve the right to enforce the
limitation in the future.
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MORE INFORMATION
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ALLSTATE
Allstate is the issuer of the Contract. Allstate is an Illinois stock life
insurance company organized in 1957.
Allstate is licensed to operate in the District of Columbia, Puerto Rico, and
all states except New York. We intend to offer the Contract in those
jurisdictions in which we are licensed. Our home office is located at 3100
Sanders Road, Northbrook, Illinois, 60062.
Allstate is a wholly owned subsidiary of Allstate Insurance Company, a stock
property-liability insurance company incorporated under the laws of Illinois.
All of the outstanding capital stock of Allstate Insurance Company is owned by
The Allstate Corporation.
Several independent rating agencies regularly evaluate life insurers'
claims-paying ability, quality of investments, and overall stability. A.M. Best
Company assigns A+ (Superior) to Allstate. Standard & Poor's Insurance Rating
Services assigns an AA+ (Very Strong) financial strength rating and Moody's
assigns an Aa2 (Excellent) financial strength rating to Allstate. These ratings
do not reflect the investment performance of the Variable Account. We may from
time to time advertise these ratings in our sales literature.
VARIABLE ACCOUNT
Allstate established the Allstate Life Insurance Company Separate Account A on
January 27, 1999. We have registered the Variable Account with the SEC as a unit
investment trust. The SEC does not supervise the management of the Variable
Account or Allstate.
We own the assets of the Variable Account. The Variable Account is a segregated
asset account under Illinois law. That means we account for the Variable
Account's income, gains and losses separately from the results of our other
operations. It also means that only the assets of the Variable Account that are
in excess of the reserves and other Contract liabilities with respect to the
Variable Account are subject to liabilities relating to our other operations.
Our obligations arising under the Contracts are general corporate obligations of
Allstate.
The Variable Account consists of 24 Variable Sub-Accounts, each of which invests
in a corresponding Fund. We may add new Variable Sub-Accounts or eliminate one
or more of them, if we believe marketing, tax, or investment conditions so
warrant. We do not guarantee the investment performance of the Variable Account,
its Sub-Accounts or the Funds. We may use the Variable Account to fund our other
annuity contracts. We will account separately for each type of annuity contract
funded by the Variable Account.
THE FUNDS
Dividends and Capital Gain Distributions.
We automatically reinvest all dividends and capital gains distributions from the
Funds in shares of the distributing Funds at their net asset value.
Voting Privileges.
As a general matter, you do not have a direct right to vote the shares of the
Funds held by the Variable Sub-Accounts to which you have allocated your
Contract Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. Based on our
present view of the law, we will vote the shares of the Funds that we hold
directly or indirectly through the Variable Account in accordance with
instructions that we receive from Contract Owners entitled to give such
instructions.
As a general rule, before the Payout Start Date, the Contract Owner or anyone
with a voting interest is the person entitled to give voting instructions. The
number of shares that a person has a right to instruct will be determined by
dividing the Contract Value allocated to the applicable Variable Sub-Account by
the net asset value per share of the corresponding Fund as of the record date of
the meeting. After the Payout Start Date the person receiving income payments
has the voting interest. The payee's number of votes will be determined by
dividing the reserve for such Contract allocated to the applicable Sub-account
by the net asset value per share of the corresponding Fund. The votes decrease
as income payments are made and as the reserves for the Contract decrease.
We will vote shares attributable to Contracts for which we have not received
instructions, as well as shares attributable to us, in the same proportion as we
vote shares for which we have received instructions, unless we determine that we
may vote such shares in our own discretion. We will apply voting instructions to
abstain on any item to be voted upon on a pro-rata basis to reduce the votes
eligible to be cast.
We reserve the right to vote Fund shares as we see fit without regard to voting
instructions to the extent permitted by law. If we disregard voting
instructions, we will include a summary of that action and our reasons for that
action in the next semi-annual financial report we send to you.
Changes in Funds.
If the shares of any of the Funds are no longer available for investment by the
Variable Account or if, in our judgment, further investment in such shares is no
longer desirable in view of the purposes of the Contract, we may eliminate that
Fund and substitute shares of another eligible investment fund. Any substitution
of securities will comply with the requirements of the Investment Company Act of
1940. We also may add new Variable Sub-Accounts that invest in additional mutual
funds. We will notify you in advance of any change.
Conflicts of Interest.
The Funds sell their shares to separate accounts underlying both variable life
insurance and variable annuity contracts. It is conceivable that in the future
26 PROSPECTUS
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it may be unfavorable for variable life insurance separate accounts and
variable annuity separate accounts to invest in the same Fund. The board of
directors of the Funds monitors for possible conflicts among separate
accounts buying shares of the Funds. Conflicts could develop for a variety of
reasons. For example, differences in treatment under tax and other laws or
the failure by a separate account to comply with such laws could cause a
conflict. To eliminate a conflict, the Funds' board of directors may require
a separate account to withdraw its participation in a Fund. A Fund's net
asset value could decrease if it had to sell investment securities to pay
redemption proceeds to a separate account withdrawing because of a conflict.
THE CONTRACT
Distribution. Allstate Life Financial Services Inc. ("ALFS"), located at 3100
Sanders Road, Northbrook, IL 60062-7154, serves as principal underwriter of the
Contracts. ALFS is a wholly owned subsidiary of Allstate. ALFS is a registered
broker dealer under the Securities and Exchange Act of 1934, as amended,
("Exchange Act") and is a member of the National Association of Securities
Dealers, Inc. Contracts are sold by registered representatives of unaffiliated
broker-dealers or bank employees who are licensed insurance agents appointed by
Allstate, either individually or through an incorporated insurance agency and
have entered into a selling agreement with ALFS to sell the Contract.
We will pay commissions to broker-dealers who sell the Contracts. Commissions
paid may vary, but we estimate that the total commission paid on all Contract
sales will not exceed 6% of all purchase payments (on a present value basis).
From time to time, we may pay or permit other promotional incentives, in cash or
credit or other compensation. The commission is intended to cover distribution
expenses. In some states, Contracts may be sold by representatives or employees
of banks which may be acting as broker-dealers without separate registration
under the Exchange Act, pursuant to legal and regulatory exceptions.
Allstate may pay ALFS a commission for distribution of the Contracts. The
underwriting agreement with ALFS provides that we will reimburse ALFS for
expenses incurred in distributing the Contracts, including any liability to
Contract Owners arising out of services rendered or Contracts issued.
Administration. We have primary responsibility for all administration of the
Contracts and the Variable Account.
We provide the following administrative services, among others:
- - issuance of the Contracts;
- - maintenance of Contract Owner records;
- - Contract Owner services;
- - calculation of unit values;
- - maintenance of the Variable Account; and
- - preparation of Contract Owner reports.
We will send you Contract statements and transaction confirmations at least
annually. You should notify us promptly in writing of any address change. You
should read your statements and confirmations carefully and verify their
accuracy. You should contact us promptly if you have a question about a periodic
statement. We will investigate all complaints and make any necessary adjustments
retroactively, but you must notify us of a potential error within a reasonable
time after the date of the questioned statement. If you wait too long, we will
make the adjustment as of the date that we receive notice of the potential
error.
We will also provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.
QUALIFIED PLANS
If you use the Contract with a qualified plan, the plan may impose different or
additional conditions or limitations on withdrawals, waivers of withdrawal
charges, death benefits, Payout Start Dates, income payments, and other Contract
features. In addition, adverse tax consequences may result if qualified plan
limits on distributions and other conditions are not met. Please consult your
qualified plan administrator for more information.
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised Allstate on
certain federal securities law matters. All matters of Illinois law pertaining
to the Contracts, including the validity of the Contracts and Allstate's right
to issue such Contracts under Illinois insurance law, have been passed upon by
Michael J. Velotta, General Counsel of Allstate.
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TAXES
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The following discussion is general and is not intended as tax advice. Allstate
makes no guarantee regarding the tax treatment of any Contract or transaction
involving a Contract.
Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on your individual circumstances.
If you are concerned about any tax consequences with regard to your individual
circumstances, you should consult a competent tax adviser.
Taxation of Annuities in General
Tax Deferral. Generally, you are not taxed on increases in the Contract Value
until a distribution occurs. This rule applies only where:
1) the owner is a natural person,
2) the investments of the Variable Account are "adequately
diversified" according to Treasury Department regulations, and
3) Allstate is considered the owner of the Variable Account assets
for federal income tax purposes.
Non-natural Owners. As a general rule, annuity contracts owned by non-natural
persons such as corporations, trusts, or other entities are not treated as
annuity contracts for federal income tax purposes. The income on such contracts
is taxed as ordinary income received or accrued by the owner during the taxable
year. Please see the Statement of Additional Information for a discussion of
several exceptions to the general rule for contracts owned by non-natural
persons.
Diversification Requirements. For a Contract to be treated as an annuity for
federal income tax purposes, the investments in the Variable Account must be
"adequately diversified" consistent with standards under Treasury Department
regulations. If the investments in the Variable Account are not adequately
diversified, the Contract will not be treated as an annuity contract for federal
income tax purposes. As a result, the income on the Contract will be taxed as
ordinary income received or accrued by the owner during the taxable year.
Although Allstate does not have control over the Funds or their investments, we
expect the Funds to meet the diversification requirements.
Ownership Treatment. The IRS has stated that you will be considered the owner of
Variable Account assets if you possess incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. At the time
the diversification regulations were issued, the Treasury Department announced
that the regulations do not provide guidance concerning circumstances in which
investor control of the Variable Account investments may cause an investor to be
treated as the owner of the Variable Account. The Treasury Department also
stated that future guidance would be issued regarding the extent that Owners
could direct sub-account investments without being treated as Owners of the
underlying assets of the separate account.
Your rights under the Contract are different than those described by the IRS
in rulings in which it found that contract Owners were not Owners of separate
account assets. For example, you have the choice to allocate premiums and
Contract Values among more investment alternatives. Also, you may be able to
transfer among investment alternatives more frequently than in such rulings.
These differences could result in you being treated as the owner of the
Variable Account. If this occurs, income and gain from the Variable Account
assets would be includible in your gross income. Allstate does not know what
standards will be set forth in any regulations or rulings which the Treasury
Department may issue. It is possible that future standards announced by the
Treasury Department could adversely affect the tax treatment of your
Contract. We reserve the right to modify the Contract as necessary to attempt
to prevent you from being considered the federal tax owner of the assets of
the Variable Account. However, we make no guarantee that such modification to
the Contract will be successful.
Taxation of Partial and Full Withdrawals. If you make a partial withdrawal under
a non-Qualified Contract, amounts received are taxable to the extent the
Contract Value, without regard to surrender charges, exceeds the investment in
the Contract. The investment in the Contract is the gross premium paid for the
contract minus any amounts previously received from the Contract if such amounts
were properly excluded from your gross income. If you make a partial withdrawal
under a Qualified Contract, the portion of the payment that bears the same ratio
to the total payment that the investment in the Contract (i.e., nondeductible
IRA contributions, after tax contributions to qualified plans) bears to the
Contract Value, is excluded from your income. If you make a full withdrawal
under a non-Qualified Contract or a Qualified Contract, the amount received will
be taxable only to the extent it exceeds the investment in the Contract.
"Nonqualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions. "Qualified distributions" from Roth IRAs are
not included in gross income. "Qualified distributions" are any distributions
made more than five taxable years after the taxable year of the first
contribution to any Roth IRA and which are:
- made on or after the date the individual attains age 59 1/2,
- made to a beneficiary after the Contract Owner's death,
- attributable to the Contract Owner being disabled, or
- for a first time home purchase (first time home purchases are subject
to a lifetime limit of $10,000).
28 PROSPECTUS
<PAGE>
If you transfer a non-Qualified Contract without full and adequate consideration
to a person other than your spouse (or to a former spouse incident to a
divorce), you will be taxed on the difference between the Contract Value and the
investment in the Contract at the time of transfer. Except for certain Qualified
Contracts, any amount you receive as a loan under a Contract, and any assignment
or pledge (or agreement to assign or pledge) of the Contract Value is treated as
a withdrawal of such amount or portion.
Taxation of Annuity Payments. Generally, the rule for income taxation of
annuity payments received from a nonqualified contract provides for the
return of your investment in the Contract in equal tax-free amounts over the
payment period. The balance of each payment received is taxable. For fixed
annuity payments, the amount excluded from income is determined by
multiplying the payment by the ratio of the investment in the Contract
(adjusted for any refund feature or period certain) to the total expected
value of annuity payments for the term of the Contract. If you elect variable
annuity payments, the amount excluded from taxable income is determined by
dividing the investment in the Contract by the total number of expected
payments. The annuity payments will be fully taxable after the total amount
of the investment in the Contract is excluded using these ratios. If you die,
and annuity payments cease before the total amount of the investment in the
Contract is recovered, the unrecovered amount will be allowed as a deduction
for your last taxable year.
Taxation of Annuity Death Benefits. Death of a Contract Owner, or death of the
Annuitant if the Contract is owned by a non-natural person, will cause a
distribution of death benefits from a Contract. Generally, such amounts are
included in income as follows:
1) if distributed in a lump sum, the amounts are taxed in the same manner
as a full withdrawal, or
2) if distributed under an Income Plan, the amounts are taxed in the same
manner as an income payment. Please see the Statement of Additional
Information for more detail on distribution at death requirements.
Penalty Tax on Premature Distributions. A 10% penalty tax applies to the taxable
amount of any premature distribution from a non-Qualified Contract. The penalty
tax generally applies to any distribution made prior to the date you attain age
59 1/2. However, no penalty tax is incurred on distributions:
1) made on or after the date the Contract Owner attains age 59 1/2,
2) made as a result of the Contract Owner's death or disability,
3) made in substantially equal periodic payments over the Contract
Owner's life or life expectancy,
4) made under an immediate annuity, or
5) attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine if any other exceptions
to the penalty apply to your situation. Similar exceptions may apply to
distributions from Qualified Contracts.
Aggregation of Annuity Contracts. All non-qualified deferred annuity contracts
issued by Allstate (or its affiliates) to the same Contract Owner during any
calendar year will be aggregated and treated as one annuity contract for
purposes of determining the taxable amount of a distribution.
Tax Qualified Contracts
Investments in qualified plans and IRA's are tax deferred and variable annuities
held by such plans do not receive any additional tax deferral. You should review
the annuity features, including all benefits and expenses, prior to purchasing a
variable annuity in a qualified plan or IRA.
Contracts may be used as investments with certain qualified plans such as:
- Individual Retirement Annuities or Accounts (IRAs) under Section 408
of the Code;
- Roth IRAs under Section 408A of the Code;
- Simplified Employee Pension Plans under Section 408(k) of the Code;
- Savings Incentive Match Plans for Employees (SIMPLE) Plans under
Section 408(p) of the Code;
- Tax Sheltered Annuities under Section 403(b) of the Code;
- Corporate and Self Employed Pension and Profit Sharing Plans; and
- State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans.
In the case of certain qualified plans, the terms of the plans may govern the
right to benefits, regardless of the terms of the Contract.
Restrictions Under Section 403(b) Plans. Section 403(b) of the Tax Code provides
tax-deferred retirement savings plans for employees of certain non-profit and
educational organizations. Under Section 403(b), any contract used for a 403(b)
plan must provide that distributions attributable to salary reduction
contributions made after 12/31/88, and all earnings on salary reduction
contributions, may be made only on or after the date the employee:
- - attains age 59 1/2,
- - separates from service,
- - dies,
29 PROSPECTUS
<PAGE>
- - becomes disabled, or
- - on account of hardship (earnings on salary reduction contributions may
not be distributed on the account of hardship).
These limitations do not apply to withdrawals where Allstate is directed to
transfer some or all of the contract value to another 403(b) plan.
Income Tax Withholding
Allstate is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless you elect to make a "direct rollover"
of such amounts to an IRA or eligible retirement plan. Eligible rollover
distributions generally include all distributions from Qualified Contracts,
excluding IRAs, with the exception of:
(1) required minimum distributions, or
(2) a series of substantially equal periodic payments made over a period
of at least 10 years, or,
(3) over the life (joint lives) of the participant (and beneficiary).
Allstate may be required to withhold federal and state income taxes on any
distributions from non-Qualified Contracts or Qualified Contracts that are not
eligible rollover distributions, unless you notify us of your election to not
have taxes withheld.
PERFORMANCE INFORMATION
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
We may advertise the performance of the Variable Sub-Accounts, including
yield and total return information. Total return represents the change, over
a specified period of time, in the value of an investment in a Variable
Sub-Account after reinvesting all income distributions. Yield refers to the
income generated by an investment in a Variable Sub-Account over a specified
period. All performance advertisements will include, as applicable,
standardized yield and total return figures that reflect the Credit
Enhancement and the deduction of insurance charges and withdrawal charge.
Performance advertisements also may include total return figures that reflect
the deduction of insurance charges, but not withdrawal charges, where
permitted. The deduction of such charges would reduce the performance shown.
In addition, performance advertisements may include aggregate, average,
year-by-year, or other types of total return figures.
Performance information for periods prior to the inception date of the Variable
Sub-Accounts will be based on the historical performance of the corresponding
Funds for the periods beginning with the inception dates of the Funds and
adjusted to reflect current Contract expenses. You should not interpret these
figures to reflect actual historical performance of the Variable Account.
We may include in advertising and sales materials tax deferred compounding
charts and other hypothetical illustrations that compare currently taxable
and tax deferred investment programs based on selected tax brackets. Our
advertisements also may compare the performance of our Variable Sub-Accounts
with: (a) certain unmanaged market indices, including but not limited to the
Dow Jones Industrial Average, the Standard & Poor's 500, and the Shearson
Lehman Bond Index; and/or (b) other management investment companies with
investment objectives similar to the underlying funds being compared. In
addition, our advertisements may include the performance ranking assigned by
various publications, including the Wall Street Journal, Forbes, Fortune,
Money, Barron's, Business Week, USA Today, and statistical services,
including Lipper Analytical Services Mutual Fund Survey, Lipper Annuity and
Closed End Survey, the Variable Annuity Research Data Survey, and SEI.
30 PROSPECTUS
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS............... 2
THE CONTRACT........................................................ 3
PERFORMANCE INFORMATION............................................. 4
CALCULATION OF ACCUMULATION UNIT VALUES............................. 9
CALCULATION OF VARIABLE INCOME PAYMENTS............................. 10
GENERAL MATTERS..................................................... 11
FEDERAL TAX MATTERS................................................. 12
QUALIFIED PLANS..................................................... 13
EXPERTS............................................................. 15
FINANCIAL STATEMENTS................................................ F-1
-----------------------------------------------
This prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made. We do not authorize anyone to provide
any information or representations regarding the offering described in this
prospectus other than as contained in this prospectus.
31 PROSPECTUS
<PAGE>
[back cover]
Appendix A
Withdrawal Adjustment Example - Death Benefits
Issue Date: January 1, 2000
Initial Purchase Payment: $50,000
<TABLE>
<CAPTION>
Date Type Beginning Transaction Contract Purchase Maximum Enhanced
of Contract Amount Value Payment Anniversary Beneficiary
Occurrence Value After Value Value Value
Occurrence
Death Benefit Amount
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/00 Issue Date - $50,000 $52,000 $52,000 $52,000 $52,000
1/1/01 Contract Anniversary $55,000 $ - $55,000 $50,000 $55,000 $54,600
7/1/01 Partial Withdrawal $60,000 $15,000 $45,000 $37,000 $41,250 $40,950
</TABLE>
The Purchase Payment Value is reduced by the amount of the withdrawal. The
withdrawal adjustment reduces the Maximum Anniversary Value and Enhanced
Beneficiary Value by the same proportion as the Contract Value.
Purchase Payment Value Death Benefit
<TABLE>
<S> <C>
Partial Withdrawal Amount (w) $15,000
Value of Applicable Death Benefit Amount Immediately Prior to Partial Withdrawal (d) $52,000
Adjusted Death Benefit $37,000
Maximum Anniversary Value Death Benefit
Partial Withdrawal Amount (w) $15,000
Contract Value Immediately Prior to Partial Withdrawal (a) $60,000
Value of Applicable Death Benefit Amount Immediately Prior to Partial Withdrawal (d) $55,000
Withdrawal Adjustment [(w)/(a)]*(d) $13,750
Adjusted Death Benefit $41,250
Enhanced Beneficiary Protection Value Death Benefit
Partial Withdrawal Amount (w) $15,000
Contract Value Immediately Prior to Partial Withdrawal (a) $60,000
Value of Applicable Death Benefit Amount Immediately Prior to Partial Withdrawal (d) $54,600
Withdrawal Adjustment [(w)/(a)]*(d) $13,650
Adjusted Death Benefit $40,950
</TABLE>
A-1
<PAGE>
Appendix B
Withdrawal Adjustment Example -
Retirement Income Guarantee Riders
Issue Date: January 1, 2000
Initial Purchase Payment: $50,000
<TABLE>
<CAPTION>
Date Type Beginning Transaction Contract Purchase Maximum 6%
of Contract Amount Value Payment Anniversary Roll-Up
<PAGE>
Occurrence Value After Value Value Value
Occurrence
Income Benefit Amount
<S> <C> <C> <C> <C> <C> <C> <C>
1/1/00 Issue Date - $50,000 $52,000 $52,000 $52,000 $52,000
1/1/01 Contract Anniversary $55,000 - $55,000 $52,000 $55,000 $55,120
7/1/01 Partial Withdrawal $60,000 $15,000 $45,000 $39,000 $41,250 $41,340
</TABLE>
The withdrawal adjustment equals the partial withdrawal amount divided by
the Contract Value immediately prior to the partial withdrawal multiplied by the
value of the applicable benefit amount immediately prior to the partial
withdrawal.
Purchase Payment Value Income Benefit
<TABLE>
<S> <C>
Partial Withdrawal Amount (w) $15,000
Contract Value Immediately Prior to Partial Withdrawal (a) $60,000
Value of Applicable Income Benefit Amount Immediately Prior to Partial Withdrawal (d) $52,000
Withdrawal Adjustment [(w)/(a)]*(d) $13,000
Adjusted Income
Benefit $39,000
Maximum Anniversary Value Income Benefit
Partial Withdrawal Amount (w) $15,000
Contract Value Immediately Prior to Partial Withdrawal (a) $60,000
Value of Applicable Income Benefit Amount Immediately Prior to Partial Withdrawal (d) $55,120
Withdrawal Adjustment [(w)/(a)]*(d) $13,780
Adjusted Income
Benefit $41,340
6% Roll-Up Value Income Benefit
Partial Withdrawal Amount (w) $15,000
Contract Value Immediately Prior to Partial Withdrawal (a) $60,000
Value of Applicable Death Benefit Amount Immediately Prior to Partial Withdrawal (d) $55,120
Withdrawal Adjustment [(w)/(a)]*(d) $13,780
Adjusted Death
Benefit $41,340
</TABLE>
A-2
<PAGE>
The Putnam Allstate Advisor Plus
Allstate Life Insurance Company Statement of Additional Information
3100 Sanders Road dated February 4, 2000
Northbrook, Illinois 60062
1-800-390-1277
This Statement of Additional Information supplements the information in the
prospectus for The Putnam Allstate Advisor Plus variable annuity contract. This
Statement of Additional Information is not a prospectus. You should read it with
the prospectus dated February 4, 2000 for the Contract. You may obtain a
prospectus by calling or writing us at the address or telephone number listed
above.
Except as otherwise noted, this Statement of Additional Information uses the
same defined terms as the prospectus for the Contract.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Description Page
<S> <C>
Additions, Deletions or Substitutions of Investments................. 2
The Contract......................................................... 3
Performance Information.............................................. 4
Calculation of Accumulation Unit Values.............................. 9
Calculation of Variable Income Payments.............................. 10
General Matters...................................................... 11
Federal Tax Matters.................................................. 12
Qualified Plans...................................................... 13
Experts.............................................................. 15
Financial Statements................................................. F-1
</TABLE>
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
- -----------------------------------------------
<PAGE>
We may add, delete, or substitute the Fund shares held by any Variable
Sub-Account to the extent the law permits. We may substitute shares of any Fund
with those of another Fund of the same or different mutual fund if the shares of
the Fund are no longer available for investment, or if we believe investment in
any Fund would become inappropriate in view of the purposes of the Variable
Account.
We will not substitute shares attributable to a Contract Owner's interest in a
Variable Sub-Account until we have notified the Contract Owner of the change,
and until the Securities and Exchange Commission has approved the change, to the
extent such notification and approval are required by law. Nothing contained in
this Statement of Additional Information shall prevent the Variable Account from
purchasing other securities for other series or classes of contracts, or from
effecting a conversion between series or classes of contracts on the basis of
requests made by Contract Owners.
We also may establish additional Variable Sub-Accounts or series of Variable
Sub-Accounts. Each additional Variable Sub-Account would purchase shares in a
new Fund of the same or different mutual fund. We may establish new Variable
Sub-Accounts when we believe marketing needs or investment conditions warrant.
We determine the basis on which we will offer any new Variable Sub-Accounts in
conjunction with the Contract to existing Contract Owners. We may eliminate one
or more Variable Sub-Accounts if, in our sole discretion, marketing, tax or
investment conditions so warrant.
We may, by appropriate endorsement, change the Contract as we believe necessary
or appropriate to reflect any substitution or change in the Funds. If we believe
the best interests of persons having voting rights under the Contracts would be
served, we may operate the Variable Account as a management company under the
Investment Company Act of 1940 or we may withdraw its registration under such
Act if such registration is no longer required.
THE CONTRACT
- ----------------------------------------------------------
The Contract is primarily designed to aid individuals in long-term financial
planning. You can use it for retirement planning regardless of whether the
retirement plan qualifies for special federal income tax treatment.
<PAGE>
PURCHASE OF CONTRACTS
We offer the Contracts to the public through banks as well as brokers licensed
under the federal securities laws and state insurance laws. The principal
underwriter for the Variable Account, Allstate Life Financial Services, Inc.
("ALFS"), distributes the Contracts. ALFS is an affiliate of Allstate. The
offering of the Contracts is continuous. We do not anticipate discontinuing the
offering of the Contracts, but we reserve the right to do so at any time.
TAX-FREE EXCHANGES (1035 EXCHANGES, ROLLOVERS AND TRANSFERS)
We accept purchase payments that are the proceeds of a Contract in a transaction
qualifying for a tax-free exchange under Section 1035 of the Internal Revenue
Code ("Code"). Except as required by federal law in calculating the basis of the
Contract, we do not differentiate between Section 1035 purchase payments and
non-Section 1035 purchase payments.
We also accept "rollovers" and transfers from Contracts qualifying as
tax-sheltered annuities ("TSAs"), individual retirement annuities or accounts
("IRAs"), or any other Qualified Contract that is eligible to "rollover" into an
IRA. We differentiate among non-Qualified Contracts, TSAs, IRAs and other
Qualified Contracts to the extent necessary to comply with federal tax laws. For
example, we restrict the assignment, transfer, or pledge of TSAs and IRAs so the
Contracts will continue to qualify for special tax treatment. A Contract Owner
contemplating any such exchange, rollover or transfer of a Contract should
contact a competent tax adviser with respect to the potential effects of such a
transaction.
PERFORMANCE INFORMATION
- ----------------------------------------------------------
From time to time we may advertise the "standardized," "non-standardized," and
"adjusted historical" total returns of the Variable Sub-Accounts, as described
below. Please remember that past performance is not an estimate or guarantee of
future performance and does not necessarily represent the actual experience of
amounts invested by a particular Contract Owner.
STANDARDIZED TOTAL RETURNS
A Variable Sub-Account's standardized total return represents the average annual
total return of that Sub-Account over a particular period. We compute
standardized total return by finding the annual percentage rate that, when
compounded annually, will accumulate a hypothetical $1,000 purchase payment to
the redeemable value at the end of the one, five or ten year period, or for a
period from the date of commencement of the Variable Sub-Account's operations,
if shorter than any of the foregoing. We use the following formula prescribed by
<PAGE>
the SEC for computing standardized total return:
n
1000(1 + T) = ERV
where:
T = average annual total return
ERV = ending redeemable value of a hypothetical $1,000 payment
(plus $40 credit thereon) made at the beginning of 1, 5, or
10 year periods or shorter period
n = number of years in the period
1000 = hypothetical $1,000 investment
When factoring in the withdrawal charge assessed upon redemption, we exclude
the Free Withdrawal Amount, which is the amount you can withdraw from the
Contract without paying a withdrawal charge. We also use the withdrawal
charge that would apply upon redemption at the end of each period. Thus, for
example, when factoring in the withdrawal charge for a one year standardized
total return calculation, we would use the withdrawal charge that applies to
a withdrawal of a purchase payment made one year prior.
The standardized total returns for the Variable Sub-Accounts for the periods
ended December 31, 1999 are set out below. The Contract was first offered for
sale as of the date of this Statement of Additional Information. Accordingly,
the performance shown reflects the historical performance of the Variable
Sub-Accounts, adjusted to reflect the current charges under the Contract that
would have applied had it been available during the period shown. No
standardized total returns are shown for Putnam VT American Government Income
and Putnam VT Growth Opportunities Variable Sub-Accounts, which had not
commenced operations as of the date of this Statement of Additional Information.
Putnam Allstate Advisor Plus Contract
The Variable Sub-Accounts commenced operations on April 30, 1999.
(Without the Enhanced Beneficiary Protection Option or Retirement Income
Guarantee Rider)
<PAGE>
<TABLE>
<CAPTION>
Since Inception
of
Variable Sub-Account Sub-Account
<S> <C>
Putnam Asia Pacific Growth 128.63%
Putnam Diversified Income -6.55%
The George Putnam Fund -14.99%
Putnam Global Asset Allocation 6.31%
Putnam Global Growth 97.81%
Putnam Growth and Income -16.85%
Putnam Health Sciences 4.72%
Putnam High Yield -5.52%
Putnam Income -8.84%
Putnam International Growth 70.25%
Putnam International Growth and Income 10.61%
Putnam International New Opportunities 142.92%
Putnam Investors 30.33%
Putnam Money Market -2.04%
Putnam New Opportunities 94.08%
Putnam New Value -22.27%
Putnam OTC & Emerging Growth 178.99%
Putnam Research 20.82%
Putnam Small Cap Value 0.14%
Putnam Utilities Growth and Income -4.70%
Putnam Vista 64.03%
Putnam Voyager 68.38%
- ---------------
</TABLE>
(With the Enhanced Beneficiary Protection Option)
<TABLE>
<CAPTION>
Since Inception
of
Variable Sub-Account Sub-Account
<S> <C>
Putnam Asia Pacific Growth 128.27%
Putnam Diversified Income -6.70%
The George Putnam Fund -15.13%
Putnam Global Asset Allocation 6.14%
Putnam Global Growth 97.80%
Putnam Growth and Income -16.99%
Putnam Health Sciences 4.55%
Putnam High Yield -5.67%
Putnam Income -8.99%
Putnam International Growth 69.98%
Putnam International Growth and Income 10.43%
Putnam International New Opportunities 142.54%
Putnam Investors 30.12%
Putnam Money Market -2.20%
Putnam New Opportunities 93.77%
Putnam New Value -22.40%
Putnam OTC & Emerging Growth 178.55%
Putnam Research 20.63%
Putnam Small Cap Value -0.02%
Putnam Utilities Growth and Income -4.86%
Putnam Vista 63.77%
Putnam Voyager 68.11%
- --------------
</TABLE>
<PAGE>
(With Retirement Income Guarantee Rider 2)
<TABLE>
<CAPTION>
Since Inception
of
Variable Sub-Account Sub-Account
<S> <C>
Putnam Asia Pacific Growth 128.57%
Putnam Diversified Income -6.59%
The George Putnam Fund -15.03%
Putnam Global Asset Allocation 6.26%
Putnam Global Growth 97.76%
Putnam Growth and Income -16.89%
Putnam Health Sciences 4.68%
Putnam High Yield -5.56%
Putnam Income -8.88%
Putnam International Growth 70.20%
Putnam International Growth and Income 10.57%
Putnam International New Opportunities 142.86%
Putnam Investors 30.28%
Putnam Money Market -2.09%
Putnam New Opportunities 94.02%
Putnam New Value -22.31%
Putnam OTC & Emerging Growth 178.93%
Putnam Research 20.78%
Putnam Small Cap Value 0.09%
Putnam Utilities Growth and Income -4.75%
Putnam Vista 63.98%
Putnam Voyager 68.33%
- --------------
</TABLE>
<PAGE>
(With the Enhanced Beneficiary Protection Option and Retirement Income Guarantee
Rider 2)
<TABLE>
<CAPTION>
Since Inception
of
Variable Sub-Account Sub-Account
<S> <C>
Putnam Asia Pacific Growth 128.21%
Putnam Diversified Income -6.74%
The George Putnam Fund -15.17%
Putnam Global Asset Allocation 6.09%
Putnam Global Growth 97.75%
Putnam Growth and Income -17.03%
Putnam Health Sciences 4.51%
Putnam High Yield -5.72%
Putnam Income -9.03%
Putnam International Growth 69.93%
Putnam International Growth and Income 10.39%
Putnam International New Opportunities 142.48%
Putnam Investors 30.07%
Putnam Money Market -2.25%
Putnam New Opportunities 93.72%
Putnam New Value -22.44%
Putnam OTC & Emerging Growth 178.49%
Putnam Research 20.58%
Putnam Small Cap Value -0.07%
Putnam Utilities Growth and Income -4.90%
Putnam Vista 63.72%
Putnam Voyager 68.06%
- --------------
</TABLE>
NON-STANDARDIZED TOTAL RETURNS
From time to time, we also may quote rates of return that reflect changes in the
values of each Variable Sub-Account's accumulation units. We may quote these
"non-standardized total returns" on an annualized, cumulative, year-by-year, or
other basis. These rates of return take into account asset-based charges, such
as the mortality and expense risk charge and administration charge. However,
these rates of
<PAGE>
return do not reflect, withdrawal charges or any taxes. Such charges, if
reflected, would reduce the performance shown. Non-standardized total returns
will not take into account the amount of any Credit Enhancement.
Annualized returns reflect the rate of return that, when compounded annually,
would equal the cumulative rate of return for the period shown. We compute
annualized returns according to the following formula:
Annualized Return = (1 + r)1/n -1
where r = cumulative rate of return for the period shown,
and n = number of years in the period.
The method of computing annualized rates of return is similar to that for
computing standardized performance, described above, except that rather than
using a hypothetical $1,000 investment and the ending redeemable value thereof,
we use the changes in value of an accumulation unit.
Cumulative rates of return reflect the cumulative change in value of an
accumulation unit over the period shown. Year-by-year rates of return reflect
the change in value of an accumulation unit during the course of each year
shown. We compute these returns by dividing the accumulation unit value at the
end of each period shown, by the accumulation unit value at the beginning of
that period, and subtracting one. We compute other total returns on a similar
basis.
We may quote non-standardized total returns for 1, 3, 5 and 10 year periods, or
period since inception of the Variable Sub-Account's operations, as well as
other periods, such as "year-to-date" (prior calendar year end to the day stated
in the advertisement); "year to most recent quarter" (prior calendar year end to
the end of the most recent quarter); the prior calendar year; and the "n" most
recent calendar years.
The non-standardized annualized total returns for the Variable Sub-Accounts
for the period ended December 31, 1999 are set out below. The Contract was
first offered for sale as of the date of this Statement of Additional
Information. Accordingly, the performance shown reflects the historical
performance of the Variable Sub-Accounts, adjusted to reflect the current
asset-based charges (but not the withdrawal charge or taxes) under the
Contract that would have applied had it been available during the period
shown. No non-standardized total returns are shown for Putnam VT American
Government Income and Putnam VT Growth Opportunities Variable Sub-Accounts,
which had not commenced operations as of the date of this Statement of
Additional Information.
<PAGE>
Putnam Allstate Advisor Plus Contract
The Variable Sub-Accounts commenced operations on April 30, 1999.
(Without the Enhanced Beneficiary Protection Option or Retirement Income
Guarantee Rider)
<TABLE>
<CAPTION>
Since Inception
of
Variable Sub-Account Sub-Account
<S> <C>
Putnam Asia Pacific Growth 128.19%
Putnam Diversified Income -2.34%
The George Putnam Fund -10.58%
Putnam Global Asset Allocation 10.17%
Putnam Global Growth 98.58%
Putnam Growth and Income -12.40%
Putnam Health Sciences 8.63%
Putnam High Yield -1.34%
Putnam Income -4.58%
Putnam International Growth 72.04%
Putnam International Growth and Income 14.36%
Putnam International New Opportunities 141.90%
Putnam Investors 33.48%
Putnam Money Market 2.05%
Putnam New Opportunities 94.99%
Putnam New Value -17.70%
Putnam OTC & Emerging Growth 176.47%
Putnam Research 24.27%
Putnam Small Cap Value 4.17%
Putnam Utilities Growth and Income -0.55%
Putnam Vista 66.05%
Putnam Voyager 70.24%
- --------------
</TABLE>
<PAGE>
(With the Enhanced Beneficiary Protection Option)
<TABLE>
<CAPTION>
Since Inception
of
Variable Sub-Account Sub-Account
<S> <C>
Putnam Asia Pacific Growth 127.85%
Putnam Diversified Income -2.49%
The George Putnam Fund -10.72%
Putnam Global Asset Allocation 10.01%
Putnam Global Growth 98.57%
Putnam Growth and Income -12.53%
Putnam Health Sciences 8.47%
Putnam High Yield -1.49%
Putnam Income -4.72%
Putnam International Growth 71.78%
Putnam International Growth and Income 14.18%
Putnam International New Opportunities 141.53%
Putnam Investors 33.28%
Putnam Money Market 1.89%
Putnam New Opportunities 94.69%
Putnam New Value -17.83%
Putnam OTC & Emerging Growth 176.05%
Putnam Research 24.08%
Putnam Small Cap Value 4.01%
Putnam Utilities Growth and Income -0.70%
Putnam Vista 65.80%
Putnam Voyager 69.98%
- --------------
</TABLE>
(With Retirement Income Guarantee Rider 2)
<TABLE>
<CAPTION>
Since Inception
of
Variable Sub-Account Sub-Account
<S> <C>
Putnam Asia Pacific Growth 128.19%
Putnam Diversified Income -2.34%
The George Putnam Fund -10.58%
Putnam Global Asset Allocation 10.17%
Putnam Global Growth 98.58%
Putnam Growth and Income -12.40%
Putnam Health Sciences 8.63%
Putnam High Yield -1.34%
Putnam Income -4.58%
Putnam International Growth 72.04%
Putnam International Growth and Income 14.36%
Putnam International New Opportunities 141.90%
Putnam Investors 33.48%
Putnam Money Market 2.05%
Putnam New Opportunities 94.99%
Putnam New Value -17.70%
Putnam OTC & Emerging Growth 176.47%
Putnam Research 24.27%
Putnam Small Cap Value 4.17%
Putnam Utilities Growth and Income -0.55%
Putnam Vista 66.05%
Putnam Voyager 70.24%
- --------------
</TABLE>
<PAGE>
(With the Enhanced Beneficiary Protection Option and Retirement Income Guarantee
Rider 2)
<TABLE>
<CAPTION>
Since Inception
of
Variable Sub-Account Sub-Account
<S> <C>
Putnam Asia Pacific Growth 127.85%
Putnam Diversified Income -2.49%
The George Putnam Fund -10.72%
Putnam Global Asset Allocation 10.01%
Putnam Global Growth 98.57%
Putnam Growth and Income -12.53%
Putnam Health Sciences 8.47%
Putnam High Yield -1.49%
Putnam Income -4.72%
Putnam International Growth 71.78%
Putnam International Growth and Income 14.18%
Putnam International New Opportunities 141.53%
Putnam Investors 33.28%
Putnam Money Market 1.89%
Putnam New Opportunities 94.69%
Putnam New Value -17.83%
Putnam OTC & Emerging Growth 176.05%
Putnam Research 24.08%
Putnam Small Cap Value 4.01%
Putnam Utilities Growth and Income -0.70%
Putnam Vista 65.80%
Putnam Voyager 69.98%
- --------------
</TABLE>
<PAGE>
ADJUSTED HISTORICAL TOTAL RETURNS
We may advertise the total return for periods prior to the date that the
Variable Sub-Accounts commenced operations. We will calculate such "adjusted
historical total returns" using the performance of the underlying Funds and
adjusting such performance to reflect the current level of charges that apply to
the Variable Sub-Accounts under the Contract.
The adjusted historical total returns for the Variable Sub-Accounts for the
periods ended December 31, 1999 are set out below. No adjusted historical total
returns are shown for Putnam VT American Government Income and Putnam VT Growth
Opportunities Variable Sub-Accounts because the underlying Funds commenced
operations on January 31, 2000.
Putnam Allstate Advisor Plus Contract
(Without the Enhanced Beneficiary Protection Option or a Retirement Income
Guarantee Rider)
<TABLE>
<CAPTION>
Ten Years or Since
Variable Sub-Account One Year Five Years Inception of Fund*
<S> <C> <C> <C>
Putnam Asia Pacific Growth 105.16% N/A 12.59%
Putnam Diversified Income -2.68% 5.06% 3.49%
The George Putnam Fund -4.89% N/A -1.37%
Putnam Global Asset Allocation 7.58% 15.32% 10.76%
Putnam Global Growth 63.99% 25.81% 15.81%
Putnam Growth and Income -2.97% 17.72% 12.45%
Putnam Health Sciences -8.54% N/A -0.28%
Putnam High Yield 1.48% 6.97% 9.34%
Putnam Income -6.68% 5.45% 6.11%
Putnam International Growth 56.98% N/A 28.36%
Putnam International Growth and Income 20.46% N/A 16.18%
Putnam International New Opportunities 100.77% N/A 31.05%
Putnam Investors 26.22% N/A 25.72%
Putnam Money Market -0.39% 3.13% 3.49%
Putnam New Opportunities 66.26% 31.27% 28.72%
Putnam New Value -4.20% N/A 5.38%
Putnam OTC & Emerging Growth 124.94% N/A 62.22%
Putnam Research 23.88% N/A 36.93%
Putnam Small Cap Value N/A N/A 0.14%
Putnam Utilities Growth and Income -5.26% 15.43% 11.08%
Putnam Vista 49.36% N/A 29.25%
Putnam Voyager 54.91% 30.03% 20.65%
- --------------
</TABLE>
* Each of the above Funds (Class IB) corresponding to the Variable
Sub-Accounts commenced operations on April 30, 1998, except for the Putnam VT
Diversified Income, Growth and Income, and International Growth Funds, which
commenced operations on April 6, 1998, the Putnam VT Research Fund, which
commenced operations September 30, 1998 and the Putnam VT Small Cap Value
Fund, which commenced operations April 30, 1999. For periods prior to the
inception dates of the Funds (Class IB), the performance shown is based on
the historical performance of the Funds (Class IA), adjusted to reflect the
current expenses of the Funds (Class IB). The inception dates for the Funds
(Class IA) are as follows:
Global Asset Allocation, Growth and Income, Income, High Yield, Money Market,
and Voyager commenced operations on February 1, 1988; Global Growth commenced
operations on May 1, 1990; Utilities Growth and Income commenced operations
on May 1, 1992; Diversified Income commenced operations on September 15,
1993; New Opportunities commenced operations on May 2, 1994; Asia Pacific
Growth commenced operations on May 1, 1995; International Growth,
International Growth and Income, International New Opportunities, New Value
and Vista commenced operations on January 2, 1997; The George Putnam Fund of
Boston, Health Sciences, Investors and OTC & Emerging Growth commenced
operations on April 30, 1998.
(With the Enhanced Beneficiary Protection Option and Retirement Income Guarantee
Rider 2)*
<PAGE>
<TABLE>
<CAPTION>
Ten Years or Since
Variable Sub-Account One Year Five Years Inception of Fund**
<S> <C> <C> <C>
Putnam Asia Pacific Growth 104.81% N/A 12.38%
Putnam Diversified Income -2.87% 4.87% 3.30%
The George Putnam Fund -5.07% N/A -1.56%
Putnam Global Asset Allocation 7.37% 15.11% 10.57%
Putnam Global Growth 63.87% 25.62% 15.62%
Putnam Growth and Income -3.16% 17.52% 12.26%
Putnam Health Sciences -8.72% N/A -0.48%
Putnam High Yield 1.28% 6.77% 9.15%
Putnam Income -6.86% 5.26 5.93%
Putnam International Growth 56.70% N/A 28.13%
Putnam International Growth and Income 20.23% N/A 15.96%
Putnam International New Opportunities 100.43% N/A 30.81%
Putnam Investors 25.99% N/A 25.48%
Putnam Money Market -0.58% 2.93% 3.31%
Putnam New Opportunities 65.96% 31.04% 28.50%
Putnam New Value -4.38% N/A 5.19%
Putnam OTC & Emerging Growth 124.56% N/A 61.93%
Putnam Research 23.65% N/A 36.67%
Putnam Small Cap Value N/A N/A -0.07%
Putnam Utilities Growth and Income -5.45% 15.23 10.89%
Putnam Vista 49.09% N/A 29.02%
Putnam Voyager 54.64% 29.81% 20.45%
- --------------
</TABLE>
*Performance figures have been adjusted to reflect the current charge
for the Enhanced Beneficiary Protection Option and Retirement Income Guarantee
Rider 2 as if those features had been available throughout the periods shown.
** The inception dates for the Funds appear in the first footnote to
the preceding table. For periods prior to the inception dates of the Funds
(Class IB), the performance shown is based on the historical performance of the
Funds (Class IA), adjusted to reflect the current expenses of the Funds (Class
IB). The inception dates for the Funds (Class IA) are shown on the first note to
the preceding table.
<PAGE>
(With the Enhanced Beneficiary Protection Option)*
<TABLE>
<CAPTION>
Ten Years or Since
Variable Sub-Account One Year Five Years Inception of Fund**
<S> <C> <C> <C>
Putnam Asia Pacific Growth 104.84% N/A 12.41%
Putnam Diversified Income -2.84% 4.89% 3.32%
The George Putnam Fund -5.04% N/A -1.52%
Putnam Global Asset Allocation 7.40% 15.14% 10.59%
Putnam Global Growth 63.90% 25.64% 15.64%
Putnam Growth and Income -3.13% 17.54% 12.28%
Putnam Health Sciences -8.69% N/A -0.44%
Putnam High Yield 1.31% 6.80% 9.17%
Putnam Income -6.83% 5.28% 5.95%
Putnam International Growth 56.73% N/A 28.15%
Putnam International Growth and Income 20.26% N/A 15.99%
Putnam International New Opportunities 100.46% N/A 30.84%
Putnam Investors 26.02% N/A 25.52%
Putnam Money Market -0.55% 2.96% 3.33%
Putnam New Opportunities 65.99% 31.06% 28.52%
Putnam New Value -4.35% N/A 5.21%
Putnam OTC & Emerging Growth 124.59% N/A 61.97%
Putnam Research 23.68% N/A 36.72%
Putnam Small Cap Value N/A N/A -0.02%
Putnam Utilities Growth and Income -5.42% 15.25% 10.91%
Putnam Vista 49.12% N/A 29.05%
Putnam Voyager 54.67% 29.83% 20.47%
- --------------
</TABLE>
*Performance figures have been adjusted to reflect the current charge
for the Enhanced Beneficiary Protection Option as if that feature had been
available throughout the periods shown.
** The inception dates for the Funds appear in the first footnote to
the preceding table. For periods prior to the inception dates of the Funds
(Class IB), the performance shown is based on the historical performance of the
Funds (Class IA), adjusted to reflect the current expenses of the Funds (Class
IB). The inception dates for the Funds (Class IA) are shown on the first note to
the first table above.
<PAGE>
(With Retirement Income Guarantee Rider 2)*
<TABLE>
<CAPTION>
Ten Years or Since
Variable Sub-Account One Year Five Years Inception of Fund**
<S> <C> <C> <C>
Putnam Asia Pacific Growth 105.13% N/A 12.56%
Putnam Diversified Income -2.71% 5.04% 3.46%
The George Putnam Fund -4.92% N/A -1.40%
Putnam Global Asset Allocation 7.55% 15.29% 10.74%
Putnam Global Growth 63.96% 25.79% 15.78%
Putnam Growth and Income -3.00% 17.70% 12.43%
Putnam Health Sciences -8.57% N/A -0.32%
Putnam High Yield 1.45% 6.94% 9.32%
Putnam Income -6.71% 5.43% 6.09%
Putnam International Growth 56.95% N/A 28.33%
Putnam International Growth and Income 20.43% N/A 16.15%
Putnam International New Opportunities 100.74% N/A 31.02%
Putnam Investors 26.19% N/A 25.68%
Putnam Money Market -0.42% 3.10% 3.46%
Putnam New Opportunities 66.23% 31.25% 28.70%
Putnam New Value -4.23% N/A 5.36%
Putnam OTC & Emerging Growth 124.91% N/A 62.18%
Putnam Research 23.85% N/A 36.89%
Putnam Small Cap Value N/A N/A 0.09%
Putnam Utilities Growth and Income -5.29% 15.41% 11.06%
Putnam Vista 49.33% N/A 29.23%
Putnam Voyager 54.88% 30.01% 20.64%
- --------------
</TABLE>
*Performance figures have been adjusted to reflect the current charge
for Retirement Income Guarantee Rider 2 as if that feature had been available
throughout the periods shown. For purposes of computing the Rider fee, we
assumed that Income Base B applied, that there were no additional purchase
payments or withdrawals, and that the Contract Issue Date coincided with the
inception date of the Fund (Class IA).
** The inception dates for the Funds appear in the first footnote to
the preceding table. For periods prior to the inception dates of the Funds
(Class IB), the performance shown is based on the historical performance of the
Funds (Class IA), adjusted to reflect the current expenses of the Funds (Class
IB). The inception dates for the Funds (Class IA) are shown on the first note to
the first table above.
CALCULATION OF ACCUMULATION UNIT VALUES
- ----------------------------------------------
The value of Accumulation Units will change each Valuation Period according to
<PAGE>
the investment performance of the Fund shares purchased by each Variable
Sub-Account and the deduction of certain expenses and charges. A "Valuation
Period" is the period from the end of one Valuation Date and continues to the
end of the next Valuation Date. A Valuation Date ends at the close of regular
trading on the New York Stock Exchange (currently 3:00 p.m.Central Time).
The Accumulation Unit Value of a Variable Sub-Account for any Valuation Period
equals the Accumulation Unit Value as of the immediately preceding Valuation
Period, multiplied by the Net Investment Factor (described below) for that
Sub-Account for the current Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor for a Valuation Period is a number representing the
change, since the last Valuation Period, in the value of Variable Sub-Account
assets per Accumulation Unit due to investment income, realized or unrealized
capital gain or loss, deductions for taxes, if any, and deductions for the
mortality and expense risk charge and administrative expense charge. We
determine the Net Investment Factor for each Variable Sub-Account for any
Valuation Period by dividing (A) by (B) and subtracting (C) from the result,
where:
(A) is the sum of:
(1) the net asset value per share of the Fund underlying the
Variable Sub-Account determined at the end of the current
Valuation Period; plus,
(2) the per share amount of any dividend or capital gain
distributions made by the Fund underlying the Variable
Sub-Account during the current Valuation Period;
(B) is the net asset value per share of the Fund underlying the Variable
Sub-Account determined as of the end of the immediately preceding
Valuation Period; and
(C) is the mortality and expense risk charge corresponding to the portion
of the current calendar year that is in the current Valuation Period.
<PAGE>
CALCULATION OF VARIABLE INCOME PAYMENTS
- ---------------------------------------------------------
We calculate the amount of the first variable income payment under an Income
Plan by applying the Contract Value allocated to each Variable Sub-Account less
any applicable premium tax charge deducted at the time, to the income payment
tables in the Contract. We divide the amount of the first variable annuity
income payment by the Variable Sub-Account's then current Annuity Unit value to
determine the number of annuity units ("Annuity Units") upon which later income
payments will be based. To determine income payments after the first, we simply
multiply the number of Annuity Units determined in this manner for each Variable
Sub-Account by the then current Annuity Unit value ("Annuity Unit Value") for
that Variable Sub-Account.
CALCULATION OF ANNUITY UNIT VALUES
Annuity Units in each Variable Sub-Account are valued separately and Annuity
Unit Values will depend upon the investment experience of the particular Fund in
which the Variable Sub-Account invests. We calculate the Annuity Unit Value for
each Variable Sub-Account at the end of any Valuation Period by:
- - multiplying the Annuity Unit Value at the end of the immediately preceding
Valuation Period by the Variable Sub-Account's Net Investment Factor
(described in the preceding section) for the Period; and then
- - dividing the product by the sum of 1.0 plus the assumed investment rate for
the Valuation Period.
The assumed investment rate adjusts for the interest rate assumed in the
income payment tables used to determine the dollar amount of the first variable
income payment, and is at an effective annual rate which is disclosed in the
Contract.
We determine the amount of the first variable income payment paid under an
Income Plan using the income payment tables set out in the Contracts. The
Contracts include tables that differentiate on the basis of sex, except in
states that require the use of unisex tables.
<PAGE>
GENERAL MATTERS
- -----------------------------------------------------
INCONTESTABILITY
We will not contest the Contract after we issue it.
SETTLEMENTS
The Contract must be returned to us prior to any settlement. We must receive due
proof of the Contract Owner(s) death (or Annuitant's death if there is a
non-natural Contract Owner) before we will settle a death claim.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
We hold title to the assets of the Variable Account. We keep the assets
physically segregated and separate and apart from our general corporate assets.
We maintain records of all purchases and redemptions of the Fund shares held by
each of the Variable Sub-Accounts.
The Funds do not issue stock certificates. Therefore, we hold the Variable
Account's assets in open account in lieu of stock certificates. See the Funds'
prospectuses for a more complete description of the custodian of the Funds.
PREMIUM TAXES
Applicable premium tax rates depend on the Contract Owner's state of residency
and the insurance laws and our status in those states where premium taxes are
incurred. Premium tax rates may be changed by legislation, administrative
interpretations, or judicial acts.
TAX RESERVES
We do not establish capital gains tax reserves for any Variable Sub-Account nor
do we deduct charges for tax reserves because we believe that capital gains
attributable to the Variable Account will not be taxable. However, we reserve
the right to deduct charges to establish tax reserves for potential taxes on
realized or unrealized capital gains.
<PAGE>
FEDERAL TAX MATTERS
- -------------------------------------------------------
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. WE MAKE
NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION
INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on the individual circumstances
of each person. If you are concerned about any tax consequences with regard to
your individual circumstances, you should consult a competent tax adviser.
TAXATION OF ALLSTATE LIFE INSURANCE COMPANY
Allstate is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code. Since the Variable Account is not an entity separate
from Allstate, and its operations form a part of Allstate, it will not be taxed
separately as a "Regulated Investment Company" under Subchapter M of the Code.
Investment income and realized capital gains of the Variable Account are
automatically applied to increase reserves under the Contract. Under existing
federal income tax law, Allstate believes that the Variable Account investment
income and capital gains will not be taxed to the extent that such income and
gains are applied to increase the reserves under the Contract. Accordingly,
Allstate does not anticipate that it will incur any federal income tax liability
attributable to the Variable Account, and therefore Allstate does not intend to
make provisions for any such taxes. If Allstate is taxed on investment income or
capital gains of the Variable Account, then Allstate may impose a charge against
the Variable Account in order to make provision for such taxes.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE
There are several exceptions to the general rule that annuity contracts held by
a non-natural owner are not treated as annuity contracts for federal income tax
purposes. Contracts will generally be treated as held by a natural person if the
nominal owner is a trust or other entity which holds the Contract as agent for a
natural person. However, this special exception will not apply in the case of an
employer who is the nominal owner of an annuity contract under a non-qualified
deferred compensation arrangement for its employees. Other exceptions to the
non-natural owner rule are: (1) Contracts acquired by an estate of a decedent by
reason of the death of the decedent; (2) certain Qualified Contracts; (3)
Contracts purchased by employers upon the termination of certain qualified
plans; (4) certain Contracts used in connection with structured settlement
agreements, and (5) Contracts purchased with a single premium when the annuity
starting date is no later than a year from purchase of the annuity and
substantially equal periodic payments are made, not less frequently than
<PAGE>
annually, during the annuity period.
IRS REQUIRED DISTRIBUTION AT DEATH RULES
In order to be considered an annuity contract for federal income tax purposes,
the Contract must provide: (1) if any Contract Owner dies on or after the Payout
Start Date but before the entire interest in the Contract has been distributed,
the remaining portion of such interest must be distributed at least as rapidly
as under the method of distribution being used as of the date of the Owner's
death; (2) if any Contract Owner dies prior to the Payout Start Date, the entire
interest in the Contract will be distributed within 5 years after the date of
the Owner's death. These requirements are satisfied if any portion of the
Contract Owner's interest that is payable to (or for the benefit of) a
designated Beneficiary is distributed over the life of such Beneficiary (or over
a period not extending beyond the life expectancy of the Beneficiary) and the
distributions begin within 1 year of the Owner's death. If the Contract Owner's
designated Beneficiary is the surviving spouse of the Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner. If the Contract
Owner is a non-natural person, then the Annuitant will be treated as the
Contract Owner for purposes of applying the distribution at death rules. In
addition, a change in the Annuitant on a Contract owned by a non-natural person
will be treated as the death of the Contract Owner.
QUALIFIED PLANS
- ---------------------------------------------------------
The Contract may be used with several types of qualified plans. Allstate
reserves the right to limit the availability of the Contract for use with any of
the Qualified Plans listed below. The tax rules applicable to participants in
such qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. Adverse tax consequences may result from excess
contributions, premature distributions, distributions that do not conform to
specified commencement and minimum distribution rules, excess distributions and
in other circumstances. Contract Owners and participants under the plan and
Annuitants and Beneficiaries under the Contract may be subject to the terms and
conditions of the plan regardless of the terms of the Contract.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity (IRA).
Individual Retirement Annuities are subject to limitations on the amount that
<PAGE>
can be contributed and on the time when distributions may commence. Certain
distributions from other types of qualified plans may be "rolled over" on a
tax-deferred basis into an Individual Retirement Annuity. An IRA generally may
not provide life insurance, but it may provide a death benefit that equals the
greater of the premiums paid and the Contract's Cash Value. The Contract
provides a death benefit that in certain circumstances may exceed the greater of
the payments and the Contract Value. It is possible that the death benefit could
be viewed as violating the prohibition on investment in life insurance contracts
with the result that the Contract would not be viewed as satisfying the
requirements of an IRA.
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth Individual
Retirement Annuity. Roth Individual Retirement Annuities are subject to
limitations on the amount that can be contributed and on the time when
distributions may commence. "Qualified distributions" from Roth Individual
Retirement Annuities are not includible in gross income. "Qualified
distributions" are any distributions made more than five taxable years after the
taxable year of the first contribution to the Roth Individual Retirement
Annuity, and which are made on or after the date the individual attains age 59
1/2, made to a beneficiary after the owner's death, attributable to the owner
being disabled or for a first time home purchase (first time home purchases are
subject to a lifetime limit of $10,000). "Nonqualified distributions" are
treated as made from contributions first and are includible in gross income to
the extent such distributions exceed the contributions made to the Roth
Individual Retirement Annuity. The taxable portion of a "nonqualified
distribution" may be subject to the 10% penalty tax on premature distributions.
Subject to certain limitations, a traditional Individual Retirement Account or
Annuity may be converted or "rolled over" to a Roth Individual Retirement
Annuity. The taxable portion of a conversion or rollover distribution is
includible in gross income, but is exempted from the 10% penalty tax on
premature distributions.
SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees using the employees' individual retirement
annuities if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to their individual retirement annuities. Employers intending to use
the Contract in connection with such plans should seek competent advice.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS)
Sections 408(p) and 401(k) of the Code allow employers with 100 or fewer
employees to establish SIMPLE retirement plans for their employees. SIMPLE plans
<PAGE>
may be structured as a SIMPLE retirement account using an employee's IRA to hold
the assets or as a Section 401(k) qualified cash or deferred arrangement. In
general, a SIMPLE plan consists of a salary deferral program for eligible
employees and matching or nonelective contributions made by employers. Employers
intending to use the Contract in conjunction with SIMPLE plans should seek
competent tax and legal advice.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees of
certain types of tax-exempt organizations (specified in Section 501(c)(3) of the
Code) to have their employers purchase annuity contracts for them, and subject
to certain limitations, to exclude the purchase payments from the employees'
gross income. An annuity contract used for a Section 403(b) plan must provide
that distributions attributable to salary reduction contributions made after
12/31/88, and all earnings on salary reduction contributions, may be made only
on or after the date the employee attains age 59 1/2, separates from service,
dies, becomes disabled or on the account of hardship (earnings on salary
reduction contributions may not be distributed for hardship). These limitations
do not apply to withdrawals where Allstate is directed to transfer some or all
of the Contract Value to another 403(b) plan.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Sections 401(a) and 403(a) of the Code permit corporate employers to establish
various types of tax favored retirement plans for employees. The Self-Employed
Individuals Retirement Act of 1962, as amended, (commonly referred to as "H.R.
10" or "Keogh") permits self-employed individuals to establish tax favored
retirement plans for themselves and their employees. Such retirement plans may
permit the purchase of annuity contracts in order to provide benefits under the
plans.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION
DEFERRED COMPENSATION PLANS
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current taxes. The employees must be participants in an eligible deferred
compensation plan. To the extent the Contracts are used in connection with an
eligible plan, employees are considered general creditors of the employer and
the employer as owner of the Contract has the sole right to the proceeds of the
Contract. Generally, under the non-natural owner rules, such Contracts are not
treated as annuity contracts for federal income tax purposes. Under these plans,
contributions made for the benefit of the employees will not be includible in
the employees' gross income until distributed from the plan. However, under a
Section 457 plan all the compensation deferred under the plan must remain solely
the property of the employer, subject only to the claims of the employer's
general creditors, until such time as made available to the employee or a
<PAGE>
beneficiary.
EXPERTS
- ----------------------------------------------------------
The combined statutory basis financial statements of Allstate as of and for
the periods ended December 31, 1998 that appear in this Statement of
Additional Information (which is incorporated by reference in the prospectus
of Allstate Life Insurance Company Separate Account A of Allstate Life
Insurance Company) have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
FINANCIAL STATEMENTS
- ----------------------------------------------------------
The combined statutory basis financial statements of Allstate as of and for
the periods ended December 31,1998 and the accompanying Independent Auditors'
Report appear on the pages that follow. The financial statements of the
Variable Account as of and for the period ended December 31, 1999 and
Allstate as of and for the period ended September 30, 1999 also appear on the
pages that follow and are unaudited. The financial statements of Allstate
included herein should be considered only as bearing upon the ability of
Allstate to meet its obligations under the Contracts.
ALLSTATE LIFE INSURANCE COMPANY
-------------------------------
Combined Financial Statements (Statutory Basis)
for the Years Ended December 31, 1998 and
1997 and Independent Auditors' Report
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF
ALLSTATE LIFE INSURANCE COMPANY:
We have audited the accompanying combined statutory basis statements of
financial position of Allstate Life Insurance Company (a wholly-owned subsidiary
of Allstate Insurance Company) and U.S. domiciled, life and accident and health
insurance subsidiaries (the "Company") as of December 31, 1998 and 1997, and the
related combined statutory basis statements of operations, capital and surplus,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Company has prepared
these combined financial statements using accounting practices prescribed or
permitted by the insurance department of the applicable state of domicile, which
is a comprehensive basis of accounting other than generally accepted accounting
principles. The effects on the combined financial statements of the differences
between statutory basis of accounting and generally accepted accounting
principles, are material.
In our opinion, because of the effects of the differences between the two bases
of accounting referred to in the preceding paragraph, such combined financial
statements do not present fairly, in conformity with generally accepted
accounting principles, the financial position of Allstate Life Insurance Company
and U.S. domiciled, life and accident and health insurance subsidiaries as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for the years then ended.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Allstate Life
Insurance Company and, U.S. domiciled, life and accident and health insurance
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended, on the basis of
accounting described in Note 2.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
April 2, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF FINANCIAL POSITION
(Statutory Basis)
DECEMBER 31,
---------------------------
($ in thousands) 1998 1997
------------- -------------
ASSETS
<S> <C> <C>
Cash and invested assets
Bonds (fair value $25,480,639 and $24,315,518) $23,359,823 $22,487,471
Preferred stocks (alternative carrying value
$325,954 and $271,468) 294,478 231,794
Common stocks (cost $232,780 and $246,739) 428,034 443,135
Mortgage loans on real estate 3,316,586 2,987,144
Real estate 25,196 246,550
Policy loans 570,001 528,367
Cash 90,715 65,060
Short-term investments 420,013 102,178
Other invested assets 232,855 300,536
Allocation of assets from the Separate Accounts - 28,869
---------- -----------
Cash and invested assets 28,737,701 27,421,104
Investment income due and accrued 342,535 335,034
Life and accident and health insurance
premiums due and deferred 129,692 120,652
Other assets 69,655 98,527
Assets related to Separate Accounts 10,877,884 8,207,364
---------- -----------
Total assets $40,157,467 $36,182,681
=========== ===========
LIABILITIES
Policy benefit and other insurance reserves $26,073,039 $25,160,084
Interest maintenance reserve 116,821 79,702
Federal income taxes due or accrued 30,813 31,260
Payable to parent and affiliates 64,045 63,619
Other liabilities and accrued expenses 162,900 68,761
Asset valuation reserve 374,475 366,553
Allocation of assets to the Separate Accounts 32,164 -
Liabilities related to Separate Accounts 10,877,884 8,207,364
----------- ----------
Total liabilities 37,732,141 33,977,343
---------- ----------
CAPITAL AND SURPLUS
Preferred capital stock 174,999 162,279
Capital paid up (common stock, $214 and $200 par
value, in 1998 and 1997, respectively; 22,700 and
21,400 shares authorized, issued and outstanding
in 1998 and 1997, respectively) 4,858 4,280
Gross paid in and contributed capital 556,526 556,826
Unassigned surplus 1,688,943 1,481,953
----------- ---------
Total capital and surplus 2,425,326 2,205,338
----------- -----------
Total liabilities, capital and surplus $40,157,467 $36,182,681
=========== ===========
</TABLE>
See notes to combined financial statements (statutory basis).
F-3
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF OPERATIONS
(Statutory Basis)
YEAR ENDED DECEMBER 31,
------------------------
($ in thousands) 1998 1997
----------- -----------
<S> <C> <C>
REVENUES
Premiums and annuity considerations $ 6,016,947 $ 5,036,034
Net investment income, including amortization of the
interest maintenance reserve of $82,428 and $42,847 2,132,327 2,097,481
Income from fees associated with Separate Accounts 119,987 86,414
Operations from Separate Accounts -- (1,829)
Other income 156,397 108,267
----------- -----------
8,425,658 7,326,367
----------- -----------
POLICY BENEFITS AND EXPENSES
Provision for policy benefits 4,369,917 3,892,440
Commissions and general insurance expenses 993,773 886,677
Insurance taxes, licenses and fees 66,870 67,585
Net transfers to Separate Accounts 1,393,665 918,406
Maturities and other scheduled payments 1,258,517 1,099,014
----------- -----------
8,082,742 6,864,122
----------- -----------
Net gain from operations before dividends to policyholders,
federal income taxes and net realized capital gains 342,916 462,245
Dividends to policyholders 169 219
----------- -----------
Net gain from operations after dividends to policyholders and
before federal income taxes and net realized capital gains 342,747 462,026
Federal income taxes 105,789 160,091
----------- -----------
Net gain from operations after dividends to policyholders and
federal income taxes and before net realized capital gains 236,958 301,935
Net realized capital gains less federal income taxes and
amounts transferred to the interest maintenance reserve 148,863 68,498
----------- -----------
Net income $ 385,821 $ 370,433
=========== ===========
</TABLE>
See notes to combined financial statements (statutory basis).
F-4
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF CAPITAL AND SURPLUS
(Statutory Basis)
YEAR ENDED DECEMBER 31,
-------------------------
($ in thousands) 1998 1997
----------- -----------
<S> <C> <C>
CAPITAL AND SURPLUS, BEGINNING OF YEAR $ 2,205,338 $ 1,849,905
Net income 385,821 370,433
Change in net unrealized capital gains (32,471) 41,845
Change in non-admitted assets (12,170) (9,699)
Change in reserve on account of change in valuation basis (15,816) --
Change in asset valuation reserve (7,922) 90,693
Federal income tax prior-period adjustment -- (27,029)
Net deferrral (amortization) of gain on disposition of credit business (2,076) 9,219
Dividends to stockholders (108,376) (133,652)
Capital contributions 12,998 13,623
----------- -----------
CAPITAL AND SURPLUS, END OF YEAR $ 2,425,326 $ 2,205,338
=========== ===========
</TABLE>
See notes to combined financial statements (statutory basis).
F-5
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(Statutory Basis)
YEAR ENDED DECEMBER 31,
---------------------------
($ in thousands) 1998 1997
------------ ------------
<S> <C> <C>
CASH FROM OPERATIONS
Premiums and annuity considerations $ 4,654,152 $ 2,849,838
Annuity and other fund deposits 1,241,216 2,084,764
Investment income received 1,948,065 1,964,536
Other premiums, considerations and deposits 114,532 89,849
Income from fees associated with Separate Accounts 119,987 86,414
Allowances and reserve adjustments received
on reinsurance ceded 127,034 99,829
Other income received 14,458 5,388
Life and accident and health claims,
surrender benefits and other benefits paid (4,733,438) (4,171,885)
Commissions, other expenses and taxes paid
(excluding federal income taxes) (1,046,252) (941,673)
Net transfers to Separate Accounts (1,373,785) (1,025,577)
Dividends paid to policyholders (188) (212)
Federal income taxes paid (excluding tax on capital gains) (106,233) (118,743)
------------ ------------
Net cash from operations 959,548 922,528
------------ ------------
CASH FROM INVESTMENTS
Proceeds from investments sold, matured or repaid,
net of tax 10,452,592 9,518,100
Cost of long-term investments acquired (11,075,203) (10,453,422)
Net increase in policy loans (41,633) (38,041)
------------ ------------
Net cash from (used for) investments (664,244) (973,363)
------------ ------------
CASH FROM FINANCING AND MISCELLANEOUS SOURCES
Surplus paid in 12,720 13,343
Dividends to stockholders (108,098) (133,372)
Other 143,564 29,596
------------ ------------
Net cash from (used for) financing and
miscellaneous sources 48,186 (90,433)
------------ ------------
Net change in cash and short-term investments 343,490 (141,268)
Cash and short-term investments at beginning of year 167,238 308,506
------------ ------------
Cash and short-term investments at end of year $ 510,728 $ 167,238
============ ============
</TABLE>
See notes to combined financial statements (statutory basis).
F-6
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
1. GENERAL
BASIS OF PRESENTATION
The accompanying combined statutory basis financial statements include
the accounts of Allstate Life Insurance Company ("ALIC") and its wholly
owned U.S. domiciled life, accident and health insurance subsidiaries,
Northbrook Life Insurance Company ("NLIC"), Lincoln Benefit Life Company
("LBL"), Surety Life Insurance Company ("SLIC"), Glenbrook Life and Annuity
Company ("GLAC"), and Allstate Life Insurance Company of New York ("ALNY")
(collectively the "Company"). ALIC is wholly owned by Allstate Insurance
Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). To conform with the 1998 presentation, certain amounts in
the prior year's financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets a broad line of life insurance, annuity and group
pension products countrywide. Life insurance includes traditional products
such as whole life and term life insurance, as well as universal life and
other interest-sensitive life products. Annuities include deferred
annuities, such as variable annuities and fixed rate single and flexible
premium annuities, and immediate annuities such as structured settlement
annuities. The Company's group pension products include guaranteed
investment contracts and retirement annuities. In 1998, annuity premiums
and deposits represented approximately 75% of the Company's total statutory
premiums and deposits.
The Company utilizes various modeling techniques in managing the
relationship between assets and liabilities. The fixed income securities
supporting the Company's obligations have been selected to meet, to the
extent possible, the anticipated cash flow requirements of the related
liabilities. The Company employs strategies to minimize its exposure to
interest rate risk and to maintain investments which are sufficiently
liquid to meet obligations to contractholders in various interest rate
scenarios.
The Company monitors economic and regulatory developments which have
the potential to impact its business. Such events would present an
increased level of competition for sales of the Company's life and annuity
products. Furthermore, the market for deferred annuities and
interest-sensitive life insurance is enhanced by the tax incentives
available under current law. Any legislative changes which lessen these
incentives are likely to negatively impact the demand for these products.
Although the Company currently benefits from agreements with financial
services entities which market and distribute its products, consolidation
within that industry and specifically, a change in control of those
entities with which the Company partners, could affect the Company's sales.
Additionally, traditional demutualizations of mutual insurance
companies and enacted and pending state legislation to permit mutual
insurance companies to convert to a hybrid structure known as a mutual
holding company could have a number of significant effects on the Company
by (1) increasing industry competition through consolidation caused by
mergers and acquisitions related to the new corporate form of business; and
(2) increasing competition in the capital markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATUTORY BASIS OF PRESENTATION
The combined financial statements were prepared in accordance with
accounting practices prescribed or permitted by the insurance department of
the applicable state of domicile. Prescribed statutory accounting practices
include a variety of publications of the National Association of Insurance
Commissioners ("NAIC"), as well as state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass
accounting practices not so prescribed. The Company has received permission
to include investment income, unrealized gains and losses and realized
gains and losses on hedging investments used to hedge the equity risk
embedded in equity indexed annuity products in investment income. This
permitted practice does not materially effect surplus or risk-based
capital.
F-7
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
The NAIC authorized a project to codify statutory accounting practices
among the various states. The NAIC has approved revised statutory
accounting principles as a result of the codification project. Dates for
adoption and implementation, however, will be determined on an individual
state basis. The requirements are not expected to have a material impact on
the statutory surplus of the Company.
Accounting practices and procedures of the NAIC as prescribed or
permitted by the insurance department of the applicable state of domicile
comprise a comprehensive basis of accounting other than generally accepted
accounting principles ("GAAP"). The more significant differences are as
follows:
a. Certain costs of acquiring new business, principally agents'
remuneration, certain underwriting costs and direct mail solicitation
costs, are expensed as incurred rather than deferred and amortized to
income as premiums are earned.
b. Statutory policy reserves are based on mortality and interest
assumptions prescribed or permitted by statutes, without consideration
of withdrawals. Statutory policy reserves generally differ from policy
reserves under GAAP, which are based on the Company's estimates of
mortality, interest and withdrawals. The effect, if any,on reserves
due to a change in reserve on account of change in valuation basis is
recorded directly to unassigned surplus rather than included in the
determination of net gain from operations.
c. The asset valuation reserve ("AVR") is determined by formula and is
based on the Company's holdings of mortgages, real estate, bonds,
stocks and other invested assets. This valuation reserve requires
appropriation of surplus to provide for possible losses on these
investments. Realized and unrealized capital gains and losses, other
than those resulting from interest rate changes, are added or charged
to the AVR. Changes in the AVR are recorded directly to unassigned
surplus. Under GAAP, provisions are recognized for declines in the
value of fixed income securities that are other than temporary and
impaired mortgage loans. Such writedowns are included in realized
capital gains and losses.
d. The interest maintenance reserve ("IMR") is used to defer realized
capital gains and losses, net of tax, on sales, calls and maturities
of bonds and certain other investments which result from interest rate
changes. These gains and losses are then amortized into investment
income over the expected remaining life of the investments sold. This
reserve is not provided under GAAP.
e. Bonds are generally stated at amortized cost rather than fair value.
f. Certain assets, principally prepaid commissions, computer software and
furniture and equipment, are designated as "non-admitted assets," and
are charged directly to unassigned surplus in the statutory financial
statements.
g. Taxes are provided for amounts currently due or recoverable. Deferred
income taxes resulting from temporary differences between the
statutory financial statement and tax bases of assets and liabilities
are not reflected in the statutory financial statements.
h. Premium receipts and benefits on universal life-type and investment
contracts are recorded as revenue and expense for statutory purposes.
Under GAAP, revenues on universal life-type contracts are comprised of
contract charges and fees which are recognized when assessed against
the policyholder account balance, and revenues on investment contracts
include contract charges and fees for contract administration and
surrenders. Additionally, premium receipts on universal life-type and
investment contracts are considered deposits and are recorded as
interest-bearing liabilities.
i. Certain postretirement benefits are accrued when employees are
eligible for such benefits rather than over the period employees
become eligible.
F-8
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
j. Pension cost is equal to the amount to be funded in accordance with
accepted actuarial cost methods rather than recognizing pension cost
over the period the participants render service to the Company and
recording a liability currently for all unfunded costs.
k. Reinsurance recoverables on unpaid losses are reported as a reduction
of policy benefit and other insurance reserves rather than reported as
an asset.
l. The assets and reserves relating to market value adjusted annuity
contracts are reflected as assets and liabilities related to Separate
Accounts and are carried at fair value. Premium receipts and benefits
on these contracts are recorded as revenue and expense and are
transferred to the Separate Accounts. Under GAAP, these assets are
reported as bonds and mortgage loans. Bonds designated as available
for sale are carried at fair value and mortgage loans are carried at
outstanding principal balance, net of unamortized premium or discount
and valuation allowances. Liabilities are reported as contractholder
funds. Revenues are comprised of contract charges and fees or contract
administration and surrenders.
INVESTMENTS
Investments are stated at values prescribed by the NAIC. Bonds,
including collateralized mortgage obligations and other structured
securities, are stated at amortized cost or, for lower credit ratings at
the lower of amortized cost or NAIC fair value. Preferred stocks are stated
at the lower of cost or fair value. Short-term investments are stated at
amortized cost, which approximates fair value.
Mortgage loans are carried at amortized cost. The maximum and minimum
lending rates were 8.1% and 6.3%,respectively, for loans made in 1998. The
maximum percentage of any one loan to the value of the security at the time
of the loan, exclusive of insured or guaranteed or purchase money mortgages
was 80.4% for loans made in 1998. Fire insurance is required on all
properties securing mortgage loans in an amount which is at least equal to
the lesser of either the insurable value of the improvements or the
outstanding principal balance of the loan. Such coverage either exceeds the
outstanding principal balance less the value of the land or provides
coverage equal to the replacement cost of the improvements.
Investments in real estate and properties acquired in satisfaction of
debt are stated at lower of depreciated cost or fair value.
Common stocks are carried at market value. Policy loans are carried at
the unpaid principal balances. Investment income consists primarily of
interest and dividends. Interest is recognized on an accrual basis and
dividends are recorded at the ex-dividend date. Interest income on
mortgage-backed and asset-backed securities is determined on the effective
yield method based on estimated principal repayments. Accrual of income is
suspended for bonds and mortgage loans that are in default or when the
receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments include swaps, futures, forwards and
options, including caps and floors. When derivatives meet specific criteria
they may be designated as accounting hedges and accounted for on either a
fair value, deferral, or accrual basis, depending upon the nature of the
hedge strategy, the method used to account for the hedged items and the
derivative used. Derivatives that are not designated as accounting hedges
are accounted for on a fair value basis. If, subsequent to entering into a
hedge transaction, the derivative becomes ineffective (including if the
hedged item is sold or otherwise extinguished or the occurrence of a hedged
anticipatory transaction is no longer probable), the Company terminates the
derivative position. Gains and losses on these terminations are reported in
realized capital gains and losses in the period they occur. The Company may
also terminate derivatives as a result of other events or circumstances.
Gains and losses on these terminations are either deferred and amortized
over the remaining life of either the hedge or the hedged item, whichever
is shorter, or are reported in capital and surplus, consistent with the
accounting for the hedged item.
F-9
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
FAIR VALUE ACCOUNTING Under fair value accounting, realized and
unrealized gains and losses on derivatives are recognized in either
earnings, or capital and surplus when they occur.
The Company accounts for certain equity-indexed options as hedges on a
fair value basis when certain criteria are met. The derivative must reduce
the primary market risk exposure (e.g., interest rate risk or equity price
risk, foreign currency risk) of the hedged item in conjunction with the
specific hedge strategy; be designated as a hedge at the inception of the
transaction; and have a notional amount and term that does not exceed the
carrying value and expected maturity, respectively, of the hedged item. In
addition, options must have a reference index (e.g., S&P 500) that is the
same as, or highly correlated with, the reference index of the hedged item.
For certain equity-indexed options, changes in fair value are reported
net of tax in capital and surplus exclusive of interest accruals. Changes
in fair value of certain other equity-indexed options are reflected as an
adjustment of the hedged item. Premiums paid for equity-indexed options are
reported as equity securities and amortized to net investment income over
the lives of the agreements.
The Company also has certain derivatives for which hedge accounting is
not applied and therefore are accounted for on a fair value basis. These
derivatives primarily consist of equity indexed instruments and certain
interest rate futures. Gains and losses on these derivatives are recognized
in net investment income or realized capital gains and losses during the
period as incurred.
DEFERRAL ACCOUNTING Under deferral accounting, gains and losses on
derivatives are deferred on the statement of financial position and
recognized in earnings in conjunction with earnings on the hedged item. The
Company accounts for interest rate futures and certain foreign currency
forwards as hedges using deferral accounting for anticipatory investment
purchases and sales, when the criteria for futures and forwards are met.
For futures or forwards contracts, the derivative must reduce the primary
market risk exposure on an enterprise or transaction basis in conjunction
with the hedge strategy; be designated as a hedge at the inception of the
transaction; and be highly correlated with fair value of or interest income
or expense associated with the hedged item at inception and throughout the
hedge period. In addition, anticipated transactions must be probable of
occurrence and their significant terms and characteristics identified.
Changes in fair values of these derivatives are initially deferred as
other liabilities and accrued expenses. Once the anticipated transaction
occurs, the deferred gains or losses are considered part of the cost basis
of the asset and reported net of tax in capital and surplus or recognized
as a gain or loss from disposition of the asset, as appropriate. The
Company reports initial margin deposits on futures in short-term
investments. Fees and commissions paid on these derivatives are also
deferred as an adjustment to the carrying value of the hedged item.
ACCRUAL ACCOUNTING Under accrual accounting, interest income or
expense related to the derivative is accrued and recorded as an adjustment
to the interest income or expense on the hedged item. The Company accounts
for interest rate swaps, caps, floors, and certain foreign currency swaps
as hedges on an accrual basis when certain criteria are met (as discussed
above under fair value accounting for options).
Premiums paid for interest rate caps and floors are reported as other
investments and amortized to net investment income over the lives of the
agreements.
PREMIUM REVENUE
Premiums for traditional life, individual accident and health
insurance, fixed periodic premium annuities, and group life and accident
and health insurance are recognized as revenue when due. Premiums for all
single and flexible premium life and annuity products are recognized as
revenue when collected.
F-10
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuities,
variable life policies and certain guaranteed investment contracts, and
market value adjusted annuities, the assets and liabilities of which are
legally segregated and reflected in the accompanying combined statements of
financial position as assets and liabilities of the Separate Accounts. The
assets of the Separate Accounts are carried at fair value. The assets and
liabilities related to Separate Accounts represent funds of GLAC, NLIC,
ALNY and LBL variable annuity and variable life contracts, the Allstate
Life Insurance Company Separate Account guaranteed indexed contracts
("SAGIC") and guaranteed indexed separate account ("GISA") and ALIC and
ALNY market value adjusted annuity contracts (collectively, the "Separate
Accounts").
Separate Account premium deposits, benefit expenses and contract
charges for investment management and policy administration are recorded by
the Company and reflected in the accompanying statements of operations.
Separate Accounts which contain the variable annuities, variable life and
SAGIC are unit investment trusts and are generally registered with the
Securities and Exchange Commission ("SEC"). Investment income and realized
and unrealized capital gains and losses of the variable annuity, variable
life and SAGIC, assets other than the portion related to the Company's
ownership in the Separate Accounts, accrue directly to the contractholders
and, therefore, are not included in the Company's combined statements of
operations.
The market value adjusted annuities are non-unitized investment
products, and are registered with the SEC. Investment income, including
realized and unrealized capital gains and losses related to the assets
which support the market value adjusted annuities, accrues to the Company.
Investment income, premium deposits and benefit expenses are recorded by
the Company and reflected in the accompanying combined statements of
operations in "Net transfers to Separate Accounts." Reserve liabilities for
such contracts are valued using a market interest rate.
The guaranteed indexed separate account contracts are non-unitized
investment products. Investment income, including realized and unrealized
capital gains and losses related to the assets which support the guaranteed
indexed Separate Account contracts accrues to the Company. Investment
income, premium deposits and benefit expenses are recorded by the Company
and reflected in the accompanying combined statements of operations in "Net
transfers to Separate Accounts". Reserve liabilities for such contracts are
valued using a market interest rate. ALIC guarantees the principal and a
rate of return based on an established index. ALIC maintains assets in the
Separate Account that are sufficient to fund the guaranteed benefits of the
contract.
RESERVES FOR POLICY BENEFITS
Policy benefit reserves for traditional and flexible premium insurance
are computed actuarially according to the Commissioners' Reserve Valuation
Method with interest and mortality applied in compliance with statutory
regulations. Benefit reserves for annuity products are calculated according
to the Commissioners' Annuity Reserve Valuation Method ("CARVM") with
appropriate statutory interest and mortality assumptions. Reserve interest
rates ranged from 2.0% to 7.25% for life products and from 2.5% to 11.25%
for annuity products.
Policy benefit reserves for group life and accident and health
insurance include claim reserves and unearned premiums. Claim reserves,
including incurred but not reported claims, represent management's estimate
of the ultimate liability associated with unpaid policy claims, based
primarily upon analysis of past experience.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Commitments to invest, commitments to extend mortgage loans and
financial guarantees have only off-balance-sheet risk because their
contractual amounts are not recorded in the Company's combined statements
of financial position.
F-11
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
USE OF ESTIMATES
The preparation of financial statements in conformity with statutory
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned, or leased
and operated by AIC in conducting its business activities. The Company
reimburses AIC for operating expenses incurred by AIC in providing these
services to the Company. The cost to the Company is determined by various
allocation methods and is primarily related to the level of the services
provided. Expenses allocated to the Company were $461,231 and $424,108 in
1998 and 1997, respectively.
STRUCTURED SETTLEMENT ANNUITIES
AIC, through an affiliate, purchased $63,842 and $51,557 of structured
settlement annuities from the Company in 1998 and 1997, respectively, at
prices determined based on prevailing interest rates at the time of
purchase. The provision for policy benefits was increased by approximately
94% of such premium received in each of these years. The affiliate, which
is not an insurance company, purchases surety bonds from AIC to guaranty
payment of future benefits. AIC received $469 and $396 in 1998 and 1997,
respectively.
REINSURANCE
Premiums earned include reinsurance assumed from AIC pertaining to
group credit disability business. The effect of these transactions on
premiums earned and net income is not material.
ALIC has reinsurance agreements with NLIC, LBL, SLIC, and GLAC. These
agreements stipulate that ALIC reinsures substantially all of the contract
liability of each subsidiary company, along with all contract related
premiums and expenses. ALIC also reinsures certain policies of ALNY for
amounts in excess of ALNY's retention. The reinsurance ceded contracts do
not discharge the subsidiary company as the primary insurer.
In 1997, ALIC and LBL amended their reinsurance treaty in order to
retrocede all credit life and credit health policies and certificates back
to LBL. Simultaneously, LBL and Protective Life Insurance Company
("Protective"), an unaffiliated insurer, entered into a 100% coinsurance
agreement to cede all of these policies and certificates to Protective.
ALIC paid LBL a $41.4 million reinsurance premium which LBL then paid to
Protective. LBL paid ALIC an $18.5 million commission allowance and
received an $18.5 million commission allowance from Protective. During
1997, ALIC recognized a pretax gain of $23.0 million on the transaction of
which $10.3 million, after tax, was credited directly to surplus. The
unamortized deferred gain after tax, at December 31, 1998 was $7.1 million.
LOAN AGREEMENT
ALIC, NLIC, and GLAC entered into an intercompany loan agreement with
the Corporation on February 1, 1996. As of December 31, 1998, no borrowings
were outstanding.
F-12
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
CAPITAL CONTRIBUTIONS AND DIVIDENDS
In 1998 and 1997, ALIC paid common stock dividends of $97,000 and
$131,237, respectively, to AIC. On December 31, 1998 and 1997, ALIC
authorized an additional 1,300 and 1,400 shares, respectively, and issued
these shares in an aggregate amount of $278 and $280, at December 31, 1998
and 1997, respectively, representing a stock dividend to AIC.
In 1998 and 1997, ALIC paid preferred stock Series A dividends of
$3,025 and $2,136, respectively, to The Northbrook Corporation, a wholly
owned subsidiary of AIC. ALIC issued 127,200 and 133,430 shares of Series A
redeemable preferred stock, net of redemptions, to The Northbrook
Corporation for which it received net proceeds of $12,720 and $13,343 in
1998 and 1997, respectively. As of December 31, 1998, ALIC has 579,990
shares of Series A preferred stock outstanding. Cash dividends are at a
rate reasonably equivalent to short-term interest rates as determined from
time to time (but not more frequently than quarterly) by the Board of
Directors by reference to a widely accepted floating index of short-term
rates. Par value is $100 per share. Liquidation value is $100 per share
plus accrued and unpaid dividends. The shares are redeemable at the option
of ALIC at any time five years after the issue date at a price of $100 plus
accrued and unpaid dividends.
In 1998 and 1997, ALIC paid preferred stock, Series B dividends of
$8,073 and $8,095, respectively, to AIC. Cash dividends on preferred stock
Series B shares are at a rate per annum equal to 6.9%, payable annually in
arrears on the last business day of each year to the shareholder of record
on the immediately preceding business day. Dividends shall accrue and be
cumulative from the date the last dividend was paid. The dividend payable
shall be computed on the basis of a 365 day year and the actual number of
days such share is outstanding, including the date of issue of the share
and the date of the dividend payment. Par value is $100 per share.
Liquidation value is $100 per share plus accrued and unpaid dividends. The
shares are redeemable at the option of the Company at any time five years
after the issue date at a price of $100 plus accrued and unpaid dividends.
On December 4, 1997, ALIC sold all of the outstanding capital stock of
Glenbrook Life Insurance Company ("GLIC") to Sears Roebuck and Co. ALIC
received proceeds of $10.4 million and recognized a $3.5 million gain on
the sale. Prior to the sale, GLIC declared an extraordinary dividend
payable to ALIC, of which $3.2 million was recognized as dividend income
and $4.8 million was recorded as a retirement of common stock.
Additionally, ALIC contributed capital of $1.5 million to GLIC prior to
sale.
4. STRATEGIC ALLIANCE
NLIC has a strategic alliance with Dean Witter Reynolds Inc. ("Dean
Witter"), a wholly owned subsidiary of Morgan Stanley Dean Witter, to
develop, market and distribute proprietary annuity and life insurance
products through Dean Witter account executives. Dean Witter provides a
portion of the funding for these products through loans to an affiliate of
the Company. Morgan Stanley Dean Witter's, wholly owned subsidiary, Dean
Witter Intercapital Inc., is the investment manager for the Dean Witter
Variable Investment Series, one of the funds in which the assets of the
NLIC Separate Accounts are invested. Morgan Stanley Dean Witter's wholly
owned subsidiary, Morgan Stanley Asset Management Inc., is the investment
manager of Morgan Stanley Universal Funds, Inc., one of the funds in which
the assets of the NLIC Separate Accounts are invested. Morgan Stanley Dean
Witter's wholly owned subsidiary, Van Kampen American Capital Asset
Management, Inc.is the investment manager of Van Kampen American Capital
Life Invesment Trust, one of the funds in which the assets of the NLIC
Separate Accounts are invested.
Under the terms of the strategic alliance, NLIC has agreed to use Dean
Witter as an exclusive distribution channel for its products. Although the
strategic alliance is cancelable by either party, termination of the
alliance would not impact existing policies and contracts.
F-13
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
5. INVESTMENTS
The statement value, which is principally amortized cost, gross
unrealized gains and losses, and fair value for bonds are as follows:
GROSS UNREALIZED
STATEMENT ---------------- FAIR
VALUE GAINS LOSSES VALUE
AT DECEMBER 31,1998 ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. government and agencies $ 2,010,246 $ 751,820 $ (2,749) $ 2,759,317
Municipal 539,751 51,757 (367) 591,141
Foreign government 22,449 529 (4,195) 18,783
Corporate 13,373,900 1,150,468 (60,629) 14,463,739
Mortgage-backed securities 5,645,370 235,706 (27,320) 5,853,756
Asset-backed securities 1,768,107 28,825 (3,028) 1,793,904
----------- ----------- ----------- -----------
Total $23,359,823 $ 2,219,105 $ (98,288) $25,480,640
=========== =========== =========== ===========
GROSS UNREALIZED
STATEMENT ---------------- FAIR
VALUE GAINS LOSSES VALUE
AT DECEMBER 31,1997 ----------- ----------- ----------- -----------
-- -- -- --
U.S.government and agencies $ 1,904,149 $ 546,212 $ (1,242) $ 2,449,119
Municipal 674,585 38,060 (971) 711,674
Foreign government 3,079 230 -- 3,309
Corporate 12,555,812 1,010,472 (15,032) 13,551,252
Mortgage-backed securities 5,484,523 240,712 (19,529) 5,705,706
Asset-backed securities 1,865,323 29,853 (718) 1,894,458
----------- ----------- ----------- -----------
Total $22,487,471 $ 1,865,539 $ (37,492) $24,315,518
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SCHEDULED MATURITIES
The scheduled maturities for bonds are as follows at December 31, 1998:
STATEMENT FAIR
VALUE VALUE
----------- -----------
<S> <C> <C>
Due in one year or less $ 690,980 $ 697,654
Due after one year through five years 3,895,607 4,095,717
Due after five years through ten years 5,921,147 6,237,738
Due after ten years 5,880,516 7,228,618
----------- -----------
16,388,250 18,259,727
Mortgage-and asset-backed securities 6,971,573 7,220,913
----------- -----------
Total $23,359,823 $25,480,640
=========== ===========
</TABLE>
Actual maturities may differ from those scheduled as a result of
prepayment by the issuers.
F-14
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31
1998 1997
----------- -----------
<S> <C> <C>
Bonds $ 1,767,954 $ 1,725,432
Preferred stock 20,451 11,715
Common stock 9,025 47,007
Mortgage loans 259,402 267,130
Real estate 41,072 58,584
Policy loans 37,783 35,606
Short-term 15,098 12,196
Other (26,109) (29,403)
----------- -----------
Investment income 2,124,676 2,128,267
Investment expense 74,777 73,631
----------- -----------
Net investment income $ 2,049,899 $ 2,054,636
=========== ===========
REALIZED CAPITAL GAINS
YEAR ENDED DECEMBER 31
1998 1997
----------- -----------
Realized capital gains $ 412,846 $ 209,090
Income tax expense (144,437) (75,188)
----------- -----------
268,409 133,902
Amount transferred to IMR (119,546) (65,404)
----------- -----------
$ 148,863 $ 68,498
=========== ===========
</TABLE>
Proceeds from sales of bonds were $3,331,162 and $2,482,982 in 1998 and
1997, respectively. Gross gains of $64,521 and $32,518 and gross losses of
$28,436 and $28,754 were realized on sales of bonds during 1998 and 1997,
respectively.
INVESTMENT CONCENTRATION FOR MUNICIPAL BOND AND COMMERCIAL MORTGAGE
PORTFOLIOS AND OTHER INVESTMENT INFORMATION
The Company maintains a diversified portfolio of state and municipal bonds.
The largest concentrations in the portfolio are presented below. Except for the
following, holdings in no other state exceeded 5.0% of the portfolio at December
31, 1998 and 1997:
<TABLE>
<CAPTION>
(% OF TOTAL STATE AND MUNICIPAL BONDS CARRYING VALUE)
1998 1997
---- ----
<S> <C> <C>
California 34.3% 34.5%
Illinois 13.5 11.1
Ohio 12.7 10.5
New York 10.9 10.6
Georgia 1.2 5.4
</TABLE>
F-15
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
The Company's mortgage loans are collateralized by a variety of commercial
real estate property types located throughout the United States. Substantially
all of the commercial mortgage loans are non-recourse to the borrower. The
states with the largest portion of the commercial mortgage loan portfolio are
listed below. Except for the following, holdings in no other state exceed 5.0%
of the portfolio at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(% OF COMMERCIAL MORTGAGES CARRYING VALUE)
1998 1997
---- ----
<S> <C> <C>
California 23.0% 23.5%
New York 9.5 9.9
Illinois 7.7 7.3
Florida 5.6 5.3
Connecticut 5.0 4.4
Texas 4.9 6.2
Pennsylvania 4.8 5.6
</TABLE>
The types of properties collateralizing the commercial mortgage loans
at December 31, are as follows:
<TABLE>
<CAPTION>
(% OF COMMERCIAL MORTGAGES CARRYING VALUE)
1998 1997
---- ----
<S> <C> <C>
Retail 30.8% 33.2%
Office buildings 28.1 24.4
Warehouse 16.4 18.8
Apartment complexes 16.8 16.9
Industrial 2.5 2.4
Other 5.4 4.3
----- -----
100.0% 100.0%
===== =====
</TABLE>
The contractual maturities of the commercial mortgage loan portfolio as of
December 31, 1998, for loans that were not in foreclosure are as follows:
<TABLE>
<CAPTION>
NUMBER OF LOANS STATEMENT VALUE PERCENT
--------------- --------------- -------
<S> <C> <C> <C>
1999 35 $ 189,048 5.7%
2000 48 299,385 9.1
2001 56 259,333 7.9
2002 43 210,589 6.4
2003 50 265,197 8.1
Thereafter 371 2,067,595 62.8
--- ----------- -----
Total 603 $ 3,291,147 100.0%
=== =========== =====
</TABLE>
In 1998, $308,652 of commercial mortgage loans were contractually due. Of
these, 55.7% were paid as due, 32.7% were refinanced at prevailing market terms,
3.0% were foreclosed or are in the process of foreclosure, and 8.6% were in the
process of refinancing or restructuring discussions.
At December 31, 1998 statement value of investments, excluding common
stock, that were non-income producing during 1998, was $100.
At December 31, 1998, bonds with a statement value of $62,469 were on
deposit with regulatory authorities as required by law.
F-16
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
6. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets, incurs various financial liabilities and enters into agreements
involving derivative financial instruments and other off-balance-sheet financial
instruments. 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 recoverables) and liabilities
(including policy benefit and other insurance reserves) are not considered
financial instruments and are not carried at fair value. Other assets and
liabilities considered financial instruments, including accrued investment
income, cash and claims payments outstanding are generally of a short-term
nature. It is assumed that their carrying value approximates fair value.
FINANCIAL ASSETS
The statement value and fair value of financial assets at December 31, are
as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
<S> <C> <C> <C> <C>
Bonds $23,359,823 $25,480,640 $22,487,471 $24,315,518
Preferred stocks 294,478 325,954 231,794 271,468
Common stocks 428,034 428,034 443,135 443,135
Mortgage loans on real estate 3,316,556 3,548,495 2,987,144 3,163,241
Short-term investments 420,013 420,013 102,178 102,178
Policy loans 570,001 570,001 528,367 528,367
Assets related to
Separate Accounts 10,877,884 10,877,884 8,207,364 8,207,364
</TABLE>
Statement value and fair value include the effects of derivative financial
instruments where applicable.
Fair values for bonds are based upon the prices reported in the NAIC
Valuation of Securities Manual. External pricing sources are used for those
securities in which NAIC prices are unlisted. Non-quoted securities are valued
based on discounted cash flows using current interest rates for similar
securities. Common and preferred stocks are valued based principally on quoted
market prices. Non-combined subsidiaries are valued at book value. Mortgage
loans are valued based on discounted contractual cash flows. Discount rates are
selected using current rates at which similar loans would be made to borrowers
with similar characteristics, using similar properties as collateral. Loans that
exceed 100% loan-to-value are valued at the estimated fair value of the
underlying collateral. Short-term investments are highly liquid investments with
maturities of less than one year whose statement value approximates fair value.
The statement value of policy loans approximates its fair value. Assets
related to Separate Accounts are carried in the combined statements of financial
position at fair value based on quoted market prices.
F-17
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
FINANCIAL LIABILITIES
The statement value and fair value of financial liabilities at December
31, are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
<S> <C> <C> <C> <C>
Reserves for investment contracts $15,622,197 $15,742,617 $15,431,332 $15,670,481
Liabilities related to
Separate Accounts 10,877,884 10,877,884 8,207,364 8,207,364
</TABLE>
The fair value of benefit reserves for non-life contingent annuity products
("reserves for investment contracts") is based on the terms of the underlying
contracts. Reserves on investment contracts with no stated maturities (single
premium and flexible premium deferred annuities) are valued at the account
balance less surrender charges. The fair value of immediate annuities and
annuities without life contingencies with fixed terms is estimated using
discounted cash flow calculations based on interest rates currently offered for
contracts with similar terms and durations. Liabilities related to Separate
Accounts are carried at the fair value of the underlying assets.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments include swaps, futures, forwards and
options, including caps and floors. The Company primarily uses derivative
financial instruments to reduce its exposure to market risk (principally
interest rate, equity price and foreign currency risk), in conjunction with
asset/liability management. The Company does not hold or issue these instruments
for trading purposes.
The following table summarizes the contract or notional amount, credit
exposure, fair value and carrying value of the Company's derivative financial
instruments at December 31, as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
CONTRACT/ STATEMENT
NOTIONAL CREDIT FAIR VALUE ASSETS/
AMOUNT EXPOSURE VALUE (LIABILITIES)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swap agreements
Pay floating rate, receive fixed rate $ 413,443 $ 18,099 $ 27,471 $ --
Pay fixed rate, receive floating rate 960,069 -- (31,966) --
Pay floating rate, receive floating rate 72,700 -- (501) --
Financial futures and forward contracts 127,200 -- (108) 835
Euro Dollars Futures 100,000 2 2 --
Interest rate cap and floor agreements 3,044,000 2,757 2,757 4,858
-------------- -------------- -------------- --------------
Total interest rate contracts 4,717,412 20,858 (2,345) 5,693
-------------- -------------- -------------- --------------
EQUITY AND COMMODITY CONTRACTS
Commodity and total return swap agreements 97,772 264 264 --
Options, warrants and financial futures 625,299 206,628 206,628 160,762
-------------- -------------- -------------- --------------
Total equity and commodity contracts 723,071 206,892 206,892 160,762
-------------- -------------- -------------- --------------
FOREIGN CURRENCY CONTRACTS
Foreign currency swap agreements 78,716 -- (3,205) --
-------------- -------------- -------------- --------------
Total derivative financial instruments $ 5,519,199 $ 227,750 $ 201,342 $ 166,455
============== ============== ============== ==============
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
1997
--------------------------------------------------
Contract/ Statement
Notional Credit Fair Value Assets/
Amount Exposure Value (Liabilities)
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swap agreements
Pay floating rate, receive fixed rate $ 430,528 $ 13,543 $ 20,303 $ -
Pay fixed rate, receive floating rate 496,241 - (14,127) -
Pay floating rate, receive floating rate 115,330 - (1,024) -
Financial futures and forward contracts 126,300 - (181) (814)
Interest rate cap and floor agreements 3,474,250 3,975 3,975 7,221
---------- ---------- ---------- ----------
Total interest rate contracts 4,642,649 17,518 8,946 6,407
---------- ---------- ---------- ----------
EQUITY AND COMMODITY CONTRACTS
Commodity and total return swap agreements 12,000 - (737) --
Options, warrants and financial futures 850,929 244,024 244,024 202,409
---------- ---------- ---------- ----------
Total equity and commodity contracts 862,929 244,024 243,287 202,409
---------- ---------- ---------- ----------
FOREIGN CURRENCY CONTRACTS
Foreign currency swap agreements 48,093 - (2,363) -
---------- ---------- ---------- ----------
Total derivative financial instruments $5,553,671 $ 261,542 $ 249,870 $ 208,816
========== ========== ========== ==========
</TABLE>
The contract or notional amounts are used to calculate the exchange of
contractual payments under the agreements and are not representative of the
potential for gain or loss on these agreements.
Credit exposure represents the Company's potential loss if all of the
counterparties failed to perform under the contractual terms of the contracts
and all collateral, if any, became worthless. This exposure is measured by the
fair value of contracts with a positive fair value at the reporting date reduced
by the effect, if any, of master netting agreements.
The Company manages its exposure to credit risk by utilizing highly rated
counterparties, establishing risk control limits, executing legally enforceable
master netting agreements and obtaining collateral where appropriate. To date,
the Company has not incurred any losses on derivative financial instruments due
to counterparty nonperformance.
Fair value is the estimated amount that the Company would receive (pay) to
terminate or assign the contracts at the reporting date, thereby taking into
account the current unrealized gains or losses of open contracts. Dealer and
exchange quotes are utilized to value the Company's derivatives.
INTEREST RATE SWAP AGREEMENTS involve the exchange, at specified intervals,
of interest payments calculated by reference to an underlying notional amount.
The Company generally enters into swap agreements to change the interest rate
characteristics of existing assets to more closely match the interest rate
characteristics of the corresponding liabilities. The Company did not record any
material deferred gains or losses on swaps nor realize any material gains or
losses on swap terminations in 1998 or 1997. The Company paid a weighted average
floating interest rate of 5.6% and received a weighted average fixed interest
rate of 6.8% in 1998. The Company paid a weighted average fixed interest rate of
6.5% and received a weighted average floating interest rate of 6.0% in 1998.
F-19
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
FINANCIAL FUTURES AND FORWARD CONTRACTS are commitments to either purchase
or sell designated financial instruments at a future date for a specified price
or yield. They may be settled in cash or through delivery. As part of its
asset/liability management, the Company generally utilizes futures and forward
contracts to manage its market risk related to equity securities, and
anticipatory investment purchases and sales, as well as to reduce market risk
associated with certain annuity contracts. Futures and forwards used as hedges
of anticipatory transactions pertain to identified transactions which are
probable to occur and are generally completed within 90 days. Futures contracts
have limited off-balance-sheet credit risk as they are executed on organized
exchanges and require security deposits, as well as the daily cash settlement of
margins.
INTEREST RATE CAP AND FLOOR AGREEMENTS give the holder the right to receive
at a future date, the amount, if any, by which a specified market interest rate
exceeds the fixed cap rate or falls below the fixed floor rate, applied to a
notional amount. The Company purchases interest rate cap and floor agreements to
reduce its exposure to rising or falling interest rates relative to certain
existing assets and liabilities in conjunction with asset/liability management.
COMMODITY SWAP AGREEMENTS involve the exchange of floating-rate interest
payments for the total return on a commodity index. The Company enters into
commodity swap transactions to mitigate market risk on the fixed income and
equity securities portfolios.
EQUITY-INDEXED OPTION CONTRACTS provide returns based on a specified equity
index applied to the option's notional amount. The Company purchases and writes
equity-indexed options to achieve equity appreciation or to reduce the market
risk associated with certain annuity contracts. Where required, counterparties
post collateral to minimize credit risk.
EQUITY-INDEXED FINANCIAL FUTURES provide returns based on a specific equity
index applied to the futures' contract amount. The Company utilizes
equity-indexed futures to reduce the market risk associated with certain annuity
contracts.
DEBT WARRANTS provide the right to purchase a specified new issue of debt
at a predetermined price. The Company purchases debt warrants to protect against
long-term call risk.
FOREIGN CURRENCY CONTRACTS involve the future exchange or delivery of
foreign currency on terms negotiated at the inception of the contract. The
Company enters into these agreements primarily to manage the currency risk
associated with investing in foreign securities.
Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. Market risk exists for all of the derivative
financial instruments that the Company currently holds, as these instruments may
become less valuable due to adverse changes in market conditions. The Company
mitigates this risk through established risk control limits set by senior
management. In addition, the change in the value of the Company's derivative
financial instruments designated as hedges are generally offset by changes in
the value of the related assets and liabilities.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
A summary of the contractual amounts and fair values of off-balance-sheet
financial instruments at December 31, follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ------------------------
CONTRACTUAL FAIR CONTRACTUAL FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Commitments to invest $ 34,126 N/A $ 18,208 N/A
Commitments to extend mortgage loans 87,000 870 111,305 1,113
Credit guarantees 92,778 - 96,714 -
</TABLE>
F-20
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
Except for credit guarantees, the contractual amounts represent the amount
at risk if the contract is fully drawn upon, the counterparty defaults and the
value of any underlying security becomes worthless. Unless noted otherwise, the
Company does not require collateral or other security to support
off-balance-sheet financial instruments with credit risk.
Commitments to invest generally represent commitments to acquire financial
interests or instruments. The Company enters into these agreements to allow for
additional participation in certain limited partnership investments. Because the
equity investments in the limited partnerships are not actively traded, it is
not practicable to estimate the fair value of these commitments.
Commitments to extend mortgage loans are agreements to lend to a borrower,
provided there is no violation of any condition established in the contract. The
Company enters these agreements to commit to future loan fundings at a
predetermined interest rate. Commitments generally have fixed expiration dates
or other termination clauses. Commitments to extend mortgage loans, which are
secured by the underlying properties, are valued based on estimates of fees
charged by other institutions to make similar commitments to similar borrowers.
Financial guarantees represent conditional commitments to repurchase notes
from a creditor upon default of the debtor. The Company enters into these
agreements primarily to provide financial support for certain equity investees.
Financial guarantees are valued based on estimates of payments that may occur
over the life of the guarantees. At December 31, 1998 and 1997, there were no
guarantees outstanding.
Credit guarantees written represent conditional commitments to exchange
identified AAA or AA rated credit risk for identified A rated credit risk upon
bankruptcy or other event of default of the referenced credits. The Company
receives fees for assuming the referenced credit risks, which are reported in
net investment income when earned over the lives of the commitments. The Company
enters into these transactions in order to achieve higher yields than if the
referenced credits were directly owned.
The Company's maximum amount at risk, assuming bankruptcy or other default
of the referenced credits and the value of the referenced credits become
worthless, is the fair value of the identified AAA or AA rated securities. The
identified AAA or AA rated securities had a fair value of $95,233 at December
31, 1998. The Company includes the impact of credit guarantees in its analysis
of credit risk, and the referenced credits were current with respect to their
contractual terms at December 31, 1998.
7. INCOME TAXES
The Company joins the Corporation and its other eligible domestic
subsidiaries (the "Allstate Group") in the filing of a consolidated federal
income tax return and is party to a federal income tax allocation agreement (the
"Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the
Company pays to or receives from the Corporation the amount, if any, by which
the Allstate Group's federal income tax liability was affected by virtue of
inclusion of the Company in the consolidated federal return. Effectively, this
results in the Company's annual income tax provision being computed, with
adjustments, as if the Company filed a separate return.
Prior to Sears, Roebuck and Co's ("Sears") distribution ("Sears
distribution") on June 30, 1995 of its 80.3% ownership in the Corporation to
Sears shareholders, the Allstate Group, including the Company, joined with
Sears and its domestic business units (the "Sears Group") in the filing of a
consolidated federal income tax return (the Sears Tax Group") and were
parties to a federal income tax allocation agreement (the "Tax Sharing
Agreement"). Under the Tax Sharing Agreement, the Company, paid to or
received from the Sears Group the amount, if any, by which the Sears Tax
Group's federal income tax liability was affected by virtue of inclusion of
the Allstate Group. Effectively, this resulted in the Company's annual income
tax provision being computed as if the Company filed a separate return.
F-21
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
As a result of the Sears distribution, the Allstate Group was no longer
included in the Sears Tax Group, and the Tax Sharing Agreement was terminated.
Accordingly, the Allstate Group and Sears Group entered into a new tax sharing
agreement, which adopts many of the principles of the Tax Sharing Agreement and
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Sears distribution, including the treatment
of audits of tax returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the
Allstate Group's federal income tax returns through the 1993 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 Company paid income taxes of $250,673 and $193,951 in 1998 and 1997,
respectively. The Company had income taxes payable of $30,813 and $31,260 at
December 31, 1998 and 1997, respectively.
Prior to January 1, 1984, the Company was entitled to exclude certain
amounts from taxable income and accumulate such amounts in a "policyholder
surplus" account. The balance in this account at December 31, 1998, $94,262,
will result in federal income taxes payable of $32,992 if distributed to the
Corporation. No provision for taxes has been made as the Company has no plan to
distribute amounts from this account. No further additions to the account have
been permitted since the Tax Reform Act of 1984.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Statutory federal income tax rate 35.0% 35.0 %
Deferred acquisition costs 2.8 3.3
Investment related items (5.3) (2.6)
Net difference between statutory and tax basis reserves 0.8 1.2
Intangibles related to acquisitions 2.9 -
Other (3.1) (1.9)
---- ----
Effective federal income tax rate 33.1 % 35.0 %
===== ====
</TABLE>
8. BENEFIT PLANS
PENSION PLANS AND OTHER POSTRETIREMENT PLANS
Defined benefit pension plans, sponsored by AIC, cover domestic and
Canadian full-time employees and certain part-time employees. Benefits under the
pension plans are based upon the employee's length of service, average annual
compensation and estimated social security retirement benefits. AIC's funding
policy for the pension plans is to make annual contributions in accordance with
accepted actuarial cost methods. The cost to the Company for participation in
the plans was $9,906 and $10,603 in 1998 and 1997, respectively.
AIC provides certain health care and life insurance benefits for retired
employees. Qualified employees may become eligible for these benefits if they
retire in accordance with AIC's established retirement policy and are
continuously insured under AIC's group plans or other approved plans for ten or
more years prior to retirement. AIC shares the cost of the retiree medical
benefits with retirees based on years of service, with AIC's share being subject
to a 5% limit on annual medical cost inflation after retirement. AIC's
post-retirement benefit plans currently are not funded. AIC has the right to
modify or terminate these plans. Total unfunded postretirement benefit
obligation amounted to $313,984 and $261,720 at December 31, 1998 and 1997,
respectively.
F-22
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
PROFIT SHARING FUND
Employees of the Corporation are also eligible to become members of The
Savings and Profit Sharing Fund of Allstate Employees ("Allstate Plan"),
sponsored by the Corporation. The Corporation's contributions are based on its
matching obligation and the Corporation's operating results performance.
The Company's defined contribution to the Allstate Plan was $2,941 and
$2,650 in 1998 and 1997, respectively.
9. DIVIDENDS
The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant factors.
The payment of shareholder dividends by insurance companies without the prior
approval of the state insurance regulator is limited to formula amounts based on
net income and capital and surplus, determined in accordance with statutory
accounting practices, as well as the timing and amount of dividends paid in the
preceding twelve months. The maximum amount of dividends that ALIC can
distribute during 1999 without prior approval of the Illinois Department of
Insurance is $353,331.
10. LINES OF CREDIT
ALIC, along with the Corporation and AIC, maintains a bank line of credit
totaling $1,500,000 which expires on December 20, 2001. The bank line provides
for loans at a spread above prevailing referenced interest rates. ALIC, the
Corporation and AIC pay commitment fees in connection with the line of credit.
As of December 31, 1998, no amounts were outstanding under the bank line of
credit.
11. LEASE COMMITMENTS
The Company leases certain office facilities and computer equipment. Total
rent expense for all leases was $2,564 and $1,931 in 1998 and 1997,
respectively. Minimum rental commitments under non-cancelable operating leases
with an initial or remaining term of more than one year as of December 31, are
as follows:
<TABLE>
<CAPTION>
1998
----
<S> <C>
1999 $2,633
2000 2,425
2001 939
2002 782
2003 36
Thereafter 276
------
$7,091
======
</TABLE>
* * *
F-23
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF FINANCIAL POSITION
(STATUTORY BASIS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------------------------
($ in thousands) 1999 1998
------------------- -------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and invested assets
Bonds (fair value $25,682,321 and $25,480,639) $25,091,243 $23,359,823
Preferred stocks (alternative carrying value
$258,160 and $325,954) 258,161 294,478
Common stocks (cost $305,388 and $232,780) 507,880 428,034
Mortgage loans on real estate 3,673,234 3,316,586
Real estate 23,754 25,196
Policy loans 595,269 570,001
Cash 63,768 90,715
Short-term investments 541,935 420,013
Other invested assets 156,504 232,855
----------- -----------
Cash and invested assets 30,911,748 28,737,701
Investment income due and accrued 379,955 342,535
Life and accident and health insurance
premiums due and deferred 106,396 129,692
Other assets 76,412 69,655
Assets related to Separate Accounts 12,722,167 10,877,884
----------- -----------
Total assets $44,196,678 $40,157,467
=========== ===========
LIABILITIES
Policy benefit and other insurance reserves $28,017,364 $26,073,039
Interest maintenance reserve 113,624 116,821
Federal income taxes due or accrued 55,460 30,813
Payable to parent and affiliates 40,233 64,045
Other liabilities and accrued expenses 263,011 162,900
Asset valuation reserve 410,366 374,475
Allocation of assets to the Separate Accounts 57,798 32,164
Liabilities related to Separate Accounts 12,722,167 10,877,884
----------- -----------
Total liabilities 41,680,023 37,732,141
----------- -----------
CAPITAL AND SURPLUS
Preferred capital stock 178,049 174,999
Capital paid up (common stock, $214 par value,
22,700 shares authorized,
issued and outstanding in 1999 and 1998, respectively) 4,858 4,858
Gross paid in and contributed capital 556,526 556,526
Unassigned surplus 1,777,222 1,688,943
----------- -----------
Total capital and surplus 2,516,655 2,425,326
----------- -----------
Total liabilities, capital and surplus $44,196,678 $40,157,467
=========== ===========
</TABLE>
See notes to combined financial statements (statutory basis).
1
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF OPERATIONS
(STATUTORY BASIS)
<TABLE>
<CAPTION>
($ in thousands) 3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------------------
1999 1998 1999 1998
-------------- ---------------- ---------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Premiums and annuity considerations $ 2,285,098 $1,464,581 $5,907,418 $4,392,409
Net investment income, including amortization of the
Interest maintenance reserve of $8,767,$16,427,$60,279
and $61,879 543,406 523,910 1,669,948 1,585,187
Income from fees associated with Separate Accounts 38,484 35,752 109,347 87,502
Other income 54,776 28,063 139,075 81,073
----------- ----------- ----------- -----------
2,921,764 2,052,306 7,825,788 6,146,171
----------- ----------- ----------- -----------
POLICY BENEFITS AND EXPENSES
Provision for policy benefits 1,762,473 953,984 4,968,866 3,035,689
Commissions and general insurance expenses 274,939 234,367 740,016 675,598
Insurance taxes, licenses and fees 15,878 21,097 62,148 54,688
Net transfers to Separate Accounts 493,790 392,206 871,694 1,133,448
Maturities and other scheduled payments 330,865 364,931 931,985 929,530
----------- ----------- ----------- -----------
2,877,945 1,966,585 7,574,709 5,828,953
----------- ----------- ----------- -----------
Net gain from operations before dividends to policyholders,
Federal income taxes and net realized capital gains 43,819 85,721 251,079 317,218
Dividends to policyholders 35 39 138 123
----------- ----------- ----------- -----------
Net gains from operations after dividends to
policyholders and before federal income taxes and net
realized Capital gains 43,784 85,682 250,941 317,095
Federal income taxes 31,984 29,987 80,576 98,586
----------- ----------- ----------- -----------
Net gain from operations after dividends to policyholders
and federal income taxes and net realized capital
gains 11,800 55,695 170,365 218,509
Net realized capital gains less federal income taxes
and amounts transferred to the interest maintenance
reserve 7,929 44,319 87,698 134,322
----------- ----------- ----------- -----------
Net income $ 19,729 $ 100,014 $ 258,063 $ 352,831
=========== =========== =========== ===========
</TABLE>
See notes to combined financial statements (statutory basis).
2
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(STATUTORY BASIS)
<TABLE>
<CAPTION>
9 MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
($ in thousands) 1999 1998
--------------------- --------------------
(UNAUDITED)
<S> <C> <C>
CASH FROM OPERATIONS
Premiums and annuity considerations $4,722,641 $2,258,288
Annuity and other fund deposits 1,101,239 2,077,359
Investment income received 1,466,538 1,387,799
Other premiums, considerations and deposits 110,402 69,586
Income from fees associated with Separate Accounts 109,347 87,502
Allowances and reserve adjustments received
on reinsurance ceded 125,692 (45,780)
Other income received 19,572 7,003
Life and accident and health claims,
surrender benefits and other benefits paid (3,960,885) (3,523,425)
Commissions, other expenses and taxes paid
(excluding federal income taxes) (813,995) (638,253)
Net transfers to Separate Accounts (854,957) (1,128,175)
Dividends paid to policyholders (145) (144)
Federal income taxes paid (excluding tax on capital gains) (52,612) (66,519)
----------- -----------
Net cash from operations 1,972,837 485,241
----------- -----------
CAH FROM INVESTMENTS
Proceeds from investments sold, matured or repaid,
net of tax 8,966,326 7,405,716
Cost of long-term investments acquired (10,817,272) (7,684,460)
Net increase in policy loans (25,268) (32,279)
----------- -----------
Net cash from (used for) investments (1,876,214) (311,023)
----------- -----------
CASH FROM FINANCING AND MISCELLANEOUS SOURCES
Surplus paid in (21,950) 521
Dividends to stockholders (52,067) (55,018)
Borrowed Money 82,735 78,251
Other (10,366) 21,072
----------- -----------
Net cash from (used for) financing and
miscellaneous sources (1,648) 44,826
----------- -----------
Net change in cash and short-term investments 94,975 219,044
Cash and short-term investments at beginning of year 510,728 167,238
----------- -----------
Cash and short-term investments at end of year $ 605,703 $ 386,282
=========== ===========
</TABLE>
See notes to combined financial statements (statutory basis).
3
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(STATUTORY BASIS)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying combined statutory basis financial statements include
the accounts of Allstate Life Insurance Company ("ALIC") and its wholly
owned U.S. domiciled life, accident and health insurance subsidiaries,
Northbrook Life Insurance Company ("NLIC"), Lincoln Benefit Life Company
("LBL"), Surety Life Insurance Company ("SLIC"), Glenbrook Life and Annuity
Company ("GLAC"), and Allstate Life Insurance Company of New York ("ALNY"),
Charter Life Insurance Company ("CLIC") and Intramerica Life Insurance
Compamy (ILIC"), (collectively the "Company"). ALIC is wholly owned by
Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The
Allstate Corporation (the "Corporation").
To conform with the 1999 presentation, certain amounts in the prior
year's financial statements have been reclassified.
NATURE OF OPERATIONS
The consolidated financial statements and notes as of September 30,
1999 and for the three month and nine month period ended September 30, 1999
and 1998 are unaudited. The consolidated financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in
the opinion of management, necessary for the fair presentation of the
Financial position, results of operations and cash flows for the interim
periods. The results of operations for the interim periods should not be
considered indicative of results to be expected for the full year.
4
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND FOR THE PERIOD ENDED
DECEMBER 31, 1999
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Allocation to Sub-Accounts investing in the Putnam Variable Trust:
Asia Pacific Growth, 278,466 shares (cost $3,789,956) $ 4,803,532
Diversified Income, 1,514,137 shares (cost $14,764,040) 15,005,098
The George Putnam Fund of Boston, 2,907,045 shares (cost $30,051,532) 29,012,305
Global Asset Allocation, 142,637 shares (cost $2,627,571) 2,795,686
Global Growth, 559,039 shares (cost $12,776,277) 17,000,389
Growth and Income, 4,691,832 shares (cost $128,157,309) 125,506,496
Health Sciences, 1,349,491 shares (cost $13,570,021) 14,156,162
High Yield, 818,296 shares (cost $8,868,651) 9,066,725
Income, 982,477 shares (cost $12,309,231) 12,290,785
International Growth, 1,234,900 shares (cost $21,528,251) 26,698,544
International Growth and Income, 470,967 shares (cost $6,838,545) 7,168,122
International New Opportunities, 409,062 shares (cost $7,108,499) 9,522,959
Investors, 5,495,714 shares (cost $71,619,605) 83,150,151
Money Market, 16,872,573 shares (cost $16,872,573) 16,872,573
New Opportunities, 1,114,500 shares (cost $36,579,176) 48,413,875
New Value, 566,900 shares (cost $6,938,279) 6,717,771
OTC & Emerging Growth, 765,986 shares (cost $12,690,974) 17,433,843
Research, 1,540,836 shares (cost $20,578,935) 22,604,065
Small Cap Value, 594,274 shares (cost $5,970,846) 6,121,017
Utilities Growth and Income, 435,290 shares (cost $7,511,540) 7,378,168
Vista, 701,266 shares (cost $12,342,960) 14,481,152
Voyager, 1,683,119 shares (cost $86,527,295) 111,271,035
Total Assets 607,470,454
LIABILITIES
Payable to Allstate Life Insurance Company
Accrued contract maintenance charges 68,839
----------------
Net Assets $ 607,401,615
================
</TABLE>
See notes to financial statements
2
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE PERIOD BEGINNING MAY 3, 1999 AND ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Putnam Variable Trust Sub-Accounts
--------------------------------------------------------------------------------------------
The George
Asia Putnam Fund Global
Pacific Diversified of Asset Global
Growth Income Boston Allocation Growth
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ - $ 603,870 $ 289 $ -
Charges from Allstate Life
Insurance Company:
Mortality and expense risk (8,332) (42,429) (88,415) (7,001) (39,047)
Administrative expense - - - - -
----------------- ----------------- ----------------- ----------------- -----------------
Net investment income (loss) (8,332) (42,429) 515,455 (6,712) (39,047)
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales
of investments:
Proceeds from sales 19,811 36,175 156,014 7,214 109,185
Cost of investments sold 18,686 35,881 156,846 7,217 101,580
----------------- ----------------- ----------------- ----------------- -----------------
Net realized gains (losses) 1,125 294 (832) (3) 7,605
----------------- ----------------- ----------------- ----------------- -----------------
Change in unrealized gains (losses) 1,013,576 241,058 (1,039,227) 168,116 4,224,112
----------------- ----------------- ----------------- ----------------- -----------------
Net gains (losses) on
investments 1,014,701 241,352 (1,040,059) 168,113 4,231,717
----------------- ----------------- ----------------- ----------------- -----------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $1,006,369 $ 198,923 $ (524,604) $ 161,401 $4,192,670
================= ================= ================= ================= =================
</TABLE>
See notes to financial statements.
3
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE PERIOD BEGINNING MAY 3, 1999 AND ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Putnam Variable Trust Sub-Accounts
---------------------------------------------------------------------------------------------
Growth & Health High International
Income Sciences Yield Income Growth
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ 4,849 $ - $ - $ -
Charges from Allstate Life
Insurance Company:
Mortality and expense risk (398,152) (38,903) (25,156) (35,910) (60,294)
Administrative expense - - - - -
------------------ ------------------ ------------------ ------------------ ------------------
Net investment income (loss) (398,152) (34,054) (25,156) (35,910) (60,294)
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales
of investments:
Proceeds from sales 78,513 120,049 736,350 181,921 193,345
Cost of investments sold 126,369 122,899 727,602 182,722 182,340
------------------ ------------------ ------------------ ------------------ ------------------
Net realized gains (losses) (47,856) (2,850) 8,748 (801) 11,005
------------------ ------------------ ------------------ ------------------ ------------------
Change in unrealized gains (losses) (2,650,813) 586,141 198,074 (18,445) 5,170,293
------------------ ------------------ ------------------ ------------------ ------------------
Net gains (losses)
on investments (2,698,669) 583,291 206,822 (19,246) 5,181,298
------------------ ------------------ ------------------ ------------------ ------------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ (3,096,821) $ 549,237 $ 181,666 $ (55,156) $5,121,004
================== =================== ================= =================== =================
<CAPTION>
</TABLE>
See notes to financial statements.
4
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE PERIOD BEGINNING MAY 3, 1999 AND ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Putnam Variable Trust Sub-Accounts
----------------------------------------------------------------------------------------------
International International
Growth and New Money New
Income Opportunities Investors Market Opportunities
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ - $ - $ 153,816 $ -
Charges from Allstate Life
Insurance Company:
Mortality and expense risk (19,894) (17,878) (217,860) (47,820) (108,364)
Administrative expense - - - - -
------------------ ------------------ ------------------ ------------------ ------------------
Net investment income (loss) (19,894) (17,878) (217,860) 105,996 (108,364)
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales
of investments:
Proceeds from sales 463,154 373,826 129,574 3,625,107 20,054
Cost of investments sold 442,666 346,771 118,977 3,625,107 18,865
------------------ ------------------ ------------------ ------------------ ------------------
Net realized gains (losses) 20,488 27,055 10,597 - 1,189
------------------ ------------------ ------------------ ------------------ ------------------
Change in unrealized gains (losses) 329,577 2,414,460 11,530,546 - 11,834,699
------------------ ------------------ ------------------ ------------------ ------------------
Net gains (losses)
on investments 350,065 2,441,515 11,541,143 - 11,835,888
------------------ ------------------ ------------------ ------------------ ------------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 330,171 $2,423,637 $11,323,283 $ 105,996 $11,727,524
================== =================== ================= =================== =================
</TABLE>
See notes to financial statements.
5
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE PERIOD BEGINNING MAY 3, 1999 AND ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Putnam Variable Trust Sub-Accounts
----------------------------------------------------------------------------------------------
OTC & Utilities
New Emerging Small Growth and
Value Growth Research Cap Value Income
------------------ ------------------ ------------------------------------ ------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ 36,702 $ 504,319 $ 17,808 $ -
Charges from Allstate Life
Insurance Company:
Mortality and expense risk (23,561) (30,805) (60,946) (17,840) (21,930)
Administrative expense - - - - -
------------------ ------------------ ------------------------------------ ------------------
Net investment income (loss) (23,561) 5,897 443,373 (32) (21,930)
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales
of investments:
Proceeds from sales 511,204 244,974 104,735 343,642 57,562
Cost of investments sold 537,223 192,485 104,647 357,046 58,296
------------------ ------------------ ------------------------------------ ------------------
Net realized gains (losses) (26,019) 52,489 88 (13,404) (734)
------------------ ------------------ ------------------------------------ ------------------
Change in unrealized gains (losses) (220,508) 4,742,868 2,025,131 150,171 (133,372)
------------------ ------------------ ------------------------------------ ------------------
Net gains (losses)
on investments (246,527) 4,795,357 2,025,219 136,767 (134,106)
------------------ ------------------ ------------------------------------ ------------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ (270,088) $4,801,254 $2,468,592 $ 136,735 $ (156,036)
================== =================== ================= =================== =================
</TABLE>
See notes to financial statements.
6
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE PERIOD BEGINNING MAY 3, 1999 AND ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Putnam Variable Trust Sub-Accounts
---------------------------------------------
Vista Voyager
------------------ ------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 930,830 $ -
Charges from Allstate Life Insurance Company:
Mortality and expense risk (33,727) (273,748)
Administrative expense - -
------------------ ------------------
Net investment income (loss) 897,103 (273,748)
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 96,344 5,467
Cost of investments sold 89,711 7,862
------------------ ------------------
Net realized gains (losses) 6,633 (2,395)
------------------ ------------------
Change in unrealized gains (losses) 2,138,192 24,743,740
------------------ ------------------
Net gains (losses) on investments 2,144,825 24,741,345
------------------ ------------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $3,041,928 $24,467,597
================== ==================
</TABLE>
See notes to financial statements.
7
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD BEGINNING MAY 3, 1999 AND ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Putnam Variable Trust Sub-Accounts
--------------------------------------------------------------------------------------------
The George
Asia Putnam Fund Global
Pacific Diversified of Asset Global
Growth Income Boston Allocation Growth
----------------- ------------------ ------------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (8,332) $ (42,429) $ 515,455 $ (6,712) $ (39,047)
Net realized gains (losses) 1,125 294 (832) (3) 7,605
Change in unrealized gains (losses) 1,013,576 241,058 (1,039,227) 168,116 4,224,112
----------------- ------------------ ------------------- ---------------- ------------------
Change in net assets resulting
from operations 1,006,369 198,923 (524,604) 161,401 4,192,670
----------------- ------------------ ------------------- --------------- ------------------
FROM CAPITAL TRANSACTIONS
Deposits 2,747,456 5,717,042 12,891,820 1,240,444 6,205,016
Benefit payments - (3,417) - - (378)
Payments on termination (11,734) (161,343) (304,746) (11,684) (63,561)
Contract maintenance charges (544) (1,700) (3,288) (317) (1,926)
Transfers among the sub-accounts
and with the Fixed Account - net 1,061,441 9,253,893 16,949,835 1,405,526 6,666,642
----------------- ------------------ ------------------- ---------------- ------------------
Change in net assets resulting
from capital transactions 3,796,619 14,804,475 29,533,621 2,633,969 12,805,793
----------------- ------------------ ------------------- ---------------- ------------------
INCREASE (DECREASE) IN NET ASSETS 4,802,988 15,003,398 29,009,017 2,795,370 16,998,463
NET ASSETS AT BEGINNING OF PERIOD - - - - -
----------------- ------------------ ------------------- ---------------- ------------------
NET ASSETS AT END OF PERIOD $ 4,802,988 $ 15,003,398 $ 29,009,017 $ 2,795,370 $ 16,998,463
================= ================== =================== ================ =================
</TABLE>
See notes to financial statements.
8
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD BEGINNING MAY 3, 1999 AND ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Putnam Variable Trust Sub-Accounts
---------------------------------------------------------------------------------------------
Growth & Health High International
Income Sciences Yield Income Growth
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (398,152) $ (34,054) $(25,156) $(35,910) $(60,294)
Net realized gains (losses) (47,856) (2,850) 8,748 (801) 11,005
Change in unrealized gains (losses) (2,650,813) 586,141 198,074 (18,445) 5,170,293
------------- ------------- ------------- ------------- -------------
Change in net assets resulting
from operations (3,096,821) 549,237 181,666 (55,156) 5,121,004
------------- ------------- ------------- ------------- -------------
FROM CAPITAL TRANSACTIONS
Deposits 66,564,874 6,876,229 4,841,415 4,349,939 11,178,109
Benefit payments (37,062) (15,210) - - -
Payments on termination (1,216,975) (92,242) (104,534) (95,887) (121,259)
Contract maintenance charges (14,223) (1,604) (1,027) (1,393) (3,025)
Transfers among the sub-accounts
and with the Fixed Account - net 63,292,481 6,838,148 4,148,178 8,091,890 10,520,690
------------- ------------- ------------- ------------- -------------
Change in net assets resulting
from capital transactions 128,589,095 13,605,321 8,884,032 12,344,549 21,574,515
------------- ------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS 125,492,274 14,154,558 9,065,698 12,289,393 26,695,519
NET ASSETS AT BEGINNING OF PERIOD - - - - -
------------- ------------- ------------- ------------- -------------
NET ASSETS AT END OF PERIOD $125,492,274 $14,154,558 $9,065,698 $ 12,289,393 $26,695,519
=============== ============== ============ =============== ============
</TABLE>
See notes to financial statements.
9
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD BEGINNING MAY 3, 1999 AND ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Putnam Variable Trust Sub-Accounts
---------------------------------------------------------------------------------------------
International International
Growth and New Money New
Income Opportunities Investors Market Opportunities
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (19,894) $ (17,878) $ (217,860) $ 105,996 $ (108,364)
Net realized gains (losses) 20,488 27,055 10,597 - 1,189
Change in unrealized gains (losses) 329,577 2,414,460 11,530,546 - 11,834,699
----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from operations 330,171 2,423,637 11,323,283 105,996 11,727,524
----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Deposits 3,618,618 3,838,306 36,262,504 10,542,789 21,115,643
Benefit payments - - (30,501) (670,189) (23,210)
Payments on termination (46,787) (23,171) (582,482) (551,414) (181,269)
Contract maintenance charges (812) (1,079) (9,423) (1,912) (5,486)
Transfers among the sub-accounts
and with the Fixed Account - net 3,266,120 3,284,187 36,177,347 7,445,391 15,775,186
----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from capital transactions 6,837,139 7,098,243 71,817,445 16,764,665 36,680,864
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS 7,167,310 9,521,880 83,140,728 16,870,661 48,408,388
NET ASSETS AT BEGINNING OF PERIOD - - - - -
----------- ----------- ----------- ----------- -----------
NET ASSETS AT END OF PERIOD $7,167,310 $9,521,880 $83,140,728 $16,870,661 $48,408,388
=============== ============== ============ =============== ============
</TABLE>
See notes to financial statements.
10
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD BEGINNING MAY 3, 1999 AND ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Putnam Variable Trust Sub-Accounts
-------------------------------------------------------------------------------------
OTC & Utilities
New Emerging Small Growth and
Value Growth Research Cap Value Income
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (23,561) $ 5,897 $ 443,373 $ (32) $(21,930)
Net realized gains (losses) (26,019) 52,489 88 (13,404) (734)
Change in unrealized gains (losses) (220,508) 4,742,868 2,025,131 150,171 (133,372)
----------- ----------- ---------- ---------- ----------
Change in net assets resulting
from operations (270,088) 4,801,254 2,468,592 136,735 (156,036)
----------- ----------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Deposits 4,631,791 7,611,399 10,121,156 3,738,103 3,637,575
Benefit payments - - (19,019) - (1,534)
Payments on termination (71,977) (58,463) (144,741) (41,066) (64,952)
Contract maintenance charges (761) (1,975) (2,562) (694) (836)
Transfers among the sub-accounts
and with the Fixed Account - net 2,428,045 5,079,652 10,178,077 2,287,245 3,963,115
----------- ----------- ---------- ---------- ----------
Change in net assets resulting
from capital transactions 6,987,098 12,630,613 20,132,911 5,983,588 7,533,368
----------- ----------- ---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS 6,717,010 17,431,867 22,601,503 6,120,323 7,377,332
NET ASSETS AT BEGINNING OF PERIOD - - - - -
----------- ----------- ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $6,717,010 $17,431,867 $22,601,503 $6,120,323 $7,377,332
=========== ============ ============ ============ ==========
</TABLE>
See notes to financial statements.
11
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD BEGINNING MAY 3, 1999 AND ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Putnam Variable Trust Sub-Accounts
---------------------------------------------
Vista Voyager
----------------- --------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 897,103 $ (273,748)
Net realized gains (losses) 6,633 (2,395)
Change in unrealized gains (losses) 2,138,192 24,743,740
----------------- --------------------
Change in net assets resulting from operations 3,041,928 24,467,597
----------------- --------------------
FROM CAPITAL TRANSACTIONS
Deposits 6,530,416 47,654,070
Benefit payments (3,766) (28,233)
Payments on termination (72,861) (760,755)
Contract maintenance charges (1,641) (12,609)
Transfers among the sub-accounts
and with the Fixed Account - net 4,985,435 39,938,356
----------------- --------------------
Change in net assets resulting
from capital transactions 11,437,583 86,790,829
----------------- --------------------
INCREASE (DECREASE) IN NET ASSETS 14,479,511 111,258,426
NET ASSETS AT BEGINNING OF PERIOD - -
----------------- --------------------
NET ASSETS AT END OF PERIOD $14,479,511 $ 111,258,426
================= =====================
</TABLE>
See notes to financial statements.
12
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION
Allstate Life Insurance Company Separate Account A (the "Account"), a unit
investment trust registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, is a Separate Account of
Allstate Life Insurance Company ("Allstate"). The assets of the Account
are legally segregated from those of Allstate. Allstate is a wholly owned
subsidiary of Allstate Insurance Company, which is wholly owned by The
Allstate Corporation.
Allstate issues the Putnam Allstate Advisor ("Advisor") and Putnam
Allstate Advisor A ("Advisor A") contracts, the deposits of which are
invested at the direction of contractholders in sub-accounts that comprise
the Account. Absent any guarantees wherein Allstate contractually
guarantees either a minimum return or account value to the beneficiaries
of the contractholders in the form of a death benefit, the contractholders
bear the investment risk that the sub-accounts may not meet their stated
objectives. The sub-accounts invest in the Putnam Variable Trust (the
"Fund").
Allstate provides insurance and administrative services to the
contractholders for a fee. Allstate also maintains a Fixed Account, to
which contractholders may direct their deposits and receive a fixed rate
of return. Allstate has sole discretion to invest the assets of the Fixed
Account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS - Investments consist of shares of the Fund and
are stated at fair value based on quoted market prices at December 31,
1999.
INVESTMENT INCOME - Investment income consists of dividends declared by
the Fund and is recognized on the ex-dividend date.
REALIZED GAINS AND LOSSES - Realized gains and losses represent the
difference between the proceeds from sales of portfolio shares by the
Account and the cost of such shares, which is determined on a weighted
average basis.
FEDERAL INCOME TAXES - The Account intends to qualify as a segregated
asset account as defined in the Internal Revenue Code ("Code"). As such,
the operations of the Account are included with and taxed as a part of
Allstate. Allstate is taxed as a life insurance company under the Code. No
federal income taxes are allocable to the Account as the Account did not
generate taxable income.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
13
<PAGE>
3. EXPENSES
CONTRACT MAINTENANCE CHARGE - Allstate deducts from the contractholder's
account an annual maintenance charge of $30 on each Advisor contract
anniversary and guarantees that this charge will not increase over the
life of the contract. This charge will be waived if certain conditions are
met. There is no contract maintenance charge on the Advisor A contract.
MORTALITY AND EXPENSE RISK CHARGE - Allstate assumes mortality and expense
risks related to the operations of the Account and deducts charges from
the contractholder's account daily based on the average daily net assets
of the Account. The mortality and expense risk charge covers insurance
benefits available with the contract and certain expenses of the contract.
It also covers the risk that the current charges will not be sufficient in
the future to cover the cost of administering the contract. Allstate
guarantees that the amount of this charge will not increase over the life
of the contract. At the contractholder's discretion, additional options,
primarily death benefits, may be purchased for an additional charge.
RETIREMENT INCOME GUARANTEE CHARGE - Allstate deducts from the
contractholder's account a separate charge for each Retirement Income
Guarantee Rider. The charge will range from 0.05% to 0.15% annually for
Retirement Income Guarantee Rider 1 and 0.30% to 0.50% annually for
Retirement Income Guarantee Rider 2.
SALES CHARGE - Allstate may deduct a sales charge on all purchase payments
of the Advisor A. The charge, which varies inversely in relation to the
purchase payment, ranges from 5.75% to 0.50% of the purchase payment. A
sales charge may be reduced if the contractholder meets certain
requirements.
4. FINANCIAL INSTRUMENTS
The investments of the Account are carried at fair value, based upon
quoted market prices. Accrued contract maintenance charges are of a
short-term nature. It is assumed that their carrying value approximates
fair value.
14
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
Notes to Financial Statements
(unaudited)
5. UNITS OUTSTANDING AND ACCUMULATION UNIT VALUE
(Units in whole amounts)
<TABLE>
<CAPTION>
Putnam Allstate Advisor with
Putnam Allstate Advisor Enhanced Beneficiary Protection
-------------------------------------- ----------------------------------
Accumulation Accumulation
Units Outstanding Unit Value Units Outstanding Unit Value
December 31, 1999 December 31, 1999 December 31, 1999 December 31, 1999
------------------ ----------------- ----------------- -----------------
Investments in the Putnam Variable Trust Sub-Accounts:
<S> <C> <C> <C> <C>
Asia Pacific Growth 241,341 17.44 32,678 17.42
Diversified Income 1,112,113 9.87 408,577 9.86
The George Putnam Fund of Boston 2,629,405 9.30 487,965 9.29
Global Asset Allocation 216,789 10.70 44,565 10.69
Global Growth 809,571 15.66 274,617 15.65
Growth and Income 10,446,547 9.17 3,225,308 9.16
Health Sciences 1,037,948 10.60 293,891 10.59
High Yield 688,505 9.93 223,608 9.92
Income 994,313 9.71 271,083 9.70
International Growth 1,416,491 14.43 429,465 14.41
International Growth and Income 515,493 10.97 136,651 10.96
International New Opportunities 389,045 18.13 133,941 18.12
Investors 5,517,617 12.17 1,309,524 12.16
Money Market 1,261,646 10.23 386,731 10.22
New Opportunities 2,351,890 15.69 730,176 15.68
New Value 626,816 8.80 137,044 8.79
OTC & Emerging Growth 697,007 19.84 181,669 19.82
Research 1,575,893 11.60 369,070 11.59
Small Cap Value 451,498 10.30 140,296 10.29
Utilities Growth and Income 585,124 9.99 153,652 9.98
Vista 824,655 14.09 202,009 14.07
Voyager 6,006,888 14.33 1,752,111 14.31
</TABLE>
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
Notes to Financial Statements
(unaudited)
5. UNITS OUTSTANDING AND ACCUMULATION UNIT VALUE
(Units in whole amounts)
<TABLE>
<CAPTION>
Putnam Allstate Advisor - A with
Putnam Allstate Advisor - A Enhanced Beneficiary Protection
-------------------------------------- ----------------------------------
Accumulation Accumulation
Units Outstanding Unit Value Units Outstanding Unit Value
December 31, 1999 December 31, 1999 December 31, 1999 December 31, 1999
----------------- ----------------- ----------------- -----------------
Investments in the Putnam Variable Trust Sub-Accounts:
<S> <C> <C> <C> <C>
Asia Pacific Growth 1,911 13.36 - -
Diversified Income 409 10.19 - -
The George Putnam Fund of Boston 2,578 9.78 - -
Global Asset Allocation - - - -
Global Growth 1,404 13.56 - -
Growth and Income 11,859 9.69 - -
Health Sciences 4,191 10.63 - -
High Yield 691 10.38 - -
Income - - - -
International Growth 5,441 12.86 1,229 9.68
International Growth and Income 1,515 10.58 - -
International New Opportunities 2,773 14.53 - -
Investors 7,389 11.61 - -
Money Market 938 10.07 - -
New Opportunities 4,104 13.47 - -
New Value 312 15.16 - -
OTC & Emerging Growth - - - -
Research 3,616 11.06 808 11.06
Small Cap Value 2,352 10.78 - -
Utilities Growth and Income 106 9.61 - -
Vista 1,448 13.01 - -
Voyager 9,326 12.95 694 12.95
</TABLE>
