As filed with the Securities and Exchange Commission on August 6, 1999
Registration Nos. 333-77605
and 811-09327
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- ------------------------------------------------------------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 1 /x/
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 2 /x/
Allstate Financial Advisors Separate Account I
(Exact Name of Registrant)
Allstate Life Insurance Company
(Name of Depositor)
Michael J. Velotta
Vice President, Secretary and General Counsel
Allstate Life Insurance Company
3100 Sanders Road, Northbrook, Illinois 60062
(847) 402-2400
( Name and Address of Agent of Service)
Copies to:
Stephen E. Roth, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
Approximate Date of Proposed Public Offering:
As soon as practicable after effectiveness of the Registration Statement
- ------------------------------------------------------------------------------
It is proposed that this filing will become effective:
/x/ immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a) of Rule 485
/ / on pursuant to paragraph (a) of the Rule 485
- ------------------------------------------------------------------------------
Title of Securities Being Registered:
Units of Interest in the Separate Account
under flexible payment deferred variable annuity contracts.
<PAGE>
SelectDirections
Flexible Premium Deferred Variable Annuity Contracts
Issued By
Allstate Life Insurance Company
In Connection With
Allstate Financial Advisors Separate Account I
Street Address: Allstate Life Insurance Company; Nebraska Service Center;
206 South 13th Street, Suite 100; Lincoln, Nebraska 68508
Mailing Address: Allstate Life Insurance Company; Nebraska Service Center;
P.O. Box 80469; Lincoln, Nebraska 68501-0469
Telephone Number: 1-800-632-3492
This prospectus describes SelectDirections, an individual and group flexible
premium deferred variable annuity contract ("Contract") offered by Allstate Life
Insurance Company ("we" or "Allstate"). Please read this prospectus and keep it
for future reference. It contains important information about the Contract that
you should know before investing.
The Contract currently offers 26 investment alternatives: 2 Fixed Account
Options (Standard and Dollar Cost Averaging) and 24 Variable Subaccounts of the
Allstate Financial Advisors Separate Account I ("variable account"). Money you
direct into a Variable Subaccount is invested exclusively in one of the
following mutual fund portfolios:
AIM Variable Insurance Funds, Inc.:
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
Fidelity Insurance Product Fund (VIP):
Fidelity VIP Growth
Fidelity VIP High Income
Fidelity VIP Overseas
Fidelity Insurance Products Fund II (VIPII):
Fidelity VIPII Contrafund
Fidelity VIPII Index 500
Fidelity VIP II Investment Grade
MFS Variable Insurance Trust:
MFS Bond
MFS Growth with Income
MFS High Income
MFS New Discovery
Oppenheimer Variable Account Funds:
Oppenheimer Bond/VA
Oppenheimer Capital Appreciation/VA
Oppenheimer Global Securities/VA
Oppenheimer High Income/VA
Oppenheimer Small Cap Growth/VA
Van Kampen Life Investment Trust
Van Kampen Comstock
Van Kampen Domestic Income
Van Kampen Emerging Growth
Van Kampen Money Market
<PAGE>
Variable annuity contracts involve certain risks, including possible loss of
principal.
o The investment performance of the portfolios in which the Variable
Subaccounts invest will vary.
o We do not guarantee how any of the portfolios will perform.
o The Contract is not a deposit or obligation of any bank, and no bank
endorses or guarantees the Contract.
o Neither the U.S. Government nor any federal agency insures your investment
in the Contract.
The date of this prospectus is July 20, 1999.
<PAGE>
To learn more about the Contract, you may want to read the Statement of
Additional Information ("SAI"), dated July 20, 1999. We filed the SAI with the
U.S. Securities and Exchange Commission ("SEC") and have incorporated it by
reference into this prospectus, which means that it is legally a part of this
prospectus. The SAI's table of contents appears at the end of this prospectus.
For a free copy of the SAI, contact us at the address or telephone number above,
or go to the SEC's website (http://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 website. You may also read and copy any of these
documents at the SEC's public reference room in Washington, D.C. Call
1-800-SEC-0330 for further information on the operation of the public reference
room.
The Securities and Exchange Commission has not approved or disapproved the
securities described in this prospectus, nor has it passed on the accuracy or
adequacy of this prospectus. Anyone who tells you otherwise is committing a
federal crime.
This prospectus must be accompanied or preceded by current prospectuses for the
portfolios listed above. If any of these prospectuses is missing or outdated,
please contact us and we will send you the prospectus you need.
<PAGE>
Table Of Contents
Glossary.............................................................6
Questions and Answers About SelectDirections.........................9
Fee Table...........................................................16
Examples.........................................................19
Condensed Financial Information..................................21
Description Of The SelectDirections Contract........................21
Summary..........................................................21
Contract Owner...................................................21
Annuitant........................................................22
Modification Of The Contract.....................................22
Assignment.......................................................22
Return Privilege.................................................22
Purchases And Contract Value........................................23
Purchasing the Contract..........................................23
Automatic Payment Plan...........................................23
Allocation Of Purchase Payments..................................23
Contract Value...................................................24
Variable Account Accumulation Unit Value.........................24
Transfers...........................................................24
Transfers During The Accumulation Phase..........................24
Transfers Authorized By Telephone................................25
Automatic Dollar Cost Averaging Program..........................25
Portfolio Rebalancing............................................26
The Investment Alternatives.........................................26
Variable Subaccount Investments..................................26
Investment Objectives of the Portfolios..........................27
Voting Rights....................................................29
Additions, Deletions, And Substitutions Of Portfolios............30
The Fixed Account Options........................................30
General........................................................30
Standard Fixed Account Option..................................30
Dollar Cost Averaging Fixed Account Option.....................31
Income Payments.....................................................31
Payout Start Date................................................31
Income Plans.....................................................31
Income Payments: General.........................................32
Variable Income Payments.........................................33
Fixed Income Payments............................................34
Transfers During The Payout Phase................................34
Death Benefit During The Payout Phase............................34
Certain Employee Benefit Plans...................................34
Death Benefits......................................................35
The Death Benefit: General.......................................35
Standard Death Benefit...........................................35
Claim and Payment................................................36
Enhanced Death Benefit Rider.....................................37
Enhanced Death Benefit A.......................................37
Enhanced Death Benefit B.......................................38
Enhanced Death And Income Benefit Rider..........................38
Beneficiary......................................................38
Access To Your Money................................................39
In General.......................................................39
Partial Withdrawals..............................................39
Total Withdrawal.................................................40
Substantially Equal Periodic Payments............................40
Systematic Withdrawal Program....................................41
ERISA Plans......................................................41
Minimum Contract Value...........................................41
Contract Charges....................................................41
Mortality And Expense Risk Charge................................42
Administrative Expense Charge....................................42
Contract Maintenance Charge......................................42
Transfer Fee.....................................................43
Withdrawal Charge................................................43
Free Withdrawal..................................................44
Waiver of Withdrawal Charges.....................................44
General........................................................44
Confinement Waiver.............................................45
Terminal Illness Waiver........................................45
Unemployment Waiver............................................45
Premium Taxes....................................................45
Deduction For Variable Account Income Taxes......................45
Other Expenses...................................................46
Tax Matters.........................................................46
Introduction.....................................................46
Taxation Of Annuities In General.................................46
Tax Deferral...................................................46
Non-Natural Owners.............................................46
Diversification Requirements...................................46
Ownership Treatment............................................47
Taxation Of Partial And Full Withdrawals.......................47
Taxation Of Income Payments....................................48
Taxation Of Annuity Death Benefits.............................48
Penalty Tax On Premature Distributions.........................48
Aggregation Of Annuity Contracts...............................48
Tax Qualified Contracts..........................................49
Restrictions Under Section 403(b) Plans........................49
Income Tax Withholding...........................................49
Performance Information.............................................50
Yields and Standard Total Return.................................50
Other Performance Data...........................................50
Allstate Life Insurance Company And The Variable Account............51
Allstate Life Insurance Company..................................51
Financial Statements Of Allstate...............................51
The Variable Account.............................................51
Administration......................................................52
Year 2000...........................................................52
Market Timing And Asset Allocation Services.........................53
Distribution Of Contracts...........................................53
Legal Proceedings...................................................53
Legal Matters.......................................................53
Registration Statement..............................................54
Table of Contents of the Statement of Additional Information........55
<PAGE>
Glossary
For your convenience, we are providing a glossary of the special terms we use in
this prospectus.
accumulation phase - The first of two phases during the life of the Contract.
The accumulation phase begins on the issue date and will continue until the
payout start date unless you terminate the Contract before that date.
accumulation unit - The unit of measurement we use to calculate the value of
your investment in the Variable Subaccounts during the accumulation phase.
annuitant - 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).
annuity unit - A unit of measurement which we use to calculate the amount of
variable income payments.
beneficiary(ies) - The person(s) you designate to receive any death benefits
under the Contract.
Company ("we," "us," "our," "Allstate") - Allstate Life Insurance Company.
Contract - SelectDirections, a flexible premium deferred variable annuity. In
certain states, the Contract is available only as a group Contract. In those
states we 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.
contract anniversary - Each anniversary of the issue date.
contract owner ("you") - The person(s) having the privileges of ownership
defined in the Contract. If your Contract is issued as part of a retirement
plan, your ownership privileges may be modified by the plan.
contract value - The sum of the values of your interests in the Variable
Subaccounts of the variable account and the Fixed Account Options.
contract year - Each twelve-month period beginning on the issue date and on each
contract anniversary.
Fixed Account Options - Two options to which you can direct your money under the
Contract that provide a guarantee of principal and minimum interest. The Fixed
Account Options are the dollar cost averaging fixed account ("DCA Account") and
the Standard Fixed Account. Fixed account assets are our general account assets.
fixed income payments - A series of income payments that are fixed in amount.
guarantee period - A one year period during which we will credit a specific
effective annual interest rate on an amount you allocate to the Standard Fixed
Account.
Income Plan - A series of payments we will make on a scheduled basis to you or
to another person designated by you. These payments (called "income payments")
will begin on the payout start date and continue until we make the last payment
required by the Income Plan you select. You can elect to receive income payments
for life and/or for a pre-set number of years, and you may elect to receive
fixed or variable income payments or a combination of both.
issue date - The date when the Contract becomes effective.
latest payout start date - The latest date by which you must begin to receive
income payments under the Income Plan you select.
net investment factor - The factor we use to determine the value of an
accumulation unit or annuity unit in any valuation period. We determine the net
investment factor separately for each Variable Subaccount.
non-qualified plan - A retirement plan which does not receive special tax
treatment under Sections 401, 403(b), 408, 408A or 457 of the Tax Code.
payment year - Each twelve-month period measured from the date we receive a
purchase payment.
payout phase - The second of two phases during the life of your Contract. The
payout phase begins on the payout start date. During this phase, you receive
income payments under the Income Plan you choose until we have made the last
payment required by the plan.
payout start date - The date on which income payments are scheduled to begin.
portfolio(s) - The underlying mutual funds in which the Variable Subaccounts
invest. Each portfolio is an investment company registered with the SEC or a
separate investment series of a registered investment company.
purchase payments - Amounts paid to us as premium for the Contract by you or on
your behalf.
qualified plan - A retirement plan which receives special tax treatment under
Sections 401, 403(b), 408 or 408A of the Tax Code or a deferred compensation
plan for a state and local government or another tax exempt organization under
Section 457 of the Tax Code.
settlement value - The amount we will pay in the event you fully withdraw all
contract value. It is equal to the contract value, less any applicable premium
taxes, income tax withholding, withdrawal charge, and the contract maintenance
charge.
Tax Code - The Internal Revenue Code of 1986, as amended.
valuation date - Each day the New York Stock Exchange ("NYSE") is open for
business. Allstate is open for business on each day the NYSE is open.
valuation period - The period of time over which we determine the change in the
value of the Variable Subaccounts in order to price accumulation units and
annuity units. Each valuation period begins at the close of normal trading on
the NYSE (currently 4:00 p.m. Eastern time on each valuation date) and ends at
the close of the NYSE on the next valuation date.
variable account - The Allstate Financial Advisors Separate Account I is a
separate investment account composed of Variable Subaccounts that we established
to receive and invest purchase payments paid under the Contract.
Variable Subaccount - A subdivision of the variable account, which invests
exclusively in shares of one of the portfolios.
variable income payments - A series of income payments that vary in amount based
on changes in the value of the Variable Subaccounts in which you are invested at
that time.
withdrawal charge - The contingent deferred sales charge that we may assess if
you withdraw your contract value.
<PAGE>
Questions and Answers About SelectDirections
The following are answers to some of the key questions you may have about the
SelectDirections Contract. Please read the remainder of this prospectus for more
information.
1. What Is SelectDirections?
SelectDirections is a contract between you (the Contract owner) and Allstate, a
life insurance company, that is a flexible premium deferred variable annuity
contract. It is designed for tax-deferred retirement investing and is available
for non-qualified or qualified retirement plans.
Like all deferred annuity contracts, SelectDirections has two phases: the
accumulation phase and the payout phase. During the accumulation phase, you can
save for retirement by investing in the investment alternatives and pay no
federal income taxes on any earnings until you withdraw them. During the payout
phase, you can receive retirement income for life and/or for a pre-set number of
years by selecting one of the Income Plans described in the answer to Question
2. The amount of money you accumulate under your Contract during the
accumulation phase and apply to an Income Plan will be used to determine the
amount of your income payments during the payout phase.
The accumulation phase begins on the issue date and continues until the payout
start date. During the accumulation phase, you may invest your purchase payments
in one or more of the Variable Subaccounts or, in most states, allocate them to
the Fixed Account Options. The value of your Contract will depend on the
investment performance of the Variable Subaccounts and the amount of interest we
credit to the Fixed Account Options.
During the accumulation phase, each Variable Subaccount invests in a single
investment portfolio of a mutual fund. The portfolios offer a range of
investment objectives, from conservative to aggressive. You bear the entire
investment risk on amounts you allocate to the Variable Subaccounts. The
investment policies and risks of each portfolio are described in the
accompanying prospectuses for the portfolios. In some states, you may also
allocate all or part of your contract value to the "Fixed Account Options", as
described in the answer to Question 5.
During the payout phase, you will receive income payments for life and/or for a
selected number of years under one of the Income Plans we offer. Your income
payments begin on the payout start date and continue 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 will 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 Subaccounts, the amount of your
income payments will vary up or down depending on the performance of the
corresponding portfolio in which you are invested at that time.
2. What Income Plans Does SelectDirections Offer? (See Income Payments p. 31)
Beginning on the payout start date, you may receive income payments on a fixed
or a variable basis or a combination of the two.
We offer a variety of Income Plans including:
o a life annuity, with payments guaranteed for five to twenty years;
o a joint and full survivorship annuity, with payments guaranteed for five to
twenty years; and
o fixed payments for a specified period of five to thirty years.
Call us to inquire about other options.
You may change your Income Plan at any time before the payout start date. You
may select the payout start date. The latest date you may select, however, is
the later of the tenth contract anniversary or the annuitant's 90th birthday. If
your Contract was issued in connection with a qualified plan, different
deadlines may apply.
If you select an Income Plan that provides income payments on a variable basis,
the amount of our payments to you will be affected by the investment performance
of the Variable Subaccounts you have selected at that time. The fixed portion of
your income payments, on the other hand, generally will be equal in amount to
the initial payment we determine. As explained in more detail below, however,
during the payout phase you will have a limited ability to change the relative
weighting of the Variable Subaccounts on which your variable income payments are
based or to increase the portion of your income payments consisting of fixed
income payments.
3. How Do I Buy SelectDirections? (See Purchases and Contract Value p. 23)
You can obtain a Contract application from your Allstate Agent or Allstate Life
Specialist. Your initial purchase payment must be at least $1,200. We will not
issue a Contract to you if either you or the annuitant is age 90 or older before
we receive your application.
4. What Are My Investment Alternatives Under SelectDirections? (See Variable
Subaccount Investments p. 27)
During the accumulation phase, you can allocate and reallocate your investment
among the Fixed Account Options and the Variable Subaccounts. Each Variable
Subaccount invests in a single portfolio. The portfolios we offer through the
Variable Subaccounts under this Contract are:
<PAGE>
AIM Variable Insurance Funds, Inc.:
AIM V.I. Capital Appreciation
AIM V.I. Diversified Income
AIM V.I. Growth and Income
AIM V.I. International Equity
AIM V.I. Value
Fidelity Insurance Product Fund (VIP):
Fidelity VIP Growth
Fidelity VIP High Income
Fidelity VIP Overseas
Fidelity Insurance Products Fund II (VIPII):
Fidelity VIPII Contrafund
Fidelity VIPII Index 500
Fidelity VIP II Investment Grade
MFS Variable Insurance Trust:
MFS Bond
MFS Growth with Income
MFS High Income
MFS New Discovery
Oppenheimer Variable Account Funds:
Oppenheimer Bond/VA
Oppenheimer Capital Appreciation/VA
Oppenheimer Global Securities/VA
Oppenheimer High Income/VA
Oppenheimer Small Cap Growth/VA
Van Kampen Life Investment Trust:
Van Kampen Comstock
Van Kampen Domestic Income
Van Kampen Emerging Growth
Van Kampen Money Market
<PAGE>
Each portfolio holds its assets separately from the assets of the other
portfolios. Each portfolio has distinct investment objectives and policies which
are described in the accompanying prospectuses for the portfolios.
5. What Are The Fixed Account Options? (See Fixed Account Options p. 30)
We offer two Fixed Account Options: the Standard Fixed Account Option and the
Dollar Cost Averaging Fixed Account Option.
We credit interest daily to money allocated to the Fixed Account Options at a
rate which compounds over one year to the interest rate we guaranteed when the
money was allocated. We will credit interest on the initial purchase payment
allocated to the Fixed Account Options from the issue date. We will credit
interest to subsequent purchase payments allocated to the Fixed Account Options
from the date we receive them at a rate declared by us. We will credit interest
to transfers from the date the transfer is made.
Standard Fixed Account Option: Money in the Standard Fixed Account Option will
earn interest at the current rate in effect at the time of allocation or
transfer to the Standard Fixed Account Option. We currently offer a one year
guarantee period. Other guarantee periods may be offered at our discretion.
Subsequent renewal dates will be on anniversaries of the first renewal date.
After the initial guarantee period, a renewal rate will be declared at our
discretion. We guarantee that the money you place in the Standard Fixed Account
Option will earn interest at an annual rate of at least 3.0%.
Dollar Cost Averaging Fixed Account Option: You may direct all or a portion of
your purchase payments to the Dollar Cost Averaging Fixed Account Option ("DCA
Account"). The payments, plus interest, will be transferred out of the DCA
Account in equal monthly installments and placed in the Variable Subaccounts or
the Standard Fixed Account Option in the percentages you designate. When you
make an allocation to the DCA Account, we will set an interest rate applicable
to that amount. We will then credit interest at that rate to that amount until
it has been entirely transferred to your chosen Variable Subaccounts or the
Standard Fixed Account Option. We will complete the transfers within one year of
the allocation. At our discretion we may change the rate that we set for new
allocations to the DCA Account. We will never, however, set a rate less than an
effective annual rate of 3.0%.
6. What Are My Expenses Under SelectDirections? (See Contract Charges p. 42)
Contract Maintenance Charge
Each year on the contract anniversary we subtract an annual contract maintenance
charge of $35 from your contract value in the Variable Subaccounts. We will
waive this charge if you pay $50,000 or more in total purchase payments or if
you have allocated all of your contract value to the Fixed Account Options on
the contract anniversary.
During the accumulation phase, we will subtract the annual contract maintenance
charge from the Van Kampen Money Market Variable Subaccount. If the Van Kampen
Money Market Variable Subaccount has insufficient funds, then we will subtract
the contract maintenance charge in equal parts from the other Variable
Subaccounts in the proportion that your value in each bears to your total value
in all Variable Subaccounts, excluding the Van Kampen Money Market Variable
Subaccount.
After the payout start date, the contract maintenance charge will be deducted in
equal parts from each income payment. We waive this charge if on the payout
start date your contract value is $50,000 or more or if all payments are fixed
income payments.
Mortality And Expense Risk Charge and Administrative Expense Charge If you
select the standard death benefit, we impose a mortality and expense risk charge
at an annual rate of 1.15% of your average daily net assets in the Variable
Subaccounts and an administrative expense charge at an annual rate of .10% of
your average daily net assets in the Variable Subaccounts. If you select one of
our optional enhanced benefit riders, we will charge a higher mortality and
expense risk charge. These charges are assessed each day during the accumulation
phase and will be assessed during the payout phase if you choose variable income
payments. We guarantee that we will not raise these charges.
Transfer Fee
Although we currently waive the transfer fee, the Contract permits us to charge
you up to $10 per transfer for each transfer after the 12th transfer in any
contract year.
Withdrawal Charge
During the accumulation phase, you may withdraw all or part of your contract
value before your death or, if the Contract is owned by a company or other legal
entity, before the annuitant's death. Certain withdrawals may be made without
payment of any withdrawal charge. Other withdrawals are subject to the
withdrawal charge.
In most states, we also may waive the withdrawal charge if you: (1) require
long-term medical or custodial care outside the home; (2) become unemployed; (3)
are diagnosed with a terminal illness; or (4) begin taking your required minimum
distribution payments under a qualified plan. These provisions will apply to the
annuitant, if the Contract is owned by a company or other legal entity.
Additional restrictions and costs may apply to Contracts issued in connection
with qualified plans. In addition, withdrawals may trigger tax liabilities and
penalties. You should consult with your tax counselor to determine what effect a
withdrawal might have on your tax liability.
Each year, free of withdrawal charge, you may withdraw the free withdrawal
amount, which equals the greater of:
(1) earnings not previously withdrawn; or
(2) 15% of purchase payments that have been held by us for less than seven
years.
Any free withdrawal amount which is not withdrawn during a contract year may not
be carried over to increase the free withdrawal amount available in a subsequent
year. In addition, you may withdraw, free of withdrawal charge, any purchase
payment that has been held by us for more than seven years.
We calculate the withdrawal charge from the date you made the purchase
payment(s) being withdrawn. The withdrawal charge will vary depending on the
number of years since you made the purchase payment(s).
Payment Year: 1 2 3 4 5 6 7 8+
Withdrawal Charge: 7% 7% 6% 6% 5% 4% 3% 0
In determining withdrawal charges, we will treat your purchase payments as being
withdrawn on a first-in first-out basis.
Premium Taxes
We will deduct state premium taxes, which currently range from 0% to 3.50%, if
you fully or partially withdraw your contract value, or if we pay out death
benefit proceeds, or if you begin to receive regular income payments. We only
charge premium taxes in those states that require us to pay premium taxes.
Other Expenses
In addition to our charges under the Contract, each portfolio deducts fees and
charges from its assets to pay its investment advisory fees and other expenses.
7. How Will My Investment In SelectDirections Be Taxed? (See Tax Matters p.
46)
You should consult a qualified tax adviser for personalized answers. Generally,
earnings under variable annuities are not taxed until amounts are withdrawn or
distributions are made. This deferral of taxes is designed to encourage
long-term personal savings and supplemental retirement plans. The taxable
portion of a withdrawal or distribution is taxed as ordinary income.
Special rules apply if the Contract is owned by a company or other legal entity.
Generally, such an owner must include in income any increase in the excess of
the contract value over the "investment in the contract" during the taxable
year.
8. Do I Have Access To My Money? (See Access To Your Money p. 39)
At any time during the accumulation phase, we will pay you all or part of the
value of your Contract, minus any applicable charge, if you request a full or
partial withdrawal. Generally, a partial withdrawal must equal at least $50, and
after the withdrawal your remaining contract value must equal at least $500.
Although you have access to your money during the accumulation phase, certain
charges, such as the contract maintenance charge, the withdrawal charge, and
premium tax charges, may be deducted if you withdraw all or part of your
contract value. You may also incur Federal income tax liability or tax
penalties.
After the payout start date, under Variable Income Plan 3 you may be entitled to
withdraw the commuted value of the remaining income payments.
9. What Is The Death Benefit? (See Death Benefits p. 35)
We will pay a death benefit while the Contract is in force and before the payout
start date, if the contract owner dies, or if the annuitant dies and the
contract owner is not a natural person. To obtain payment of the death benefit,
the beneficiary must submit to us written proof of death as specified in the
Contract.
The standard death benefit is the greatest of the following:
(1) your total purchase payments reduced proportionately for any prior partial
withdrawals;
(2) your contract value on the date we determine the death benefit; or
(3) your contract value on each contract anniversary evenly divisible by seven,
increased by the total purchase payments since that anniversary and reduced
proportionately by any partial withdrawals since that anniversary.
We also offer two optional enhanced death benefit riders, which are described
later in this prospectus.
We will determine the value of the death benefit on the day that we receive all
of the information that we need to process the claim.
10. What Else Should I Know About SelectDirections?
Allocation Of Purchase Payments (See Allocation of Purchase Payments p. 23) In
your Contract application, you may allocate your initial purchase payment to the
Variable Subaccounts and the Fixed Account Options. You may make your
allocations in specific dollar amounts or percentages, which must be whole
numbers that add up to 100%. When you make subsequent purchase payments, you may
again specify how you want your payments allocated. If you do not, we will
automatically allocate the payment based on your most recent instructions. You
may not allocate purchase payments to the Fixed Account Options if they are not
available in your state.
Transfers (See Transfers during the Accumulation Phase p. 24) During the
accumulation phase, you may transfer contract value among the Variable
Subaccounts and from the Variable Subaccounts to the Standard Fixed Account. The
minimum amount that may be transferred is $100. If the total amount remaining in
the Standard Fixed Account option or in a Variable Subaccount after a transfer
would be less than $100, the entire amount will be transferred.
The maximum amount you may transfer from the Standard Fixed Account during any
contract year is the greater of 30% of the Standard Fixed Account balance as of
the last contract anniversary or the greatest of any prior transfer from the
Standard Fixed Account. This limit does not apply to dollar cost averaging. You
may instruct us to transfer contract value by writing or calling us.
You may also use our automatic dollar cost averaging or portfolio rebalancing
programs. You may not use both programs at the same time.
Dollar Cost Averaging (See Automatic Dollar Cost Averaging Program p. 25)
Under the dollar cost averaging program, amounts are automatically
transferred at regular intervals from the Standard Fixed Account or a
Variable Subaccount of your choosing to up to 8 options, including other
Variable Subaccounts or the Standard Fixed Account. Transfers may be made
monthly, quarterly, or annually.
Portfolio Rebalancing (See Portfolio Rebalancing p. 26)
Under the portfolio rebalancing program, you can maintain the percentage of
your contract value allocated to each Variable Subaccount at a pre-set
level. Investment results will shift the balance of your contract value
allocations. If you elect rebalancing, we will automatically transfer your
contract value back to the specified percentages at the frequency (monthly,
quarterly, semi-annually, annually) that you specify. You may not include
the Fixed Account Options in a portfolio rebalancing program. You also may
not elect rebalancing after the payout start date.
Transfers During the Payout Phase (See Transfer During the Payout Phase p.
34)
You may not make any transfers among the Variable Subaccounts for the first
six months after the payout start date. Thereafter, you may make transfers
among the Variable Subaccounts, but these transfers must be at least 6
months apart. You can make transfers from the Variable Subaccount to
increase your fixed income payments only if you have chosen Income Plan 3.
You may not, however, convert any portion of your right to receive fixed
income payments into variable income payments.
Return Privilege (See Return Privilege p. 22)
You may cancel the Contract by returning it to us within 20 days after you
receive it, or after whatever longer period may be permitted by state law. You
may return it by delivering it or mailing it to us or your Allstate Agent or
Allstate Life Specialist. If you return the Contract, the Contract terminates
and, in most states, we will pay you an amount equal to the contract value on
the date we (or your Allstate Agent or Allstate Life Specialist) receive the
Contract from you. The contract value may be more or less than your purchase
payments. In the states of California, Maryland, Minnesota, North Carolina,
North Dakota, Oregon, South Carolina, Utah, Washington, and West Virginia, we
are required to send you the amount of your purchase payments. Since state laws
differ as to the consequences of returning a Contract, you should refer to your
Contract for specific information about your circumstances.
11. Who Can I Contact For More Information?
You can write to us at:
Allstate Life Insurance Company
Nebraska Service Center
206 South 13th Street, Suite 100
Lincoln, Nebraska 68508
Allstate Life Insurance Company
Nebraska Service Center
P.O. Box 80469
Lincoln, Nebraska 68501-0469
Or call us at:
1-800-632-3492
<PAGE>
Fee Table
Contract Owner Transaction Expenses
Withdrawal Charge
(as a percentage of Purchase Payments)
Payment Withdrawal Charge
Year Percentage
- -------------------------------------- ----------------------------------
First .............................. 7%
Second .............................. 7%
Third ............................... 6%
Fourth .............................. 6%
Fifth................................ 5%
Sixth................................ 4%
Seventh.............................. 3%
Eighth and later..................... 0%
Transfer Fee (Applies solely to transfers after the 12th transfer in any
contract year. We are currently waiving the transfer fee)............ $ 10.00
Annual Contract Maintenance Charge................................. $ 35.00
Variable Account Expenses
(as a percentage of average daily net assets in the Variable Subaccounts of the
variable account)
With the Enhanced Death and Income Benefit Rider
Mortality and Expense Risk Charge........................... 1.55%
Administrative Expense Charge............................... 0.10%
Total Variable Account Annual Expenses...................... 1.65%
With the Enhanced Death Benefit Rider Only
Mortality and Expense Risk Charge........................... 1.35%
Administrative Expense Charge............................... 0.10%
Total Variable Account Annual Expenses...................... 1.45%
With the Standard Death Benefit
Mortality and Expense Risk Charge........................... 1.15%
Administrative Expense Charge............................... 0.10%
Total Variable Account Annual Expenses...................... 1.25%
<PAGE>
<TABLE>
<CAPTION>
Portfolio Company Annual Expenses
(As A Percentage Of Portfolio Average Net Assets)
- ----------------------------------------------------- ------------------- -------------------- -----------------------
<S> <C> <C> <C>
Management Fee Total Annual Expenses
(after any fee Other Expenses (after any fee
waivers or (after any fee waivers or reductions)
Portfolio reductions) waivers or
reductions)
- ----------------------------------------------------- ------------------- -------------------- -----------------------
AIM Variable Insurance Funds, Inc.
- ----------------------------------------------------- ------------------- -------------------- -----------------------
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
AIM V.I. Diversified Income Fund 0.60% 0.17% 0.77%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
AIM V.I. Growth and Income Fund 0.61% 0.04% 0.65%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
AIM V.I. International Equity Fund 0.75% 0.16% 0.91%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
AIM V.I. Value Fund 0.61% 0.05% 0.66%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Fidelity Insurance Products Fund (VIP)
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth (1) (Initial Class) 0.59% 0.09% 0.68%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Fidelity VIP High Income (Initial Class) 0.58% 0.12% 0.70%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Fidelity VIP Overseas (1) (Initial Class) 0.74% 0.17% 0.91%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Fidelity Insurance Products Fund II (VIP II)
- ----------------------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund (1) (Initial Class) 0.59% 0.11% 0.70%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Fidelity VIP II Index 500 (1) (Initial Class) 0.24% 0.11% 0.35%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Fidelity VIP II Investment Grade (Initial 0.43% 0.14% 0.57%
Class)
- ----------------------------------------------------- ------------------- -------------------- -----------------------
MFS Variable Insurance Trust
- ----------------------------------------------------------------------------------------------------------------------
MFS Bond (2)(3)(4) 0.60% 0.41% 1.02%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
MFS Growth with Income (2)(3) 0.75% 0.13% 0.88%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
MFS High Income (2)(3) 0.75% 0.28% 1.03%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
MFS New Discovery (2)(3)(4) 0.90% 0.27% 1.17%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Oppenheimer Variable Account Funds
- ----------------------------------------------------------------------------------------------------------------------
Oppenheimer Bond/VA 0.72% 0.02% 0.74%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Oppenheimer Capital Appreciation/VA 0.72% 0.03% 0.75%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Oppenheimer Global Securities/VA 0.68% 0.06% 0.74%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Oppenheimer High Income/VA 0.74% 0.04% 0.78%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Oppenheimer Small Cap Growth/VA (5) 0.75% 0.12% 0.87%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Van Kampen Life Investment Trust
- ----------------------------------------------------------------------------------------------------------------------
Van Kampen Comstock (6)(7) 0.00% 0.95% 0.95%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Van Kampen Domestic Income (7) 0.01% 0.59% 0.60%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Van Kampen Emerging Growth (7) 0.32% 0.53% 0.85%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
Van Kampen Money Market (7) 0.11% 0.49% 0.60%
- ----------------------------------------------------- ------------------- -------------------- -----------------------
</TABLE>
Footnotes
(1) A portion of the brokerage commissions that certain Fidelity VIP and
Fidelity VIPII Portfolios paid was used to reduce fund expenses. In
addition, certain of these Portfolios, or their investment adviser on
behalf of the Portfolios, have entered into arrangements with their
custodian whereby credits realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, the
total operating expenses, after reimbursements for the Fidelity VIPII Index
500 Portfolio, as presented in the fee table above, would have been: 0.66%
for the Fidelity VIP Growth Portfolio; 0.89% for Fidelity VIP Overseas;
0.28% for the Fidelity VIPII Index 500 Portfolio; and 0.66% for the
Fidelity VIPII Contrafund Portfolio.
(2) Each portfolio of the MFS Variable Insurance Trust has an expense offset
arrangement which reduces the portfolio's custodian fee based upon the
amount of cash maintained by the portfolio with its custodian and ^
dividend disbursing agent. Each portfolio may enter into other such
arrangements and directed brokerage arrangements, which would also have the
effect of reducing the portfolio's expenses. Expenses do not take into
account these expense reductions, and are therefore higher than the actual
expenses of the portfolios.
(3) MFS has agreed to bear expenses for these portfolios, subject to
reimbursement by these portfolios, such that each portfolio's "Other
Expenses" shall not exceed the following percentages of the average daily
net assets of the portfolio during the current fiscal year, 0.40% for the
Bond Portfolio and 0.25% for each remaining portfolio. The payments made by
MFS on behalf of each portfolio under this arrangement are subject to
reimbursement by the portfolio to MFS, which will be accomplished by the
payment of an expense reimbursement fee by the portfolio to MFS computed
and paid monthly at a percentage of the portfolio's average daily net
assets for its then current fiscal year, with a limitation that immediately
after such payment the portfolio's "Other Expenses" will not exceed the
percentage set forth above for that portfolio. The obligation of MFS to
bear a portfolio's "Other Expenses" pursuant to this arrangement, and the
portfolio's obligation to pay the reimbursement fee to MFS, terminates on
the earlier of the date on which payment by the portfolios equal the prior
payment of such reimbursement expenses by MFS, or December 31, 2004 (May 1,
2001, in the case of the New Discovery Portfolio). MFS may, in its
discretion, terminate this arrangement at an earlier date, provided that
the arrangement will continue for each portfolio until at least May 1,
2000, unless terminated with the consent of the board of trustees which
oversees the portfolios.
(4) The figures shown in the Fee Table have been reduced to reflect certain
expense reimbursements from MFS, the investment adviser to the MFS Variable
Insurance Trust. If MFS had not reimbursed these expenses, then the
Management Fees, Other Expenses and Total Annual Expenses for the fiscal
year ended December 31, 1998 would have been: for the MFS Bond Portfolio,
0.60%, 0.83% and 1.23%, respectively; and for the MFS New Discovery
Portfolio, 0.90%, 4.32% and 5.22%, respectively.
(5) Because the Oppenheimer Small Cap Growth/VA Portfolio began operations on
May 1, 1998, the percentages for expenses in the Fee Table above are
annualized.
(6) Because the Van Kampen Comstock Portfolio had not begun operations as of
December 31, 1998, the percentages for fees and expenses in the Fee Table
are estimated for the current fiscal year.
(7) The figures shown in the Fee Table have been reduced to reflect certain
voluntary fee waivers and expense reimbursements from Van Kampen Asset
Management Inc., the investment adviser. If the investment adviser had not
waived fees and reimbursed expenses, then the Management Fee, Other
Expenses and Total Annual Expenses for the fiscal year ended December 31,
1998 would have been: for the Van Kampen Domestic Income Portfolio, 0.50%,
0.59% and 1.09%, respectively; for the Van Kampen Emerging Growth
Portfolio, 0.70%, 0.53% and 1.23%, respectively; for the Van Kampen Money
Market Portfolio, 0.50%, 0.49% and 0.99%, respectively; and for the Van
Kampen Comstock Portfolio, the estimated Management Fee, Other Expenses and
Total Annual Expenses for 1999 would be 0.60%, 1.45% and 2.05%,
respectively.
<PAGE>
Examples
Example 1
Example 1 below shows the dollar amount of expenses that you would bear directly
or indirectly if you:
o invested $1,000 in a Variable Subaccount;
o earned a 5% annual return on your investment;
o fully withdrew from your Contract, or began receiving income payments
for a specified period of less than 120 months, at the end of each
time period; and
o elected the Enhanced Death and Income Benefit Rider (with total
variable account expenses of 1.65%). Example 2
Same assumptions as Example 1, except that you elected the standard death
benefit (with total variable account expenses of 1.25%).
<TABLE>
<CAPTION>
Example 1 Example 2
- ------------------------------------------------ --------------- =============== --------------- ---------------
<S> <C> <C> <C> <C>
Variable Subaccount 1 Year 3 Years 1 Year 3 Years
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM Variable Insurance Funds, Inc.
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM V.I. Capital Appreciation $88 $139 $84 $127
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM V.I. Diversified Income $89 $142 $85 $130
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM V.I. Growth and Income $88 $139 $84 $126
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM V.I. International Equity $91 $147 $87 $134
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM V.I. Value $88 $139 $84 $127
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity Variable Insurance Fund (VIP)
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIP Growth $88 $140 $84 $127
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIP High Income $89 $140 $84 $128
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIP Overseas $91 $147 $87 $134
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity Variable Insurance Fund II (VIPII)
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIPII Contrafund $89 $140 $84 $128
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIPII Index 500 $85 $129 $81 $117
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIPII Investment Bond $87 $136 $83 $124
- ------------------------------------------------ --------------- =============== --------------- ---------------
MFS Variable Insurance Trust
- ------------------------------------------------ --------------- =============== --------------- ---------------
MFS Bond $92 $150 $88 $137
- ------------------------------------------------ --------------- =============== --------------- ---------------
MFS Growth with Income $90 $145 $86 $133
- ------------------------------------------------ --------------- =============== --------------- ---------------
MFS High Income $89 $143 $85 $130
- ------------------------------------------------ --------------- =============== --------------- ---------------
MFS New Discovery $90 $146 $86 $133
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer Variable Account Funds
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer Bond/VA $92 $150 $88 $138
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer Capital Appreciation/VA $89 $141 $85 $129
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer Global Securities/VA $93 $154 $89 $142
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer High Income/VA $89 $141 $85 $129
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer Small Cap Growth/VA $89 $142 $85 $129
- ------------------------------------------------ --------------- =============== --------------- ---------------
Van Kampen Life Investment Trust
- ------------------------------------------------ --------------- =============== --------------- ---------------
Van Kampen Comstock $91 $148 $87 $136
- ------------------------------------------------ --------------- =============== --------------- ---------------
Van Kampen Domestic Income $87 $137 $83 $125
- ------------------------------------------------ --------------- =============== --------------- ---------------
Van Kampen Emerging Growth $90 $145 $86 $132
- ------------------------------------------------ --------------- =============== --------------- ---------------
Van Kampen Money Market $87 $137 $83 $125
- ------------------------------------------------ --------------- =============== --------------- ---------------
</TABLE>
Example 3
Same assumptions as Example 1, except that you decided not to surrender your
Contract, or you began receiving income payments for life or for at least 120
months under an Income Plan for a specified period, at the end of each period.
We assume that you elected the Enhanced Death and Income Benefit Rider (with
total variable account expenses of 1.65%).
Example 4
Same assumptions as Example 3, except that you elected the standard death
benefit (with total variable account expenses of 1.25%).
<TABLE>
<CAPTION>
Example 3 Example 4
- ------------------------------------------------ --------------- =============== --------------- ---------------
<S> <C> <C> <C> <C>
Variable Subaccount 1 Year 3 Years 1 Year 3 Years
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM Variable Insurance Funds, Inc.
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM V.I. Capital Appreciation $29 $88 $25 $76
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM V.I. Diversified Income $30 $91 $26 $79
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM V.I. Growth and Income $28 $88 $24 $75
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM V.I. International Equity $31 $96 $27 $83
- ------------------------------------------------ --------------- =============== --------------- ---------------
AIM V.I. Value $29 $88 $25 $76
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity Variable Insurance Fund (VIP)
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIP Growth $29 $89 $25 $76
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIP High Income $29 $89 $25 $77
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIP Overseas $31 $96 $27 $83
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity Variable Insurance Fund II (VIPII)
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIPII Contrafund $29 $89 $25 $77
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIPII Index 500 $25 $78 $21 $66
- ------------------------------------------------ --------------- =============== --------------- ---------------
Fidelity VIPII Investment Bond $28 $85 $24 $73
- ------------------------------------------------ --------------- =============== --------------- ---------------
MFS Variable Insurance Trust
- ------------------------------------------------ --------------- =============== --------------- ---------------
MFS Bond $32 $99 $28 $86
- ------------------------------------------------ --------------- =============== --------------- ---------------
MFS Growth with Income $31 $94 $27 $82
- ------------------------------------------------ --------------- =============== --------------- ---------------
MFS High Income $30 $92 $26 $79
- ------------------------------------------------ --------------- =============== --------------- ---------------
MFS New Discovery $31 $95 $27 $82
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer Variable Account Funds
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer Bond/VA $32 $99 $28 $87
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer Capital Appreciation/VA $29 $90 $25 $78
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer Global Securities/VA $34 $103 $30 $91
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer High Income/VA $29 $90 $25 $78
- ------------------------------------------------ --------------- =============== --------------- ---------------
Oppenheimer Small Cap Growth/VA $30 $91 $25 $78
- ------------------------------------------------ --------------- =============== --------------- ---------------
Van Kampen Life Investment Trust
- ------------------------------------------------ --------------- =============== --------------- ---------------
Van Kampen Comstock $32 $97 $27 $85
- ------------------------------------------------ --------------- =============== --------------- ---------------
Van Kampen Domestic Income $28 $86 $24 $74
- ------------------------------------------------ --------------- =============== --------------- ---------------
Van Kampen Emerging Growth $31 $94 $26 $81
- ------------------------------------------------ --------------- =============== --------------- ---------------
Van Kampen Money Market $28 $86 $24 $74
- ------------------------------------------------ --------------- =============== --------------- ---------------
</TABLE>
Explanation Of Fee Table And Examples
1. We have included the Fee Table and examples shown above to assist you in
understanding the costs and expenses that you will bear directly or
indirectly by investing in the variable account. The Fee Table reflects
expenses of the variable account as well as the portfolios. For additional
information, you should read "Contract Charges," below; you should also
read the sections relating to expenses of the portfolios in their
prospectuses. The examples do not include any income taxes or tax penalties
you may be required to pay if you fully withdraw your contract value.
2. The examples assume that you did not make any transfers. We are currently
waiving the transfer fee, but in the future, we may decide to charge $10
for each transfer after the 12th transfer in any contract year. Premium
taxes are not reflected. Currently, we deduct premium taxes (which range
from 0% to 3.5%) from the contract value upon full withdrawal, death or on
the payout start date.
3. The examples reflect the $35 contract maintenance charge as an annual
charge of 0.175%, which we calculated by dividing the total amount of
contract maintenance charges expected to be collected during a year by an
assumed average investment of $20,000 in the Variable Subaccounts.
4. The examples reflect the Free Withdrawal Amounts, if applicable.
5. Please remember that the examples are simply illustrations and do not
represent past or future expenses. Your actual expenses may be lower or
higher than those shown in the examples. Similarly, your rate of return may
be more or less than the 5% assumed in the examples.
Condensed Financial Information
Because the variable account had not commenced operations as of the date of this
prospectus, no condensed financial information is included in this prospectus.
Description Of The SelectDirections Contract
Summary
SelectDirections is a flexible premium deferred variable annuity contract
designed to aid you in long-term financial planning. You may add to the contract
value by making additional purchase payments at any time. In addition, the
contract value will change to reflect the performance of the Variable
Subaccounts to which you allocate or transfer your purchase payments, as well as
to reflect interest credited to amounts allocated to the Fixed Account Options.
You may withdraw your contract value by making a partial or full withdrawal.
After the payout start date, we will pay you benefits under the Contract in the
form of income payments, either for the life of the annuitant or for a fixed
number of years. All of these features are described in more detail below.
Contract Owner
As the contract owner, you are the person usually entitled to exercise all
rights of ownership under the Contract. You usually are the person entitled to
receive benefits under the Contract or to choose someone else to receive
benefits. If your Contract was issued under a qualified plan, however, then the
plan may limit or modify your rights and privileges under the Contract and may
limit your right to choose someone else to receive benefits. We will not issue a
Contract to a purchaser who has attained age 90, or where the annuitant has
attained age 90.
Annuitant
The annuitant is the living person whose life span is used to determine income
payments. You initially designate an annuitant in your application. You may
change the annuitant at any time before income payments begin. If your Contract
was issued under a plan qualified under Sections 403, 408 or 408A of the Tax
Code, then you must be the annuitant. When you select an Income Plan, you may
also name a joint annuitant, who is a second person on whose life income
payments depend. Additional restrictions may apply in the case of qualified
plans. If you are not the annuitant and the annuitant dies before income
payments begin, then either you become the new annuitant or you must name
another person as the new annuitant. If the annuitant dies before the Payout
Start Date, the new annuitant will be: the youngest owner; otherwise the
youngest beneficiary. You must attest that the annuitant is alive in order to
begin to receive income payments under your Contract.
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 are permitted to change the terms of the Contract if it is necessary to
comply with changes in the law. If a provision of the Contract is inconsistent
with state law, we will follow state law.
Assignment
Before the payout start date, if the annuitant is still alive, you may assign a
Contract issued under a non-qualified plan that is not subject to Title 1 of the
Employee Retirement Income Security Act of 1974 ("ERISA"). If a Contract is
issued pursuant to a qualified plan or a non-qualified plan that is subject to
Title 1 of ERISA, the law prohibits some types of assignments, pledges and
transfers and imposes special conditions on others. An assignment may also
result in taxes or tax penalties.
We will not be bound by any assignment until we receive written notice of it.
Accordingly, until we receive written notice of an assignment, we will continue
to act as though the assignment had not occurred. We are not responsible for the
validity of any assignment.
Because of the potential tax consequences and ERISA issues arising from an
assignment, you should consult with an attorney before trying to assign your
contract.
Return Privilege
If you are not satisfied with this Contract for any reason, you may cancel it by
returning it to us within 20 days after you receive it, or within whatever
longer period may be permitted by state law. You may return it by delivering it
to your Allstate Agent or Allstate Life Specialist or mailing it to us. If you
return the Contract, then the Contract terminates and, in most states, we will
pay you an amount equal to the contract value on the date we (or your Allstate
Agent or Allstate Life Specialist) receive the Contract from you. The contract
value at that time may be more or less than your purchase payments. If this
Contract qualified under Section 408 of the Tax Code, we will refund the greater
of any purchase payments or the contract value.
In the states of California, Maryland, Minnesota, North Carolina, North Dakota,
Oregon, South Carolina, Utah, Washington and West Virginia, if you exercise your
"Return Privilege" rights, we are required to return the amount of your purchase
payments. Currently, if you live in one of those states, on the issue date we
will allocate your purchase payment to the Variable Subaccounts and the Fixed
Account Options as you specified in your application. However, we reserve the
right in the future to delay allocating your purchase payments to the Variable
Subaccounts you have selected or to the fixed account until 20 days after the
issue date or, if your state's Return Privilege period is longer than ten days,
for ten days plus the period required by state law. During that time, we will
allocate your purchase payment to the Van Kampen Money Market Variable
Subaccount. Your Contract will contain specific information about your Return
Privilege rights in your state.
Purchases And Contract Value
Purchasing the Contract
You may purchase the Contract with a first purchase payment of $1,200. We will
issue the Contract if the annuitant and contract owner are age 89 or younger.
The first payment is the only payment we require you to make under the Contract.
There are no requirements on how many payments to make. You decide the amount of
each payment, except that each additional purchase payment must be $100 or more.
You may add money to your Contract automatically through the Automatic Payment
Plan for as little as $25 per month. We may lower these minimums if we choose.
We may limit the dollar amount of purchase payments we will accept in the
future. We may refuse any purchase payment at any time.
Automatic Payment Plan
You may make scheduled purchase payments of $25 or more per month by automatic
payment through your bank account. Call or write us for an enrollment form.
Allocation Of Purchase Payments
You may allocate your purchase payments to the Variable Subaccount(s) and the
Fixed Account Options in the proportions that you select. You must specify your
allocation in your Contract application, either as percentages or specific
dollar amounts. If you make your allocation in percentages, the total must equal
100%. We will allocate your subsequent purchase payments in those percentages,
until you give us new allocation instructions. You may not allocate purchase
payments to the fixed account if it is not available in your state.
If your application is complete and your purchase payment has been received at
our P.O. Box shown on the first page of this Prospectus, we will issue your
Contract within two business days of its receipt. If your application is
incomplete, we will notify you and seek to complete the application within five
business days. For example, if you do not fill in allocation percentages, we
will contact you to obtain the missing percentages. If we cannot complete your
application within five business days after we receive it, we will return your
application and your purchase payment, unless you expressly permit us to take a
longer time.
Usually, we will allocate your initial purchase payment to the Variable
Subaccounts and the ^ Fixed Account Options, as you have instructed us, on the
issue date. We will allocate your subsequent purchase payments on the date that
we receive them at the next computed accumulation unit value.
In some states, if you exercise your "Return Privilege" rights, we are required
to return the amount of your purchase payments. Currently, if you live in one of
those states, on the issue date we will allocate your purchase payment to the
Variable Subaccounts and the Fixed Account Options as you specified in your
application. However, we reserve the right in the future to delay allocating
your purchase payments to the Variable Subaccounts you have selected or to the
fixed account until 20 days after the issue date or, if your state's Return
Privilege period is longer than ten days, for ten days plus the period required
by state law. During that time, we will allocate your purchase payment to the
Van Kampen Money Market Variable Subaccount. Your Contract will contain specific
information about your Return Privilege rights in your state.
We determine the number of accumulation units in each Variable Subaccount to
allocate to your Contract by dividing that portion of your purchase payment
allocated to a Variable Subaccount by that Variable Subaccount's accumulation
unit value on the valuation date when the allocation occurs.
Contract Value
We will establish an account for you and will maintain your account during the
accumulation phase. The total value of your Contract at any time is equal to the
sum of the value of your accumulation units in the Variable Subaccounts you have
selected, plus the value of your interest in the fixed account.
Variable Account Accumulation Unit Value
As a general matter, the accumulation unit value for each Variable Subaccount
will rise or fall to reflect changes in the share price of the portfolio in
which the Variable Subaccount invests. In addition, we subtract from
accumulation unit value amounts reflecting the mortality and expense risk
charge, administrative expense charge, and any provision for taxes that have
accrued since we last calculated the accumulation unit value. We determine
withdrawal charges, transfer fees and contract maintenance charges separately
for each Contract. They do not affect accumulation unit value. Instead, we
obtain payment of those charges and fees by redeeming accumulation units.
We determine a separate accumulation unit value for each Variable Subaccount. We
will also determine separate sets of accumulation unit values reflecting the
cost of the enhanced benefit riders. If we elect or are required to assess a
charge for taxes, we may calculate a separate accumulation unit value for
Contracts issued in connection with non-qualified and qualified plans,
respectively, within each Variable Subaccount. We determine the accumulation
unit value for each Variable Subaccount Monday through Friday on each day that
the New York Stock Exchange is open for business.
You should refer to the portfolios' prospectuses which accompany this prospectus
for a description of how the assets of each portfolio are valued, since that
determination has a direct bearing on the accumulation unit value of the
corresponding Variable Subaccount and, therefore, your contract value.
Transfers
Transfers During The Accumulation Phase
During the accumulation phase, you may transfer contract value among the fixed
account and the Variable Subaccounts in writing or by telephone/fax. The minimum
amount that may be transferred from the Standard Fixed Account option or the
Variable Subaccounts is $100. If the total amount remaining in the Standard
Fixed Account or the Variable Subaccounts after a transfer would be less than
$100, the entire amount will be transferred.
As a general rule, we only accept and process transfers on days when we and the
New York Stock Exchange ("NYSE") are open for business (a valuation date). If we
receive your request on one of those days, we will process the transfer that
day. We will process transfer requests that we receive before 3:00 p.m. Central
Time on any valuation date using the accumulation unit value at the end of that
date. We will ^ process requests ^ completed after 3:00 p.m. Central Time ^
using the accumulation unit value for the next valuation date.
The Contract permits us to defer transfers from the fixed account for up to six
months from the date you ask us.
You may not transfer contract value into the Dollar Cost Averaging Fixed Account
Option. You may not transfer contract value out of the Dollar Cost Averaging
Fixed Account Option except as part of a Dollar Cost Averaging program.
Transfers Authorized By Telephone
You may make transfers by telephone by calling 1-800-632-3492. The cut off time
for telephone transfer requests is 3:00 p.m. Central Time. Calls completed
before 3:00 p.m. Central Time will be effected on that day at that day's closing
price. We will not process telephone requests received after 3:00 p.m. Central
Time on any valuation date.
In the event that the NYSE closes early, i.e., before 3:00 p.m. Central Time, or
if the NYSE 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
^ NYSE on that particular day. We will not access telephone transfer requests
received from you at any telephone number other than 1-800-632-3492, or received
after the close of trading on the ^ NYSE. If you own the Contract with a joint
Contract Owner, unless we receive contrary instructions, we will accept
instructions from either you or the other Contract Owner.
We may charge you the transfer fee described on page ^ 43, although we currently
waive the fee. In addition, we may suspend, modify or terminate the telephone
transfer privilege at any time without notice.
We use procedures that we believe provide reasonable assurance that telephone
authorized 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.
Automatic Dollar Cost Averaging Program
Under our Automatic Dollar Cost Averaging program, you may authorize us to
transfer a fixed dollar amount at fixed intervals from the Dollar Cost Averaging
Fixed Account Option ("DCA Account") or a Variable Subaccount of your choosing
to up to 8 options, including other Variable Subaccounts or the Standard Fixed
Account Option. The interval between transfers from the Dollar Cost Averaging
Fixed Account may be monthly only. The interval between transfers from Variable
Subaccounts may be monthly, quarterly, or annually, at your option. The
transfers will be made at the accumulation unit value on the date of the
transfer. The transfers will continue until you instruct us otherwise, or until
your chosen source of transfer payments is exhausted. Currently, the minimum
transfer amount is $100 per transfer. However, if you wish to Dollar Cost
Average to a Standard Fixed Account Option, the minimum amount that must be
transferred into any one option is $500. We may change this minimum or grant
exceptions. If you elect this program, the first transfer will occur one
interval after your issue date. You may not use the Dollar Cost Averaging
program to transfer amounts from the Standard Fixed Account Option.
Your request to participate in this program will be effective when we receive
your completed application at the P.O. Box given on the first page of this
prospectus. Call or write us for a copy of the application. You may elect to
increase, decrease or change the frequency or amount of transfers under a Dollar
Cost Averaging program. We will not charge a transfer fee for Dollar Cost
Averaging.
The theory of dollar cost averaging is that you will purchase greater numbers of
units when the unit prices are relatively low rather than when the prices are
higher. As a result, when purchases are made at fluctuating prices, the average
cost per unit is less than the average of the unit prices on the 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. You may not use Dollar Cost Averaging and
Portfolio Rebalancing at the same time.
Portfolio Rebalancing
Portfolio Rebalancing allows you to maintain the percentage of your contract
value allocated to each Variable Subaccount at a pre-set level. For example, you
could specify that 30% of your contract value should be in the AIM V.I. Value
Portfolio, 40% in the MFS Bond Portfolio and 30% in Fidelity VIP Overseas
Portfolio. Over time, the variations in each Variable Subaccount's investment
results will shift the balance of your contract value allocations. Under the
Portfolio Rebalancing feature, each period, if the allocations change from your
desired percentages, we will automatically transfer your contract value,
including new purchase payments (unless you specify otherwise), back to the
percentages you specify. Portfolio 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.
You may choose to have a rebalance made monthly, quarterly, semi-annually, or
annually until your payout start date. Portfolio Rebalancing is not available
after the payout start date. We will not charge a transfer fee for Portfolio
Rebalancing. No more than eight Variable Subaccounts can be included in a
Portfolio Rebalancing program at one time. You may not include the Standard
Fixed Account Option in a Portfolio Rebalancing program.
You may request Portfolio Rebalancing at any time before your payout start date
by submitting a completed written request to us at the P.O. Box given on the
first page of this prospectus. Please call or write us for a copy of the request
form. If you stop Portfolio Rebalancing, you must wait 30 days to begin again.
In your request, you may specify a date for your first rebalancing. If you
specify a date fewer than 30 days after your issue date, your first rebalance
will be delayed one month. If you request Portfolio Rebalancing in your Contract
application and do not specify a date for your first rebalancing, your first
rebalance will occur one period after the issue date. For example, if you
specify quarterly rebalancing, your first rebalance will occur three months
after your issue date. Otherwise, your first rebalancing will occur one period
after we receive your completed request form. All subsequent rebalancing will
occur at the intervals you have specified on the day of the month that coincides
with the same day of the month as your contract anniversary date.
Generally, you may change the allocation percentages, frequency, or choice of
Variable Subaccounts at any time. If your total contract value subject to
rebalancing falls below any minimum value that we may establish, we may prohibit
or limit your use of Portfolio Rebalancing. You may not use Dollar Cost
Averaging and Portfolio Rebalancing at the same time. We may change, terminate,
limit, or suspend Portfolio Rebalancing at any time.
The Investment Alternatives
Variable Subaccount Investments
The Portfolios
Each of the Variable Subaccounts of the variable account invests in the shares
of one of the portfolios. Each portfolio is either an open-end management
investment company registered under the Investment Company Act of 1940 or a
separate investment series of an open-end management investment company. We have
briefly described the portfolios below. You should consult the current
prospectuses for the portfolios for more detailed and complete information
concerning the portfolios. If you do not have a prospectus for a portfolio,
contact us and we will send you a copy.
No one can promise that the portfolios will meet their investment objectives.
Amounts you have allocated to Variable Subaccounts may grow in value, decline in
value, or grow less than you expect, depending on the investment performance of
the portfolios in which those Variable Subaccounts invest. You bear the
investment risk that those portfolios possibly will not meet their investment
objectives.
<TABLE>
<CAPTION>
Investment Objectives of the Portfolios
Certain portfolios have similar investment objectives. You should carefully
review the prospectuses for the portfolios before investing.
- ------------------------------------------- -------------------------------------------------------------------------
<S> <C>
Portfolio Investment Objective and Adviser
- ------------------------------------------- -------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund seeks growth of capital through investment in common stocks, with
emphasis on medium- and small-sized growth companies. Investment
adviser is A I M Advisors, Inc.
- ------------------------------------------- -------------------------------------------------------------------------
AIM V.I. Diversified Income Fund seeks to achieve a high level of current income. Investment adviser is
A I M Advisors, Inc.
- ------------------------------------------- -------------------------------------------------------------------------
AIM V.I. Growth and Income Fund seeks growth of capital with a secondary objective of current income.
Investment adviser is A I M Advisors, Inc.
- ------------------------------------------- -------------------------------------------------------------------------
AIM V.I. International Equity Fund seeks to provide long-term growth of capital by investing in a
diversified portfolio of international equity securities whose issuers
are considered to have strong earnings momentum. Investment adviser is
A I M Advisors, Inc.
- ------------------------------------------- -------------------------------------------------------------------------
AIM V.I. Value Fund seeks to achieve long-term growth of capital by investing primarily in
equity securities judged by the fund's investment advisor to be
undervalued relative to the investment ^ adviser's appraisal of the
current or projected earnings of the companies issuing the securities,
or relative to current market values of assets owned by the companies
issuing the securities or relative to the equity market generally.
Income is a secondary objective. Investment adviser is A I M
Advisors, Inc.
- ------------------------------------------- -------------------------------------------------------------------------
Fidelity VIP Growth seeks to achieve capital appreciation by investing in common
stocks that the adviser believes have above-average growth potential.
Investment adviser is Fidelity Management & Research Company.
- ------------------------------------------- -------------------------------------------------------------------------
Fidelity VIP High Income seeks a high level of current income while also considering growth of
capital. Investment adviser is Fidelity Management & Research Company.
- ------------------------------------------- -------------------------------------------------------------------------
Fidelity VIP Overseas seeks long-term growth of capital by investing at least 65% of total
assets in foreign securities. Investment adviser is Fidelity Management
& Research Company.
- ------------------------------------------- -------------------------------------------------------------------------
Fidelity VIPII Contrafund seeks long-term capital appreciation by investing primarily in common
stocks of companies whose value the adviser believes is not fully
recognized by the public. Investment adviser is Fidelity Management &
Research Company.
- ------------------------------------------- -------------------------------------------------------------------------
Fidelity VIPII Index 500 seeks investment results that correspond to the total return of common
stocks publicly traded in the United States, as represented by the S&P
500. Investment adviser is Fidelity Management & Research Company.
- ------------------------------------------- -------------------------------------------------------------------------
Fidelity VIPII Investment Bond seeks as high a level of current income as is consistent with the
preservation of capital by investing in U.S. dollar-denominated
investment grade bonds. Investment adviser is Fidelity Management &
Research Company.
- ------------------------------------------- -------------------------------------------------------------------------
MFS Bond seeks primarily to provide as high a level of current income as is
believed to be consistent with prudent risk. Its secondary
objective is to protect shareholders' capital. Investment adviser is
Massachusetts Financial Services Company ("MFS").
- ------------------------------------------- -------------------------------------------------------------------------
MFS Growth with Income seeks to provide reasonable current income and long-term growth of
capital and income. Investment adviser is MFS.
- ------------------------------------------- -------------------------------------------------------------------------
MFS High Income seeks to provide high current income by investing primarily in a
professionally managed diversified portfolio of fixed income
securities, some of which may involve equity features. Investment
adviser is MFS.
- ------------------------------------------- -------------------------------------------------------------------------
MFS New Discovery seeks capital appreciation. Investment adviser is MFS.
- ------------------------------------------- -------------------------------------------------------------------------
Oppenheimer Bond/VA seeks a high level of current income. As a secondary
objective, the Portfolio seeks capital appreciation when consistent
with its primary objective. Investment adviser is
OppenheimerFunds, Inc.
- ------------------------------------------- -------------------------------------------------------------------------
Oppenheimer Capital Appreciation/VA seeks capital appreciation by investing in securities of well-known
established companies. Investment adviser is OppenheimerFunds, Inc.
- ------------------------------------------- -------------------------------------------------------------------------
Oppenheimer Global Securities/VA seeks long-term capital appreciation by investing a substantial portion
of assets in securities of foreign issuers, "growth-type"
companies, cyclical industries and special situations that are considered
to have appreciation possibilities. Investment adviser is OppenheimerFunds, Inc.
- ------------------------------------------- -------------------------------------------------------------------------
Oppenheimer High Income/VA seeks a high level of current income from investment in high-yield fixed
income securities. Investment adviser is OppenheimerFunds, Inc.
- ------------------------------------------- -------------------------------------------------------------------------
Oppenheimer Small Cap Growth/VA seeks capital appreciation. Investment adviser is OppenheimerFunds, Inc.
- ------------------------------------------- -------------------------------------------------------------------------
Van Kampen Comstock seeks capital growth and income through investments in equity
securities, including common stocks, preferred stocks, and securities
convertible into common and preferred stocks. Investment adviser is
Van Kampen Asset Management Inc.
- ------------------------------------------- -------------------------------------------------------------------------
Van Kampen Domestic Income primarily seeks current income. When consistent with the primary
investment objective, capital appreciation is a secondary
investment objective. Investment adviser is Van Kampen Asset
Management Inc.
- ------------------------------------------- -------------------------------------------------------------------------
Van Kampen Emerging Growth seeks capital appreciation by investing in a portfolio of securities
consisting principally of common stocks of small- and medium-sized
companies considered by the Portfolio's investment adviser to be
emerging growth companies. Investment adviser is Van Kampen Asset
Management Inc.
- ------------------------------------------- -------------------------------------------------------------------------
Van Kampen Money Market seeks protection of capital and high current income through investment
in money market instruments. Investment adviser is Van Kampen Asset
Management Inc.
- ------------------------------------------- -------------------------------------------------------------------------
</TABLE>
Each portfolio is subject to certain investment restrictions and policies, some
of which may not be changed without the approval of a majority of the
shareholders of the portfolio. See the accompanying prospectuses of the
portfolios for further information.
We automatically reinvest all dividends and capital gains distributions from the
portfolios in shares of the distributing portfolio at their net asset value. The
income and realized and unrealized gains or losses on the assets of each
Variable Subaccount are separate and are credited to or charged against the
particular Variable Subaccount without regard to income, gains or losses from
any other Variable Subaccount or from any other part of our business. We will
use the net purchase payments you allocate to a Variable Subaccount to purchase
shares in the corresponding portfolio and will redeem shares in the portfolios
to meet Contract obligations or make adjustments in reserves. The portfolios are
required to redeem their shares at net asset value and to make payment within
seven days.
Some of the portfolios have been established by investment advisers which manage
publicly traded mutual funds having similar names and investment objectives.
While some of the portfolios may be similar to, and may in fact be modeled
after, publicly traded mutual funds, you should understand that the portfolios
are not otherwise directly related to any publicly traded mutual fund.
Consequently, the investment performance of publicly traded mutual funds and any
similarly named portfolio may differ substantially from the portfolios available
through this Contract.
Certain of the portfolios sell their shares to variable accounts underlying both
variable life insurance and variable annuity contracts. It is conceivable that
in the future there may be unfavorable tax or other consequences for variable
life insurance variable accounts and variable annuity variable accounts that
invest in the same portfolio. Although neither we nor any of the portfolios
currently foresees any such disadvantages either to variable life insurance or
variable annuity contract owners, each portfolio's Board of Directors intends to
monitor events in order to identify any material conflicts between variable life
and variable annuity contract owners and to determine what action, if any,
should be taken in response thereto. If a Board of Directors were to conclude
that separate investment funds should be established for variable life and
variable annuity variable accounts, Allstate will bear the attendant expenses.
Voting Rights
As a general matter, you do not have a direct right to vote the shares of the
portfolios held by the Variable Subaccounts 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. We will notify you
when your instructions are needed. We will also provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of shares for which you may give voting instructions as of
the record date set by the relevant portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, before the payout start date, you are the person entitled to
give voting instructions. After the payout start date, the person receiving
income payments has the voting interest. Retirement plans, however, may have
different rules for voting by plan participants.
If you send us written voting instructions, we will follow your instructions in
voting the portfolio shares attributable to your Contract. If you do not send us
written instructions, we will vote the shares attributable to your Contract in
the same proportions as we vote the shares for which we have received
instructions from other contract owners. We will vote shares that we hold in the
same proportions as we vote the shares for which we have received instructions
from other contract owners.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the portfolio shares without obtaining instructions from our
contract owners, and we may choose to do so.
Additions, Deletions, And Substitutions Of Portfolios
If the shares of any of the portfolios are no longer available for investment by
the variable account or if, in our judgment, further investment in the shares of
a portfolio is no longer desirable in view of the purposes of the Contract, we
may eliminate any portfolio, add or substitute shares of another portfolio or
mutual fund for portfolio shares already purchased or to be purchased in the
future by purchase payments under the Contract. Any substitution of securities
will comply with the requirements of the 1940 Act.
We also reserve the right to make the following changes in the operation of the
variable account and the Variable Subaccounts:
o to operate the variable account in any form permitted by law;
o to take any action necessary to comply with applicable law or obtain and
continue any exemption from applicable laws;
o to transfer assets from one Variable Subaccount to another, or from any
Variable Subaccount to our general account;
o to add, combine, or remove Variable Subaccounts in the variable account;
and
o to change the way in which we assess charges, as long as the total charges
do not exceed the maximum amount that may be charged the variable account
and the portfolios in connection with the Contracts.
If we take any of these actions, we will comply with the then applicable legal
requirements. We will notify you of any change.
The Fixed Account Options
General
You may allocate part or all of your purchase payments to the Fixed Account
Options in states where they are available. Amounts allocated to the Fixed
Account Options become part of the general assets of Allstate. Allstate invests
the assets of the general account in accordance with applicable laws governing
the investments of insurance company general accounts. Please contact us at
1-800-632-3492 for current information about rates being credited on the Fixed
Account Options.
We will determine the interest rates to be declared in our sole discretion. We
can neither predict nor guarantee what those rates will be in the future.
Standard Fixed Account Option
Money in the Standard Fixed Account will earn interest for the length of the
guarantee period at the current rate in effect at the time of allocation or
transfer to the Standard Fixed Account. The effective annual rate will never be
less than 3%. We currently offer a one year guarantee period. Other guarantee
periods may be offered in the future. Subsequent renewal dates will be on
anniversaries of the first renewal date.
Dollar Cost Averaging Fixed Account Option
You may also allocate purchase payments to the Dollar Cost Averaging Fixed
Account Option. ("DCA Account"). We will credit interest to purchase payments
allocated to this option for up to one year at the current rate that we declare
when you make the allocation. The effective annual rate will never be less than
3%. The payments, plus interest, will be transferred out of the DCA Account in
equal monthly installments and placed in the Variable Subaccounts or the
Standard Fixed Account Option, in the percentages you designate. You may not
transfer funds to this option from the Variable Subaccounts or the Standard
Fixed Account Option.
Income Payments
Payout Start Date
The payout start date is the day that income payments start under the Income
Plan you select. You may select the payout start date in your application. The
payout start date may be no later than the 10th anniversary of the Contract's
issue date or the annuitant's 90th birthday, whichever is later. This is the
latest payout start date.
If your Contract was issued pursuant to a qualified plan, however, the Tax Code
generally requires you to begin to take at least a minimum distribution by the
later of the year of your separation from service^, or April 1 of the calendar
year following the calendar year in which you attain age 70 1/2.
If your Contract is issued pursuant to Section 408 of the Tax Code (traditional
IRAs), you must begin taking minimum distributions by April 1 of the calendar
year following the calendar year in which you reach age 70 1/2. No minimum
distributions are required by the Tax Code for Contracts issued pursuant to
Section 408A (Roth IRAs).
If you are in a qualified plan, we may require you to annuitize by the date
required by the Tax Code, unless you show us that you are meeting the minimum
distribution requirements in some other way.
If you do not select a payout start date, the latest payout start date will
automatically become the payout start date. You may change the payout start date
by writing to us at the address given on the first page of the prospectus at
least 30 days before the current payout start date.
Income Plans
You may choose and change your Income Plan at any time before the payout start
date. As part of your election, you may choose the length of the applicable
guaranteed payment period within the limits available for your chosen Income
Plan. If you do not select an Income Plan, then we will pay monthly income
payments in accordance with the applicable default option. The default options
are:
o Income Plan 1 with 10 years (120 months) guaranteed, if you have designated
only one annuitant; and
o Income Plan 2 with 10 years (120 months) guaranteed, if you have designated
joint annuitants.
You may freely change your choice of Income Plan, as long as you request the
change at least thirty days before the payout start date.
Three Income Plans are generally available under the Contract. Each is available
in the form of:
o fixed income payments;
o variable income payments; or
o a combination of both fixed and variable income payments.
The three Income Plans are:
Income Plan 1: Life Annuity With Payments Guaranteed For 5 To 20 Years.
We make periodic payments at least as long as the annuitant lives. If
the annuitant dies before all of the guaranteed payments have been
made, then we will pay the remaining guaranteed payments to the
beneficiary.
Income Plan 2: Joint And Survivor Annuity, With Payments Guaranteed For
5 To 20 Years. We make periodic payments at least as long as either the
annuitant or the joint annuitant is alive. If both the annuitant and
the joint annuitant die before all of the guaranteed payments have been
made, then we will pay the remaining guaranteed payments to the
beneficiary.
Income Plan 3: Guaranteed Number of Payments.
We make payments for a specified number of months. These payments do
not depend on the annuitant's life. The number of months guaranteed may
be from 60 to 360. Income payments for less than 120 months may be
subject to a withdrawal charge.
If you purchased your Contract under a retirement plan, you may have a more
limited selection of Income Plans to choose from. You should consult your Plan
documents to see what is available.
Once income payments have begun, you cannot surrender your Contract for a lump
sum payment unless you choose to receive variable income payments under Income
Plan 3, as described above. Instead, before the payout start date you may fully
withdraw your contract value for a lump sum, as described on page ^ 40.
Applicable withdrawal charges will be deducted.
We may have other Income Plans available. You may obtain information about them
by writing or calling us.
If your Contract is issued under Sections 408 or 408A of the Tax Code, we will
only make payments to you and/or your spouse.
Income Payments: General
On the payout start date, we will apply the total value of your Contract, less
applicable taxes, to the Income Plan you have chosen. If you select Income Plan
3 for less than 120 months, then withdrawal charges may apply. Your income
payments may consist of variable income payments or fixed income payments or a
combination of the two. The Contract Maintenance Charge will be deducted in
equal amounts from each income payment. The Contract Maintenance Charge will be
waived if the contract value on the payout start date is $50,000 or more or if
all payments are fixed income payments.
We will determine the amount of your income payments as described in "Variable
Income Payments" below and "Fixed Income Payments" on page ^ 34.
You must notify us in writing at least 30 days before the payout start date how
you wish to allocate your contract value between variable income and fixed
income payments. 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 your variable income payments, then you
should plan ahead and transfer that amount to the Variable Subaccounts 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.
Income payments begin on the payout start date.
We will make income payments in monthly, quarterly, semi-annual or annual
installments, as you select. If no purchase payments have been received for two
years and the contract value is less than $2,000, or not enough to provide an
initial payment of $20, and state law permits, then we may pay you the contract
value, less applicable taxes, in a lump sum instead of the periodic payments you
have chosen. Or we may reduce the frequency of payments so that the initial
payment will be at least $20.
We may defer for up to 15 days the payment of any amount attributable to a
purchase payment made by check to allow the check reasonable time to clear.
Generally you may not make withdrawals after the payout start date. One
exception to this rule applies if you are receiving variable income payments
that do not depend on the life of the annuitant (such ^ as Income Plan 3). In
that case, you can terminate the portion of the income payments being made from
the variable account under Income Plan 3 at any time and receive a lump sum
equal to the commuted balance of the remaining variable income payments. A
withdrawal charge may apply. The commuted balance of the remaining variable
income payments will be equal to the net present value of the future stream of
payments using a discount rate of 3% and the annuity unit value next determined
after the receipt of your request.
Variable Income Payments
One basic objective of the Contract is to provide variable income payments which
will to some degree respond to changes in the economic environment. The amount
of your variable income payments will depend upon the investment results of the
Variable Subaccounts you have selected, any premium taxes, the age and sex of
the annuitant, and the Income Plan chosen. We guarantee that the payments will
not be affected by (1) actual mortality experience and (2) the amount of our
administration expenses.
We cannot predict the total amount of your variable income payments. The
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 portfolios; and (b) annuitants may die before their actuarial life
expectancy is achieved.
The length of any guaranteed payment period under your selected Income Plan will
affect the dollar amounts of each variable income payment. As a general rule,
longer guarantee periods result in lower periodic payments, all other things
being equal. For example, if a life Income Plan with no minimum guaranteed
payment period is chosen, then the variable income payments will be greater than
variable income payments under an Income Plan for a minimum specified period and
guaranteed thereafter for life.
The investment results of the Variable Subaccounts to which you have allocated
your contract value will also affect the amount of your income payment. In
calculating the amount of the income payments in the income payment tables in
the Contract, we assumed an annual investment rate of 3%. If the actual net
investment return is less than the assumed investment rate, then the dollar
amount of the variable income payments will decrease. The dollar amount of the
variable income payments will stay level if the net investment return equals the
assumed investment rate and the dollar amount of the variable income payments
will increase if the net investment return exceeds the assumed investment rate.
Please refer to the SAI for more detailed information as to how we determine
variable income payments.
Fixed Income Payments
You may choose to apply a portion of your contract value to provide fixed income
payments. We determine the fixed income payment amount by applying the
applicable value to the Income Plan you have selected.
As a general rule, subsequent fixed income payments will be equal in amount to
the initial payment. However, as described in "Transfers During the Payout
Phase", after the payout start date, you will have a limited ability to increase
the amount of your fixed income payments by making transfers from the Variable
Subaccounts.
We may defer making fixed income payments for a period of up to six months or
whatever shorter time state law may require. During the deferral period, we
credit interest at a rate at least as high as state law requires.
Transfers During The Payout Phase
During the payout phase, you will have a limited ability to make transfers among
the Variable Subaccounts so as to change the relative weighting of the Variable
Subaccounts on which your variable income payments will be based. In addition,
you will have a limited ability to make transfers from the Variable Subaccounts
to increase the proportion of your income payments consisting of fixed income
payments. You may not, however, convert any portion of your right to receive
fixed income payments into variable income payments.
You may not make any transfers for the first six months after the payout start
date. Thereafter, you may make transfers among the Variable Subaccounts, but
these transfers must be at least six months apart. You can make transfers from
the Variable Subaccount to increase your fixed income payments only if you have
chosen Income Plan 3. You may not, however, convert any portion of your right to
receive fixed income payments into variable income payments.
Death Benefit During The Payout Phase
After income payments begin, upon the death of the annuitant and any joint
annuitant, we will make any remaining income payments to the beneficiary. The
amount and number of these income payments will depend on the Income Plan in
effect at the time of the annuitant's death. After the annuitant's death, any
remaining interest will be distributed at least as rapidly as under the method
of distribution in effect at the annuitant's death.
Certain Employee Benefit Plans
In some states, the Contracts offered by this prospectus contain life income
payment tables that provide for different benefit payments to men and women of
the same age. In certain employment-related situations, however, the U.S.
Supreme Court's decision in Arizona Governing Committee V. Norris requires
employers 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 income payment tables in
your state, you should consult with legal counsel as to whether the purchase of
a Contract is appropriate under Norris.
Death Benefits
The Death Benefit: General
We will pay a death benefit if, prior to the payout start date:
(a) any Owner dies; or
(b) if the Contract is owned by a company or other legal entity, the annuitant
dies.
Currently, we will pay the death benefit equal in amount to the Standard Death
Benefit or Enhanced Death Benefit, defined below, as appropriate.
Under the Contract, however, we have the right to pay a death benefit equal in
amount to the settlement value unless:
1. the beneficiary chooses to receive the death benefit in a lump sum within
180 days of the date of death; and
2. the beneficiary requests that the death benefit be paid as of the date we
receive the completed claim for a distribution on death.
We currently are waiving this 180 day limitation, but we may enforce it in the
future. If we do, we will calculate the distribution as of the earlier of the
requested distribution date or the fifth anniversary of the date of death.
We determine the death benefit as of the date we receive all of the information
we need to process the death benefit claim.
Standard Death Benefit
Prior to the payout start date, the Standard Death Benefit under the Contract is
the greatest of the following:
1. the total purchase payments, less a withdrawal adjustment for any prior
partial withdrawals;
2. the contract value on the date that we calculate the death benefit; and
3. the contract value on the seventh contract anniversary and each subsequent
contract anniversary evenly divisible by seven, increased by the total
purchase payments since that anniversary and reduced by a withdrawal
adjustment for any partial withdrawals since that anniversary.
The withdrawal adjustment for the Standard Death Benefit will equal (a) divided
by (b), with the result multiplied by (c), where:
(a) = the withdrawal amount;
(b) = the contract value immediately before the withdrawal; and
(c) = the value of the applicable death benefit immediately before the
withdrawal.
Claim and Payment
A claim for a distribution on death must be submitted before the payout start
date. As part of the claim, the beneficiary must provide "Due Proof of Death".
We will accept the following documentation as due proof of death:
o a certified copy of the Death Certificate;
o a certified copy of a court decree as to the finding of death; or
o a written statement of a medical doctor who attended the deceased at the
time of death.
In addition, in our discretion we may accept other types of proof.
We will pay the death benefit in a lump sum within seven days of receiving a
completed claim for a distribution on death, unless the beneficiary selects one
of the other alternatives described below.
If the beneficiary is a natural person, the beneficiary may choose from the
following alternative ways of receiving the distribution:
o the beneficiary may receive the distribution as a lump sum payment;
o the beneficiary may apply the distribution to receive a series of equal
periodic payments over the life of the beneficiary, over a fixed period no
longer than the beneficiary's life expectancy, or over the life of the
beneficiary with payments guaranteed for a period not to exceed the life
expectancy of the beneficiary (the payments must begin within one year of
the date of death); or
o if there is only one beneficiary, he or she may defer payment for up to
five years from the date of death. Any remaining funds must be distributed
at the end of the five-year period. An annuitant is necessary for this
option. If prior to your death you were the annuitant, the beneficiary will
become the new annuitant.
If your spouse is the beneficiary, he or she may elect one of the options listed
above or choose to continue the Contract as the new contract owner. If your
spouse chooses to continue the Contract, the following conditions apply:
(1) On the day the Contract is continued, we will set the contract value equal
to the Standard Death Benefit or Enhanced Death Benefit, as appropriate,
calculated as of the date on which we receive all of the information we
need to process your spouse's request to continue the Contract after your
death. Because the Standard Death Benefit and Enhanced Death Benefit can
never be less than the then current contract value, our resetting the
Contract will not cause the contract value to decrease. During the
continuation period, however, the contract value will continue to increase
or decrease to reflect the investment performance of the Variable
Subaccounts, interest credited to the fixed account, and charges and
expenses under the Contract, as described in this prospectus.
(2) Within one year of the date of death, your spouse may withdraw one lump sum
without paying any withdrawal charge^.
(3) During the continuation period, currently we will pay a distribution on
death equal to the Standard Death Benefit or the Enhanced Death Benefit, as
appropriate, determined as of the date on which we receive due proof of
your spouse's death. As described above, we also reserve the right to pay a
distribution equal in amount to the settlement value as of the date on
which we receive due proof of death. The Standard Death Benefit payable
upon your spouse's death will be calculated using the formula described
above. Thus, the amount of the distribution on death may increase or
decrease during the continuation period, depending on changes in the
contract value and other Contract transactions during the continuation
period.
(4) If before your death you were the annuitant, then your surviving spouse
becomes the annuitant.
(5) If you selected the Enhanced Death Benefit Rider or the Enhanced Death and
Income Benefit Rider, that rider will continue during the continuation
period. Your spouse will be treated as the contract owner under the
applicable Rider.
If the beneficiary is a company or other legal entity, then the beneficiary must
receive the death benefit in a lump sum, and the options listed above are not
available.
Different rules may apply to Contracts issued in connection with qualified
plans.
Enhanced Death Benefit Rider
When you purchase your Contract, you may select the Enhanced Death Benefit
Rider. If you are not an individual, then the Enhanced Death Benefit applies
only to the annuitant's death. If you select this rider, then the Death Benefit
will be the greater of the value provided in your Contract or the Enhanced Death
Benefit.
The Enhanced Death Benefit will be the greater of :
o Enhanced Death Benefit A, and
o Enhanced Death Benefit B.
As shown in the Fee Table, we will charge a higher mortality and expense risk
charge if you select this Rider.
Enhanced Death Benefit A
On the issue date, Enhanced Death Benefit A is equal to the initial purchase
payment. After the issue date, Enhanced Death Benefit A is adjusted whenever you
pay a purchase payment or make a withdrawal and on each contract anniversary as
follows:
o When you make a purchase payment, we will increase Enhanced Death Benefit A
by the amount of the purchase payment;
o When you make a withdrawal, we will decrease Enhanced Death Benefit A by a
withdrawal adjustment, as described below; and
o On each contract anniversary, we will set Enhanced Death Benefit A equal to
the greater of the contract value on that contract anniversary or the most
recently calculated Death Benefit A.
If you do not pay any additional purchase payments or make any withdrawals, then
Enhanced Death Benefit A will equal the highest of the contract value on the
issue date and all contract anniversaries prior to the date we calculate the
death benefit.
We will continuously adjust Enhanced Death Benefit A as described above until
the oldest contract owner's 85th birthday or, if the contract owner is not a
living individual, the annuitant's 85th birthday. Thereafter, we will adjust
Enhanced Death Benefit A only for purchase payments and withdrawals.
Enhanced Death Benefit B
Enhanced Death Benefit B is equal to:
(a) your total purchase payments;
(b) reduced by any withdrawal adjustments; and
(c) accumulated daily at an effective annual rate of 5% per year, until: (1)
the date we determine the death benefit, or (2) the first day of the month
following the oldest owner's or, if the owner is not a living individual,
the annuitant's 85th birthday.
Enhanced Death Benefit B will never be greater than the maximum death benefit
allowed by any nonforfeiture laws which govern the Contract.
The withdrawal adjustment for both Enhanced Death Benefit A and Enhanced Death
Benefit B will equal (a) divided by (b), with the result multiplied by (c),
where:
(a) = the withdrawal amount;
(b) = the contract value immediately before the withdrawal; and
(c) = the most recently calculated Enhanced Death Benefit A or B, as
applicable.
Enhanced Death And Income Benefit Rider
When you purchase the Contract, you may choose the Enhanced Death and Income
Benefit Rider. This rider provides the same Enhanced Death Benefit as the
Enhanced Death Benefit Rider. In addition, this Rider may enable you to receive
higher income payments in certain circumstances. As shown in the Fee Table, we
will charge a higher mortality and expense risk charge during the accumulation
phase and the payout phase, if you select this Rider.
The Enhanced Income Benefit is equal to the value of the Enhanced Death Benefit
on the payout start date. To be eligible for the Enhanced Income Benefit, you
must select a payout start date that is on or after the tenth contract
anniversary, but before the annuitant's age 90. If the Enhanced Income Benefit
is greater than the contract value on the payout start date, you may apply the
Enhanced Income Benefit to an Income Plan that provides for payments guaranteed
for either a single or joint lives with a period certain of (a) at least 10
years, if the youngest annuitant's age is 80 or less on the payout start date;
or (b) at least 5 years, if the youngest annuitant's age is greater than 80 on
the payout start date. If you wish to select a different Income Plan, you will
lose the benefit of the rider and you must apply the contract value, not the
Enhanced Income Benefit, to that Income Plan.
Beneficiary
You name the beneficiary. You may name a beneficiary in the application. You may
change the beneficiary or add additional beneficiaries at any time before the
payout start date. We will provide a form to be signed and filed with us.
Your changes in beneficiary take effect when we receive them, effective as of
the date you signed the form. Until we receive your change instructions, we are
entitled to rely on your most recent instructions in our files. We are not
liable for making a payment to a beneficiary shown in our files or treating that
person in any other respect as the beneficiary. Accordingly, if you wish to
change your beneficiary, you should deliver your instructions to us promptly.
If you did not name a beneficiary or if the named beneficiary is no longer
living, the beneficiary will be:
o your spouse if he or she is still alive; or, if he or she is no longer
alive,
o your surviving children equally; or if you have no surviving children,
o 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 shares to the beneficiaries. If one of the beneficiaries dies before you,
we will divide the death benefit among the surviving beneficiaries.
Different rules may apply to Contracts issued in connection with qualified
plans.
Access To Your Money
In General
You may withdraw all or part of your contract value at any time before the
payout start date. We may impose a withdrawal charge, which is deducted from
remaining contract value, so that the actual reduction in contract value as a
result of a withdrawal will be greater than the withdrawal amount you requested
and we paid.
In general, you must withdraw at least $50 at a time. You may also withdraw a
lesser amount if you are withdrawing your entire interest in a Variable
Subaccount. If your request for a partial withdrawal would reduce the contract
value to less than $500, then we may treat it as a request for a withdrawal of
your entire contract value. Your Contract will terminate if you withdraw all of
your contract value.
We may be required to withhold 20% of withdrawals and distributions from
Contracts issued in connection with certain qualified plans. Withdrawals also
may be subject to a 10% penalty tax.
To make a withdrawal, you must send us a written withdrawal request or
systematic withdrawal program enrollment form. You may obtain the required forms
from your Allstate Agent, Allstate Life Specialist, or from us at the address
and phone number given on the first page of this Prospectus. We will not honor
your request unless the required form includes your Tax I.D. Number (Social
Security Number) and provides instructions regarding withholding of income
taxes.
Partial Withdrawals
You may withdraw part of your contract value from the Variable Subaccounts and
the Standard Fixed Account Option. If we do not receive allocation instructions
from you, we will deduct the partial withdrawal proportionately from the
Variable Subaccounts and the Standard Fixed Account Option in the same
proportions as you are currently invested. If you have contract value in the
Standard Fixed Account Option that is allocated entirely to guarantee periods of
the same length, we will subtract the partial withdrawal first from the most
recently created guarantee period. You may not make a partial withdrawal from
the Standard Fixed Account Option in an amount greater than the total amount of
the partial withdrawal multiplied by the ratio of the value of the Standard
Fixed Account Option to the contract value immediately before the partial
withdrawal.
Total Withdrawal
If you request a total withdrawal, we will pay you the settlement value, which
equals the contract value minus any applicable withdrawal charge. We also will
deduct a contract maintenance charge of $35 (unless waived). We determine the
settlement value based on the contract value next computed after we receive a
properly completed request at the P.O. Box address on the first page of this
prospectus.
We will usually pay the settlement value within seven days after the day we
receive a completed request form. However, we may suspend the right of
withdrawal from the variable account or delay payment for withdrawals for more
than seven days in the following circumstances:
1. whenever the New York Stock Exchange ("NYSE") is closed (other than
customary weekend and holiday closings);
2. when trading on the NYSE is restricted or an emergency exists, as
determined by the SEC, so that disposal of the variable account's
investments or determination of accumulation unit values is not reasonably
practical; or
3. at any other time permitted by the SEC for your protection.
In addition, we may delay payment of the settlement value in the fixed account
for up to 6 months or a shorter period if required by law. If we delay payment
from the fixed account for more than 30 days, we will pay interest as required
by applicable law.
The limitations on withdrawals do not affect transfers between certain qualified
plans. Additional restrictions and limitations may apply to distributions from
any qualified plan. Tax penalties may also apply. You should seek tax advice
regarding any withdrawals or distributions from qualified plans.
Substantially Equal Periodic Payments
In general, earnings on annuities are taxable as ordinary income upon
withdrawal. As described on page 49, a 10% tax penalty is imposed on certain
"premature" payments under annuity contracts. The tax penalty applies to any
payment received before age 59 1/2, to the extent it is includable in income and
is not subject to an exception. The Tax Reform Act of 1986 clarified an
exception to this tax penalty. This exception is known as "substantially equal
periodic payments."
Generally, under this exception you may take "substantially equal periodic
payments" before age 59 1/2 without incurring the tax penalty. These "payments"
are withdrawals, as opposed to income payments under the Contract. Accordingly,
you may need to pay a withdrawal charge.
To qualify for this exception, the payments must meet the following
requirements:
(1) The payments must continue to the later of age 59 1/2 or for five years^;
(2) Payments must be established under one of the approved methods detailed by
the IRS in IRS Notice 89-25; and^
(3) You must have separated from service, if you purchased your Contract under
a qualified retirement plan or tax sheltered annuity.
If you modify the payment stream in any way, except for reason of death or
disability, you will lose the exception. Modification includes changing the
amount or timing of the payments, or making additional purchase payments. Any
subsequent periodic payment will be subject to the penalty tax, unless it
qualifies for a different exception. In addition, in the year of the
modification, you will be required to pay the penalty tax (plus interest) that
you would have been required to pay on the earlier payments if this exception
had not applied.
Systematic Withdrawal Program
If your Contract was issued in connection with a non-qualified plan or IRA, you
may participate in our Systematic Withdrawal Program. You must complete an
enrollment form and send it to us. You must complete the withholding election
section of the enrollment form before the systematic withdrawals will begin. If
you do not complete the withdrawal election section, we will deduct the standard
10% withholding from your payment. You may choose withdrawal payments of a flat
dollar amount, or a percentage of purchase payments. You may choose to receive
systematic withdrawal payments on a monthly, quarterly, semi-annual, or annual
basis. Systematic withdrawals will be deducted from your Variable Subaccount and
fixed account balances, excluding the Dollar Cost Averaging Fixed Account, on a
pro rata basis.
Depending on fluctuations in the net asset value of the Variable Subaccounts and
the value of the fixed account, systematic withdrawals may reduce or even
exhaust the contract value. The minimum amount of each systematic withdrawal is
$50.
We will make systematic withdrawal payments to you or your designated payee. We
may modify or suspend the Systematic Withdrawal Program and charge a processing
fee for the service. If we modify or suspend the Systematic Withdrawal Program,
existing systematic withdrawal payments will not be affected.
ERISA Plans
A married participant may need spousal consent to receive a distribution from a
Contract issued in connection with a qualified plan or a non-qualified plan
covered by to Title 1 of ERISA. You should consult an adviser.
Minimum Contract Value
If as a result of withdrawals your contract value would be less than $500 and
you have not made any purchase payments during the previous three full calendar
years, we may terminate your Contract and distribute its settlement value to
you. Before we do this, we will give you 60 days notice. We will not terminate
your Contract on this ground if the contract value has fallen below $500 due to
either a decline in accumulation unit value or the imposition of fees and
charges. In addition, in some states we are not permitted to terminate Contracts
on this ground. Different rules may apply to Contracts issued in connection with
qualified plans.
Contract Charges
We assess charges under the Contract in three ways:
1. as deductions from contract value for contract maintenance charges and, if
applicable, for premium taxes;
2. as charges against the assets of the variable account for administrative
expenses or for the assumption of mortality and expense risks; and
3. as withdrawal charges (contingent deferred sales charges) subtracted from
remaining contract value.
In addition, certain deductions are made from the assets of the portfolios for
investment management fees and expenses. Those fees and expenses are summarized
in the Fee Table on pages 16-17, and described more fully in the prospectuses
and SAI for the portfolios.
Mortality And Expense Risk Charge
We deduct a mortality and expense risk charge from your Contract's value in each
Variable Subaccount during each valuation period. The mortality risks arise from
our contractual obligations to make income payments after the payout start date
for the life of the annuitant(s); to waive the withdrawal charge upon your
death; and to provide the Death Benefit prior to the payout start date. The
expense risk is that it may cost us more to administer the Contracts and the
variable account than we receive from the contract maintenance charge and the
administrative expense charge.
We deduct a mortality and expense risk charge equal, on an annual basis, to
1.15% of the average daily net assets you have invested in the Variable
Subaccounts.
If you select the Enhanced Death Benefit Rider, Allstate will deduct a mortality
and expense risk charge equal, on an annual basis, to 1.35% of the average daily
net assets you have invested in the Variable Subaccounts. If you select the
Enhanced Death and Income Benefit Rider, your mortality and expense risk charge
will be 1.55% of the average daily net assets you have invested in the Variable
Subaccounts.
We charge a higher mortality and expense risk charge for the Riders to
compensate us for the additional risk that we accept by providing the Riders. We
will calculate a separate accumulation unit value for the base Contract, and for
Contracts with each type of Rider, in order to reflect the difference in the
mortality and expense risk charges.
We guarantee the mortality and expense risk charge and we cannot increase it. We
assess the mortality and expense risk charge during both the accumulation phase
and the payout phase.
Administrative Expense Charge
We deduct an administrative expense charge from each Variable Subaccount during
each valuation period. This charge is equal, on an annual basis, to 0.10% of
your average daily net assets in the Variable Subaccounts. This charge is
designed to compensate us for the cost of administering the Contracts and the
variable account. The administrative expense charge is assessed during both the
accumulation phase and the payout phase.
Contract Maintenance Charge
We deduct an annual contract maintenance charge of $35 on your Contract. The
amount of this charge is guaranteed not to increase. This charge reimburses us
for our expenses incurred in maintaining your Contract.
Before the payout start date, we will subtract the annual contract maintenance
charge from the Van Kampen Money Market Variable Subaccount on each contract
anniversary. If the Van Kampen Money Market Variable Subaccount has insufficient
funds, then we will subtract the contract maintenance charge in equal parts from
the other Variable Subaccounts in the proportion that your value in each bears
to your total value in all Variable Subaccounts, excluding the Van Kampen Money
Market Variable Subaccount.
We will waive this charge if you pay more than $50,000 in total purchase
payments or if you have allocated all of your contract value to the Fixed
Account Options on the contract anniversary. If you fully withdraw your contract
value, then we will deduct the full $35 charge as of the date of the full
withdrawal, unless your Contract qualifies for a waiver.
After the payout start date, we will subtract this charge in equal parts from
each of your income payments. We will waive this charge if on the payout start
date your contract value is $50,000 or more or if all of your income payments
are fixed income payments.
Transfer Fee
We currently are waiving the transfer fee. The Contract permits us to charge you
up to $10 per transfer for each transfer after the 12th in any contract year. We
will notify you if we begin to charge this fee. We will not charge a transfer
fee on transfers that are part of a Dollar Cost Averaging or Portfolio
Rebalancing program.
The transfer fee will be deducted from contract value that remains in the
Variable Subaccount(s) or fixed account from which the transfer was made. If
that amount is insufficient to pay the transfer fee, we will deduct the fee from
the transferred amount.
Withdrawal Charge
We may assess a withdrawal charge of up to 7% of the purchase payment(s) you
withdraw. The charge declines to 0% after 7 complete years from the date we
received the purchase payment being withdrawn.
We do not apply a withdrawal charge in the following situations:
o 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);
o the payment of a death benefit;
o a free withdrawal amount, as described below;
o withdrawals taken to satisfy IRS minimum distribution rules.
We will never waive or eliminate a withdrawal charge where such waiver or
elimination would be unfairly discriminatory to any person or where it is
prohibited by state law.
Withdrawals may be subject to tax penalties and income tax. You should consult
your own tax counsel or other tax advisers regarding any withdrawals.
As a general rule, the withdrawal charge equals a percentage of purchase
payments withdrawn that : (a) we have held for less than seven years; and (b)
are not eligible for a free withdrawal. The applicable percentage depends on how
many years ago you made the purchase payment being withdrawn, as shown in this
chart:
Payment Withdrawal Charge
Year Percentage
- ------------------------------------- -----------------------------------
First ............................. 7%
Second ............................. 7%
Third .............................. 6%
Fourth ............................. 6%
Fifth............................... 5%
Sixth............................... 4%
Seventh............................. 3%
Eighth and later.................... 0%
We subtract the withdrawal charge from the contract value remaining after your
withdrawal. As a result, the decrease in your contract value will be greater
than the withdrawal amount requested and paid.
For purposes of determining the withdrawal charge, the contract value is deemed
to be withdrawn in the following order:
First Earnings -- the current contract value minus all purchase payments
that have not previously been withdrawn;
Second "Old Purchase Payments" -- Purchase payments received by us more
than seven years before the date of withdrawal that have not been
previously withdrawn;
Third Any additional amounts available as a "Free Withdrawal," as described
below;
Fourth "New Purchase Payments" -- Purchase payments received by us less
than seven years before the date of withdrawal. These payments are deemed
to be withdrawn on a first-in, first-out basis.
We use the amounts obtained from the withdrawal charge to pay sales commissions
and other promotional or distribution expenses associated with marketing the
Contracts. To the extent that the withdrawal charge does not cover all sales
commissions and other promotional or distribution expenses, 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.
Free Withdrawal
Withdrawals of the following amounts are never subject to the withdrawal charge:
o the free withdrawal amount; and
o any Old Purchase Payments that have not been previously withdrawn.
The free withdrawal amount, in any contract year, is equal to the greater of:
(a) earnings that have not previously been withdrawn; or
(b) 15 percent of New Purchase Payments.
Any free withdrawal amount that is not withdrawn during a contract year may not
be carried over to increase the free withdrawal amount available in a subsequent
year.
Note: Even if you do not owe a withdrawal charge on a particular withdrawal, you
may still owe taxes or penalty taxes.
Waiver of Withdrawal Charges
General
If approved in your state, we will offer the three waiver benefits described
below. In general, if you qualify for one of these benefits, we will permit you
to make one or more partial or full withdrawals without paying any otherwise
applicable withdrawal charge. While we have summarized those benefits here, you
should consult your Contract for the precise terms of the waiver benefits.
Some qualified plans may not permit you to utilize these benefits. Also, even if
you do not need to pay our withdrawal charge because of these benefits, 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.
Confinement Waiver
We will waive the withdrawal charge on all withdrawals under your Contract if
the following conditions are satisfied:
1. Any contract owner or the annuitant, if the Contract is owned by a company
or other legal entity, is confined to a long term care facility or a
hospital for at least 90 consecutive days. The insured must enter the long
term care facility or hospital at least 30 days after the issue date;
2. You request the withdrawal no later than 90 days following the end of the
insured's stay at the long term care facility or hospital. You must provide
written proof of the stay with your withdrawal request; and
3. A physician must have prescribed the stay and the stay must be medically
necessary.
You may not claim this benefit if the physician prescribing the insured's stay
in a long term care facility is the insured or a member of the insured's
immediate family.
Terminal Illness Waiver
We will waive any withdrawal charge on all withdrawals under your Contract if,
at least 30 days after the issue date, you or the annuitant are diagnosed with a
terminal illness. You may be required to provide adequate proof of the diagnosis
to us.
Unemployment Waiver
We will waive any withdrawal charge on one partial or full withdrawal from your
contract, if you meet the following requirements:
o You become unemployed at least one year after the issue date;
o You receive unemployment compensation for at least 30 days as a result of
that unemployment; and
o You claim this benefit within 180 days of your initial receipt of
unemployment compensation.
You may exercise this benefit once before the annuity start date.
Premium Taxes
We may charge premium taxes or other state or local taxes against the contract
value, including contract value that results from amounts transferred from
existing policies (Section 1035 exchange) issued by us or other insurance
companies. Some states assess premium taxes when purchase payments are made;
others assess premium taxes when income payments begin. We will deduct any
applicable premium taxes upon full withdrawal, death, or when you begin to
receive income payments. Premium taxes generally range from 0% to 3.5%.
Deduction For Variable Account Income Taxes
We are not currently maintaining a provision for taxes. In the future, however,
we may establish a provision for taxes if we determine, in our sole discretion,
that we will incur a tax as a result of the operation of the variable account.
We will deduct for any taxes we incur as a result of the operation of the
variable account, whether or not we previously made a provision for taxes and
whether or not it was sufficient. Our status under the Tax Code is briefly
described in the SAI.
Other Expenses
You indirectly bear the charges and expenses of the portfolios whose shares are
held by the Variable Subaccounts to which you allocate your contract value. For
more detailed information about those charges and expenses, please refer to the
prospectuses for the appropriate portfolios. We may receive compensation from
the investment advisers, administrators, distributors (and/or an affiliate
thereof) of the portfolios in connection with administrative, distribution, or
other services and cost savings experienced by the investment advisers,
administrators or distributors. It is anticipated that such compensation will be
based on assets of the particular portfolios attributable to the Contract along
with certain other variable contracts issued or administered by Allstate (or an
affiliate). Some advisers, administrators or distributors may pay us more than
others.
Tax Matters
Introduction
The following discussion is general and is not intended as tax advice. Only
Federal income tax issues are addressed. 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 of 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. Any increase in the value of such contracts is
taxed as ordinary income received or accrued by the owner during the taxable
year. Please see the SAI 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 portfolios or their investments, we expect the portfolios 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 Variable Subaccount investments without being treated as owners of
the underlying assets of the variable account.
Your rights under this contract are different than those described by the IRS in
rulings in which it found that contract owners were not owners of variable
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 includable 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
withdrawal 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:
o made on or after the date the individual attains age 59 1/2;
o made to a beneficiary after the owner's death;
o attributable to the owner being disabled; or
o for a first time home purchase (first time home purchases are subject to a
lifetime limit of $10,000).
If you transfer a nonqualified 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 Income Payments
Generally, the rule for income taxation of income 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 income 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 income payments for the term of the Contract. If you elect
variable income payments, the amount excluded from taxable income is determined
by dividing the investment in the Contract by the total number of expected
payments. The income payments will be fully taxable after the total amount of
the investment in the Contract is excluded using these ratios. If you die, and
income 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 an 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. Unlike some other assets, the beneficiary's
cost basis for an annuity is not increased or decreased to the fair market
value of the Contract on the date of death. Please see the SAI 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 nonqualified 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 owner attains age 59 1/2;
(2) made as a result of the owner's death or disability;
(3) made in substantially equal periodic payments over the 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 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
Contracts may be used as investments with certain qualified plans such as:
o Individual Retirement Annuities or Accounts (IRAs) under Section 408 of the
Tax Code;
o Roth IRAs under Section 408A of the Tax Code;
o Tax sheltered annuities under Section 403(b) of the Tax Code;
o Simplified Employee Pension Plans under Section 408(k) of the Tax Code;
o Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section
408(p) of the Tax Code;
o Corporate and Self Employed Pension and Profit Sharing Plans; and
o 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:
o attains age 59 1/2;
o separates from service;
o dies;
o becomes disabled; or
o 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 another qualified plan or IRA. Eligible rollover
distributions generally include all distributions from qualified Contracts,
excluding IRAs, with the exception of:
(1) required minimum distributions; or
(2) a series of substantially equal periodic payments made over a period of at
least 10 years; or
(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 either non-qualified or qualified Contracts that are not
eligible rollover distributions unless you notify us of your election to not
have taxes withheld.
Performance Information
Yields and Standard Total Return
We may advertise the yields and standard average annual total returns for the
Variable Subaccounts. These figures will be based on historical earnings and are
not intended to indicate future performance.
Yields and standard total returns include all charges and expenses you would pay
under the Contract: the mortality and expense risk charge (1.15% for Contracts
with the standard death benefit; 1.35% for Contracts with the enhanced death
benefit; and 1.55% for Contract with the enhanced death benefit and income
benefit), an administrative expense charge of 0.10%, the annual contract
maintenance charge of $35, and applicable withdrawal charges.
The yield of the Van Kampen Money Market Variable Subaccount refers to the
annualized investment income that an investment in the Subaccount generates over
a specified seven-day period. The effective yield of the Van Kampen Money Market
Variable Subaccount is calculated in a similar way but, when annualized, we
assume that the income earned by the investment has been reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of the assumed reinvestment. The yield of a Variable
Subaccount (except the Van Kampen Money Market Variable Subaccount) refers to
the annualized income that an investment in the Variable Subaccount generates
over a specified thirty-day period.
The average annual total return of a Variable Subaccount assumes that an
investment has been held in the Variable Subaccount for certain periods of time
including the period measured from the date the Variable Subaccount began
operations. We will provide the average annual total return for each Variable
Subaccount that has been in operation for 1, 5, and 10 years. The total return
quotations will represent the average annual compounded rates of return that an
initial investment of $1,000 would earn as of the last day of the 1, 5 and 10
year periods.
The yield and total return calculations are not reduced by any premium taxes.
Applying premium taxes will reduce the yield and total return of a Contract.
For additional information regarding yield and total return calculations, please
refer to the SAI.
Other Performance Data
We may disclose average annual total return in nonstandard formats and
cumulative total return. This means that the data may be presented for different
time periods and different dollar amounts.
We may also present historic performance data for the portfolios since their
inception reduced by all fees and charges you would pay under the Contract --
the mortality and expense risk charge (1.15% for Contracts with the standard
death benefit; 1.35% for Contracts with the enhanced death benefit; and 1.55%
for Contract with both the enhanced death benefit and the income benefit), an
administrative expense charge of 0.10%, an annual contract maintenance charge of
$35, and applicable withdrawal charges.
Such adjusted historic performance includes data that precedes the inception
dates of the Variable Subaccounts, but is designed to show the performance that
would have resulted if the Contract had been available during that time.
We will only disclose non-standard performance data if we also disclose the
standard performance data. For additional information regarding the calculation
of other performance data, please refer to the SAI.
Advertising, sales literature, and other communications may compare the expense
and performance data for the Contract and each Variable Subaccount with other
variable annuities tracked by independent services such as Lipper Analytical
Services, Inc., Morningstar and the Variable Annuity Research Data Service.
These services monitor and rank the performance and expenses of variable annuity
issuers on an industry-wide basis. We may also make comparisons using other
indices that measure performance, such as Standard & Poor's 500 Composite or the
Dow Jones Industrial Average. Unmanaged indices may assume reinvestment of
dividends but do not deduct administrative and management costs and expenses.
We may report other information including the effect of tax-deferred compounding
on a Variable Subaccount's returns, illustrated by tables, graphs, or charts.
Tax-deferred compounding can lead to substantial long-term accumulation of
assets, if the portfolio's investment experience is positive. Sales literature,
advertisements or other reports may refer to A.M. Best=s rating of Allstate as
an insurance company.
Allstate Life Insurance Company And The Variable Account
Allstate Life Insurance Company
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.
Financial Statements Of Allstate
The Company's consolidated financial statements and notes thereto are included
in the SAI. You should consider those financial statements only as bearing on
Allstate's ability to meet its obligations under the Contract. They do not
relate to the investment performance of the assets held in the variable account.
The Variable Account
We established the Allstate Financial Advisors Separate Account I in 1999, as a
segregated asset account of Allstate. The variable account meets the definition
of a "separate account" under the Federal securities laws. We have registered
the variable account with the SEC as a unit investment trust under the
Investment Company Act of 1940. The SEC does not supervise the management of the
variable account or Allstate.
We own the assets of the variable account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the contract
value of the Contracts offered by this prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
variable account are credited to or charged against the variable account without
regard to our other income, gains, or losses. Our obligations arising under the
Contracts are general corporate obligations of Allstate.
The variable account is divided into Variable Subaccounts. We may add new
Variable Subaccounts or eliminate one or more of them, if we believe marketing,
tax, or investment conditions so warrant. The assets of each Variable Subaccount
are invested in the shares of one of the portfolios. We do not guarantee the
investment performance of the variable account, its Variable Subaccounts or the
portfolios. Values allocated to the variable account and the amount of variable
income payments will rise and fall with the values of shares of the portfolios
and are also reduced by Contract charges. We may also 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.
We have included additional information about the variable account in the SAI.
You may obtain a copy of the SAI by writing to us or calling us at
1-800-632-3492 or go to the SEC's website at (http://www.sec.gov). We have
reproduced the Table of Contents of the SAI on the last page of this prospectus.
Administration
We have primary responsibility for all administration of the Contracts and the
variable account. Our mailing address is: Allstate Life Insurance Company;
Nebraska Service Center; P.O. Box 80469; Lincoln, Nebraska 68501-0469.
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
quarterly. 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.
Year 2000
Allstate is heavily dependent upon complex computer systems for all phases of
its operations, including customer service, and contract administration. Since
many of Allstate's older computer software programs recognize only the last two
digits of the year in any date, some software may fail to operate properly in or
after the year 1999, if software is not reprogrammed or replaced ("Year 2000
Issue"). Allstate believes that many of its counterparties and suppliers also
have Year 2000 Issues that could affect Allstate. In 1995, Allstate commenced a
plan intended to mitigate and/or prevent the adverse effects of Year 2000
Issues. These strategies include normal development and enhancement of new and
existing systems, upgrades to operating systems already covered by maintenance
agreements and modifications to existing systems to make them Year 2000
compliant. The plan also includes Allstate actively working with its major
external counterparties and suppliers to assess their compliance efforts and
Allstate's exposure to them. Allstate presently believes that it will resolve
the Year 2000 Issue in a timely manner, and the financial impact will not
materially affect the results of its operations, liquidity or financial
position. Year 2000 costs are and will be expensed as incurred.
Market Timing And Asset Allocation Services
Certain third parties offer market timing and asset allocation services in
connection with the Contracts. In certain situations, we will honor transfer
instructions from third party market timing and asset allocation services if
they comply with our administrative systems, rules and procedures, which we may
modify at any time. Please note that fees and charges assessed for third party
market timing and asset allocation services are separate and distinct from the
Contract fees and charges set forth herein. We neither recommend nor discourage
the use of market timing and asset allocation services.
Distribution Of Contracts
The Contracts described in this prospectus are sold by registered
representatives of broker-dealers who are our licensed insurance agents, either
individually or through an incorporated insurance agency. Commissions paid to
broker-dealers may vary, but we estimate that the total commissions paid on all
Contract sales will not exceed 6% of all purchase payments (on a present value
basis). From time to time, we may offer additional sales incentives of up to 1%
of purchase payments to broker-dealers who maintain certain sales volume levels.
Allstate Life Financial Services ("ALFS") located at 3100 Sanders Road,
Northbrook, IL 60062-7154 serves as distributor of the Contracts. ALFS is a
wholly owned subsidiary of Allstate. ALFS is a registered broker dealer under
the Securities Exchange Act of 1934, as amended, and is a member of the National
Association of Securities Dealers, Inc.
Allstate does not 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 liability arising out
of services we provide on the Contracts.
Legal Proceedings
There are no pending legal proceedings affecting the variable account. Allstate
and its subsidiaries are engaged in routine lawsuits which, in our management's
judgment, are not of material importance to their respective total assets or
material with respect to the variable account.
Legal Matters
All matters of Illinois law pertaining to the Contract, including the validity
of the Contract and our right to issue the Contract under Illinois law, have
been passed upon by Michael J. Velotta, Vice President, Secretary and General
Counsel. Legal advice relating to the Federal securities laws has been given by
the law firm of Sutherland Asbill & Brennan LLP, Washington, D.C.
Registration Statement
We have filed a registration statement with the SEC, under the Securities Act of
1933 as amended, with respect to the Contracts offered by this prospectus. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits filed as part of the registration statement. You
should refer to the registration statement and the exhibits for further
information concerning the variable account, Allstate, and the Contracts. The
descriptions in this prospectus of the Contracts and other legal instruments are
summaries. You should refer to those instruments as filed for the precise terms
of those instruments. You may inspect and obtain copies of the registration
statement as described on the cover page of this prospectus.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents of the Statement of Additional Information
<S> <C>
The Contract ...........................................................................................1
Income Payments.....................................................................................1
Initial Monthly Income Payment......................................................................1
Subsequent Monthly Payments.........................................................................1
Transfers After The Payout Start Date...............................................................2
Annuity Unit Value..................................................................................2
Illustrative Example Of Annuity Unit Value Calculation..............................................3
Illustrative Example Of Variable Income Payments....................................................4
Additional Federal Income Tax Information................................................................5
Introduction .......................................................................................5
Taxation Of Allstate Life Insurance Company.........................................................5
Exceptions To The Non-Natural Owner Rule............................................................5
IRS Required Distribution At Death Rules............................................................6
Qualified Plans.....................................................................................6
Types of Qualified Plans............................................................................6
IRAs............................................................................................6
Roth IRAs.......................................................................................6
Simplified Employee Pension Plans...............................................................7
Savings Incentive Match Plans For Employees (SIMPLE Plans)......................................7
Tax Sheltered Annuities.........................................................................7
Corporate And Self-Employed Pension And Profit Sharing Plans....................................7
State And Local Government And Tax-Exempt Organization Deferred Compensation Plans .............7
Variable Account Performance.............................................................................8
Standardized Total Return...........................................................................8
Non-Standardized Total Return.......................................................................9
Time Periods Before The Date The Variable Account Commenced Operations..............................9
Tables Of Adjusted Historic Total Return Quotations.....................................................10
Experts.................................................................................................13
Financial Statements....................................................................................F-1
</TABLE>
<PAGE>
Statement Of Additional Information
Flexible Premium Individual Deferred Variable Annuity Contracts
Issued Through
Allstate Financial Advisors Separate Account I
Offered By
Allstate Life Insurance Company
This Statement of Additional Information is not a prospectus. You should also
read the prospectus relating to the annuity contracts described above.
You may obtain a copy of the prospectus without charge by calling us at
1-800-632-3492 or writing to us at the following address:
Allstate Life Insurance Company
Nebraska Service Center
P.O. Box 80469
Lincoln, Nebraska 68501-0469
The date of this Statement of Additional Information
and of the related Prospectus is: July 20, 1999.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
<S> <C>
The Contract.............................................................................................1
Income Payments.......................................................................................1
Initial Monthly Income Payment........................................................................1
Subsequent Monthly Payments...........................................................................1
Transfers After The Payout Start Date.................................................................2
Annuity Unit Value....................................................................................2
Illustrative Example Of Annuity Unit Value Calculation................................................3
Illustrative Example Of Variable Income Payments......................................................4
Additional Federal Income Tax Information................................................................4
Introduction..........................................................................................4
Taxation Of Allstate Life Insurance Company...........................................................5
Exceptions To The Non-Natural Owner Rule..............................................................5
IRS Required Distribution At Death Rules..............................................................5
Qualified Plans.......................................................................................6
Types Of Qualified Plans..............................................................................6
IRAs................................................................................................6
RothIRAs............................................................................................6
Simplified Employee Pension Plans...................................................................6
Savings Incentive Match Plans For Employees (SIMPLE Plans)..........................................6
Tax Sheltered Annuities.............................................................................6
Corporate And Self-Employed Pension And Profit Sharing Plans........................................7
State And Local Government And Tax-Exempt Organization Deferred Compensation Plans..................7
Variable Account Performance.............................................................................7
Standardized Total Return.............................................................................7
Non-Standardized Total Return.........................................................................8
Time Periods Before The Date The Variable Account Commenced Operations................................9
Tables Of Adjusted Historic Total Return Quotations......................................................9
Experts.................................................................................................12
Financial Statements....................................................................................F-1
</TABLE>
<PAGE>
The Contract
Income Payments
The amount of your income payments will depend on the following factors:
(a) the amount of your contract value on the valuation date immediately
preceding the payout start date, minus any applicable premium tax
charge;
(b) the Income Plan you have selected;
(c) the payment frequency you have selected;
(d) the age and, in some cases, the sex of the annuitant and any joint
annuitant; and
(e) for variable income payments only, the investment performance after
the payout start date of the Variable Subaccounts you have selected.
Initial Monthly Income Payment
For both fixed and variable income payments, we determine the amount of your
initial income payment as follows. First, we subtract any applicable premium tax
charge from your contract value on the valuation date next preceding the payout
start date. Next, we apply that amount to the Income Plan you have selected. For
the fixed portion of your income payments, we will use either the Income Payment
Tables in the Contract or our income payment tables in effect at the time of the
calculation, whichever table is more favorable to the annuitant. For income
payments on a variable basis, we will use the Income Payment tables in the
Contract (which reflect the assumed investment rate of 3.0% which is used in
calculating subsequent variable income payments, as described below). The tables
show the amount of the periodic payment an annuitant could receive based on
$1,000 of contract value. To determine the initial payment amount, we divide
your contract value, adjusted as described above, by $1,000 and multiply the
result by the relevant annuity factor for the Annuitant's adjusted age and sex
(if we are permitted to consider that factor) and the frequency of the payments
you have selected. The adjusted age is the actual age of the annuitant on the
payout start date reduced by one year for each six full years between January 1,
1983 and the payout start date.
In some states and under certain Qualified Plans and other employer-sponsored
employee benefit plans, we are not permitted to take the Annuitant's sex into
consideration in determining the amount of periodic income payments. In those
states, we use the same annuity table for men and women.
Subsequent Monthly Payments
For fixed income payments , the amount of the second and each subsequent monthly
income payment is usually the same as the first monthly payment. However, after
the payout start date you will have a limited ability to increase your fixed
income payments by making transfers from the Variable Subaccounts, as described
in "Transfers after the payout start date" on page 3 below. After each such
transfer, however, your subsequent income payments will remain at the new level
until and unless you make an additional transfer to your fixed income payments.
For a variable income payments, the amount of the second and each subsequent
monthly payment will vary depending on the investment performance of the
Variable Subaccounts to which you allocated your contract value after the payout
start date. We calculate separately the portion of the monthly income payment
attributable to each Variable Subaccount you have selected as follows. When we
calculate your initial income payment, we also will determine the number of
annuity units in each Variable Subaccount to allocate to your Contract for the
remainder of the payout phase. For each Variable Subaccount, we divide the
portion of the initial income payment attributable to that Variable Subaccount
by the annuity unit value for that Variable Subaccount on the valuation date
immediately preceding the payout start date. The number of annuity units so
determined for your Contract is fixed for the duration of the payout phase. We
will determine the amount of each subsequent monthly payment attributable to
each Variable Subaccount by multiplying the number of annuity units allocated to
your Contract by the annuity unit value for that Variable Subaccount as of the
valuation period immediately preceding the date on which the income payment is
due. Since the number of annuity units is fixed, the amount of each subsequent
variable income payment will reflect the investment performance of the Variable
Subaccounts you elected.
Transfers After The Payout Start Date
The Contract provides that during the payout phase, you have a limited ability
to make transfers among the Variable Subaccounts or increase the proportion of
your income payments consisting of fixed income payments. No transfers are
permitted during the first six months after the payout start date. Thereafter,
you can make transfers among the Variable Subaccouts, but these transfers must
be at least six months apart. You can make transfers from the Variable
Subaccounts to increase your fixed income payments only if you have chosen
Income Plan 3.
We will effect a transfer among the Variable Subaccounts at their annuity unit
value next determined after we receive your instructions. After the transfer,
your subsequent variable income payments will be based on your new annuity unit
balances. If you wish to transfer value from the Variable Subaccounts to
increase your fixed income payments, we will determine the amount of your
additional fixed income payments as follows. First, we will determine the
annuitized value represented by the annuity units that you wish to apply to a
fixed income payment. Then, we will apply that amount to the appropriate factor
for Income Plan 3, using either the Income Plan Tables in the Contract or our
income payment tables in effect at the time of the calculation, whichever table
is more favorable to the annuitant
Annuity Unit Value
We determine the value of an annuity unit independently for each Variable
Subaccount. Initially, the annuity unit value for each Variable Subaccount was
set at $100.00.
The annuity unit value for each Variable Subaccount will vary depending on how
much the actual net investment return of the Variable Subaccount differs from
the assumed investment rate that was used to prepare the income payment tables
in the Contract. Those income payment tables are based on a 3.0% per year
assumed investment rate. If the actual net investment rate of a Variable
Subaccount exceeds 3.0%, the annuity unit value will increase and variable
income payments derived from allocations to that Variable Subaccount will
increase over time. Conversely, if the actual net investment rate (that is, the
portfolio's investment return minus a deduction of variable account charges) is
less than 3.0%, the annuity unit value will decrease and the variable income
payments will decrease over time. If the net investment rate of a Variable
Subaccount equals 3.0%, the annuity unit value will stay the same, as will the
variable income payments. If we had used a higher assumed investment rate, the
initial monthly payment would be higher, but the actual net investment rate
would also have to be higher in order for income payments to increase (or not to
decrease).
For each Variable Subaccount, we determine the annuity unit value for any
valuation period by multiplying the annuity unit value for the immediately
preceding valuation period by the Net Investment Factor for the current
valuation period. The result is then divided by a second factor which offsets
the effect of the assumed net investment rate of 3.0% per year.
The Net Investment Factor measures the net investment performance of a Variable
Subaccount from one valuation date to the next. The Net Investment Factor may be
greater or less than or equal to one; therefore, the value of an annuity unit
may increase, decrease or remain the same.
To determine the Net Investment Factor for a Variable Subaccount for a valuation
period, we divide (a) by (b), and then subtract (c) from the result, where:
(a) is the total of:
(1) the net asset value of a portfolio share held in the
Variable Subaccount determined as of the valuation
date at the end of the valuation period; plus
(2) the per share amount of any dividend or other
distribution declared by the Portfolio for which the
"ex-dividend" date occurs during the valuation
period; plus or minus
(3) a per share credit or charge for any taxes which we
paid or for which we reserved during the valuation
period and which we determine to be attributable to
the operation of the Variable Subaccount. As
described in the prospectus, currently we do not pay
or reserve for Federal income taxes;
(b) is the net asset value of the portfolio share determined as of the
valuation date at the end of the immediately preceding valuation
period; and
(c) is the annualized mortality and expense risk charge and the annualized
administrative expense risk charge divided by the number of days in the
current calendar year and then multiplied by the number of calendar
days in the current valuation period.
The Net Investment Factor may be greater, less than, or equal to one. Therefore
the value of an accumulation unit may increase, decrease, or remain the same.
Illustrative Example Of Annuity Unit Value Calculation
Assume that one share of a given Variable Subaccount's underlying Portfolio had
a net asset value of $11.46 as of the close of the New York Stock Exchange
("NYSE") on a Tuesday; that its net asset value had been $11.44 at the close of
the NYSE on Monday, the day before; and that no dividends or other distributions
on that share had been made during the intervening valuation period. The Net
Investment Factor for the valuation period ending on Tuesday's close of the NYSE
is calculated as follows:
Net Investment Factor = ($11.46/$11.44) - 0.000034246 = 1.001714006
The amount subtracted from the ratio of the two net asset values (0.000034246)
is the daily equivalent of the annual asset-based expense charges against the
Variable Subaccount of 1.25% and a factor for the 3.0% assumed investment rate.
In the example given above, if the annuity unit value for the Variable
Subaccount was $101.03523 on Monday, the annuity unit value on Tuesday would
have been:
$101.03523 x 1.001714006 = $101.20021
1.000080986
Illustrative Example Of Variable Income Payments
Assume that a male Contract owner, P, owns a Contract in connection with which P
has allocated all of his contract value to a single Variable Subaccount. P is
also the sole annuitant. At age 60, P chooses to annuitize his Contract under
Income Plan 1, Life Income with Guaranteed Payments for 120 Months. As of the
last valuation date immediately preceding the payout start date, P's account was
credited with 7543.2456 accumulation units each having a value of $15.432655.
Accordingly, P's account value at that date is equal to 7543.2456 X $15.432655 =
$116,412.31. There are no premium tax charges payable upon annuitization. Assume
also that the annuity unit value for the Variable Subaccount at that same date
is $132.56932, and that the annuity unit value on the valuation date immediately
prior to the second income payment date is $133.27695.
P's first variable income payment is determined from the income payment tables
in P's Contract, using the information assumed above, with an adjustment for
age. The tables supply monthly income payments for each $1,000 of applied
contract value. Accordingly, P's first variable income payment is determined by
multiplying the monthly installment of $4.92 by the result of dividing P's
Account Value by $1,000:
First Payment = $4.92 X ($116,412.31/$1,000) = $572.75
The number of P's annuity units is also determined at this time. It is equal to
the amount of the first variable income payment divided by the value of an
annuity unit at the valuation date immediately prior to annuitization:
annuity units = $572.75 divided by $132.56932 = 4.32037
P's second variable income payment is determined by multiplying the number of
annuity units by the annuity unit value as of the valuation date immediately
prior to the second payment due date:
Second Payment = 4.32037 x $133.27695 = $575.81
P's third and subsequent variable income payments are computed in the same
manner.
The amount of the first variable income payment depends on the contract value in
the relevant Variable Subaccount on the payout start date. Thus, it reflects the
investment performance of the Variable Subaccount, minus fees and charges during
the accumulation period. The amount of the first variable income payment
determines the number of annuity units allocated to P's Contract for the payout
phase. That number will remain constant throughout the payout phase, unless the
Contract owner makes a transfer. The amount of the second and subsequent
variable income payments depends on changes in the annuity unit value, which
will continuously reflect changes in the net investment performance of the
Variable Subaccount during the payout phase.
Additional Federal Income Tax Information
Introduction
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 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. The Variable Account is not an entity separate from
Allstate, and its operations form a part of the Company. As a consequence, the
Variable Account 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 current Federal 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. Generally, reserves are amounts that Allstate is legally required to
accumulate and maintain in order to meet future obligations under the Contracts.
Allstate does not anticipate that it will incur any Federal income tax liability
attributable to the Variable Account. Therefore, we do not intend to make
provisions for any such taxes. If we are taxed on investment income or capital
gains of the Variable Account, then we may impose a charge against the Variable
Account in order to make provision for such taxes.
Exceptions To The Non-Natural Owner Rule
Generally, Contracts held by a non-natural owner are not treated as annuity
contracts for Federal income tax purposes, unless one of several exceptions
applies. Contracts will generally be treated as held by a natural person if the
nominal owner is a trust or other entity that holds the Contract for the benefit
of a natural person. However, this special exception will not apply in the case
of an employer who is the nominal owner of a Contract under a non-qualified
deferred compensation arrangement for 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 date of purchase of the annuity and
substantially equal periodic payments are made, not less frequently
than annually, during the payout phase.
IRS Required Distribution At Death Rules
To qualify as an annuity contract for Federal income tax purposes, a
nonqualified Contract must provide:
(1) if any owner dies on or after the annuity start date, but before the
entire interest in the Contract has been distributed, the remaining
portion of such interest must be distributed at least as rapidly as
under the method of distribution being used as of the date of the
owner's death;
(2) if any owner dies prior to the annuity start date, the entire interest
in the Contract must be distributed within five years after the date
of the owner's death.
The five year requirement is satisfied if:
(1) any portion of the owner's interest which is payable to 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
(2) the distributions begin within one year of the owner's death.
If the owner's designated beneficiary is a surviving spouse, the Contract may be
continued with the surviving spouse as the new owner. If the owner of the
Contract is a non-natural person, the annuitant is treated as the 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 is treated as the
death of the owner.
Qualified Plans
This Contract may be used with several types of Qualified Plans. The tax rules
applicable to participants in Qualified Plans vary according to the type of Plan
and the terms and conditions of the Plan. Qualified Plan participants, and
owners, annuitants and beneficiaries under the Contract may be subject to the
terms and conditions of the Qualified Plan regardless of the terms of the
Contract.
Types Of Qualified Plans
IRAs
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement plan known as an IRA. IRAs are subject to limitations on
the amount that can be contributed and on the time when distributions may
commence. Certain distributions from other types of qualified plans may be
"rolled over" on a tax-deferred basis into an IRA. An IRA generally may not
provide life insurance, but it may provide a Death Benefit that equals the
greater of the premiums paid or the Contract value. The Contract provides a
Death Benefit that in certain situations, may exceed the greater of the payments
or the contract value. If the IRS treats the Death Benefit as violating the
prohibition on investment in life insurance contracts, the Contract would not
qualify as an IRA.
Roth IRAs
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement plan known as a Roth IRA. Roth IRAs
are subject to limitations on the amount that can be contributed. In certain
instances, distributions from Roth IRAs are excluded from gross income. Subject
to certain limits, a traditional Individual Retirement Account or Annuity may be
converted or "rolled over" to a Roth IRA. The taxable portion of a conversion or
rollover distribution is included in gross income, but is exempt 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' IRAs if certain criteria
are met. Under these plans the employer may, within 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 Tax Code allow employers with 100 or fewer
employees to establish SIMPLE retirement plans for their employees. SIMPLE plans
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 Tax 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 Contracts for them. Subject to certain
limitations, a Section 403(b) plan allows an employer to exclude the purchase
payments from the employees' gross income. A 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:
o the date the employee attains age 59 1/2,
o separates from service,
o dies,
o becomes disabled, or
o 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 Tax Code permit corporate employers to
establish various types of tax favored retirement plans for employees. The Tax
Code permits self-employed individuals to establish tax favored retirement plans
for themselves and their employees. Such retirement plans may permit the
purchase of Contracts 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 income taxes. The employees must be participants in an eligible
deferred compensation plan. Employees with Contracts under the plan are
considered general creditors of the employer. The employer, as owner of the
Contract, has the sole right to the proceeds of the Contract. Generally, under
the non-natural owner rules, 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 included in the employees' gross income
until distributed from the plan. However, all compensation deferred under a 457
plan must remain the sole property of the employer. As property of the employer,
the assets of the plan are subject only to the claims of the employer's general
creditors, until such time as the assets become available to the employee or a
beneficiary.
Variable Account Performance
Performance data for the various Variable Subaccounts are computed in the manner
described below.
Standardized Total Return
Standardized total return for a Variable Subaccount represents a single computed
annual rate of return that, when compounded annually over a specified time
period (one, five, and ten years, or since inception) and applied to a
hypothetical initial investment in a Contract funded by that Variable Subaccount
made at the beginning of the period, will produce the same contract value at the
end of the period that the hypothetical investment would have produced over the
same period. The standardized total rate of return (T) is computed so that it
satisfies the following formula:
P(1+T) to the power of n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
one, five, or ten year period as of the end of
the period (or fractional portion thereof).
The standardized total return figures reflect the effect of both non-recurring
and recurring charges, as discussed herein. When factoring the contract
maintenance charge, we pro rate the charge by dividing the $35 contract
maintenance charge by an assumed contract size of $20,000. We then multiply the
resulting percentage by a hypothethical $1,000 investment. The applicable
Withdrawal Charge (if any) is deducted as of the end of the period, to reflect
the effect of the assumed complete redemption. The effect of the contract
maintenance charge on your account usually will differ from that assumed in the
computation, due to differences between most actual allocations and the assumed
one, as well as differences due to varying account sizes. Accordingly, your
total return on an investment in the Variable Subaccount over the same time
periods usually would have differed from those produced by the computation.
Standardized total return figures are based on historical data and are not
intended to be a projection of future performance.
Non-Standardized Total Return
Non-standardized total return for a Variable Subaccount represents a single
computed annual rate of return that, when compounded annually over a specified
time period (one, five, and ten years, or since inception) and applied to a
hypothetical initial investment in a Contract funded by that Variable Subaccount
made at the beginning of the period, will produce the same contract value at the
end of the period that the hypothetical investment would have produced over the
same period. The total rate of return (T) is computed so that it satisfies the
formula:
P(1+T) to the power of n = ERV
where:
P = a hypothetical initial payment of $20,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$20,000 payment made at the beginning of the
one, five, or ten year period as of the end of
the period (or fractional portion thereof).
Our non-standardized total return differs from standardized total return in that
in calculating non-standardized total return, we assumed an initial hypothetical
investment of $20,000. We chose $20,000, because it is closer to the average
Purchase Payment of a Contract that we expect to write. For standardized total
return, we used an initial hypothetical investment of $1,000, as required by SEC
regulations. The non-standardized total return figures reflect the effect of
recurring charges, as discussed herein. Because the impact of the contract
maintenance charge on your account will usually differ from that assumed in the
computation, due to differences between most actual allocations and the assumed
one, as well as differences due to varying account sizes, your total return on
an investment in the Variable Subaccount over the same time periods usually
would have differed from those produced by the computation. As with the
standardized total return figures, non-standardized total return figures are
based on historical data and are not intended to be a projection of future
performance.
Time Periods Before The Date The Variable Account Commenced Operations
The Variable Account may also disclose non-standardized total return for time
periods before the Variable Account commenced operations. This performance data
is based on the actual performance of the Portfolios since their inception,
adjusted to reflect the effect of the current level of charges that apply to the
Variable Subaccounts under the Contract.
Tables Of Adjusted Historic Total Return Quotations
The tables below set out the adjusted historic total returns for the Variable
Subaccounts for various periods as of December 31, 1998. This performance data
is based on the actual performance of the Portfolios since their inception,
adjusted to reflect the effect of the current level of charges that apply to the
Variable Subaccounts under the Contract.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Table 1
Adjusted Historic Portfolio Total Return As Of December 31, 1998 (2)
Assuming Contract Is Surrendered
Average Annual Total Return3
- ------------------------------------------------------------------------------------------------------------
With Standard Death Benefit
(Total Variable Account Annual Expenses: 1.25%)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 Year or
Portfolio Inception Date(2) 1 Year (%) 5 Year (%) Since Inception (%)
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds, Inc.
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Capital Appreciation 5/5/93 11.70% 15.34% 16.94%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Diversified Income 5/5/93 -3.83% N/A 5.52%
====== ====== === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Growth and Income 5/5/93 26.33% 19.53% 19.02%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. International Equity 5/5/93 7.91% 9.43% 11.54%
====== ===== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Value 5/5/93 24.60% 19.80% 20.05%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP (VIP)
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP Growth 10/9/86 31.62% 19.83% 17.82%
======= ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP High Income 9/19/85 -11.65% 6.90% 6.86%
======= ======= ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP Overseas 1/28/87 5.27% 7.81% 8.58%
======= ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP II (VIP II)
- ------------------------------------------------------------------------------------------------------------
Fidelity VIPII Contrafund 1/3/95 22.23% N/A 26.39%
====== ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Index 500 8/27/92 16.49% 19.24% 17.12%
======= ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Investment Grade 12/5/88 1.36% 4.78% 5.16%
======= ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS Variable Insurance Trust
- ------------------------------------------------------------------------------------------------------------
MFS Bond 10/24/95 -0.67% N/A 4.15%
======== ====== === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS Growth with Income 10/9/95 14.67% N/A 23.41%
======= ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS High Income 7/26/95 -7.55% N/A 6.18%
======= ====== === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS New Discovery 4/29/98 N/A N/A -7.03%
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Variable Account Funds
- ------------------------------------------------------------------------------------------------------------
Oppenheimer Bond/VA 4/3/85 -0.66% 5.09% 7.72%
====== ====== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Capital Appreciation/VA 4/3/85 16.33% 20.19% 14.93%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Global Securities/VA 11/12/90 6.55% 7.75% 10.94%
======== ===== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer High Income/VA 4/30/86 -7.07% 6.72% 11.04%
======= ====== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Small Cap Growth/VA 5/1/98 N/A N/A -15.91%
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Life Investment Trust
- ------------------------------------------------------------------------------------------------------------
Van Kampen Comstock 4/30/99 N/A N/A N/A
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Emerging Growth 7/3/95 29.67% N/A 23.85%
====== ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Money Market(1) 4/7/86 -2.42% 2.90% 3.79%
====== ====== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Domestic Income 11/4/87 -1.39% 2.90% -3.70%
======= ====== ===== ======
- ------------------------------------------------------------------------------------------------------------
With Enhanced Death and Income Benefit Rider
(Total Variable Account Annual Expenses: 1.65%)
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
10 Year ^ or
Portfolio Inception Date(2) 1 Year (%) 5 Year (%) Since Inception (%)
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds, Inc.
- ------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation 5/5/93 11.23% 14.87% 16.46%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Diversified Income 5/5/93 -4.24% N/A 5.08%
====== ====== === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Growth and Income 5/5/93 25.79% 19.03% 18.54%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. International Equity 5/5/93 7.45% 8.97% 11.08%
====== ===== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Value 5/5/93 24.07% 19.30% 19.56%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP (VIP)
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP Growth 10/9/86 31.07% 19.34% 17.34%
======= ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP High Income 9/19/85 -12.03% 6.45% 6.43%
======= ======= ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP Overseas 1/28/87 4.82% 7.36% 8.14%
======= ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP II (VIP II)
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Contrafund 1/3/95 21.71% N/A 25.86%
====== ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Index 500 8/27/92 16.00% 18.75% 16.64%
======= ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Investment Grade 12/5/88 0.93% 4.35% 4.73%
======= ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS Bond 10/24/95 -1.10% N/A 3.71%
======== ====== === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS Growth with Income 10/9/95 14.18% N/A 22.90%
======= ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS High Income 7/26/95 -7.95% N/A 5.73%
======= ====== === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS New Discovery 4/29/98 N/A N/A -7.43%
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Variable Account Funds
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Bond/VA 4/3/85 -1.08% 4.66% 7.28%
====== ====== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Capital Appreciation/VA 4/3/85 15.83% 19.70% 14.46%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Global Securities/VA 11/12/90 6.10% 7.30% 10.49%
======== ===== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer High Income/VA 4/30/86 -7.48% 6.27% 10.59%
======= ====== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Small Cap Growth/VA 5/1/98 N/A N/A -16.27%
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust
- ------------------------------------------------------------------------------------------------------------
Van Kampen Comstock 4/30/99 N/A N/A N/A
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Emerging Growth 7/3/95 10.55% N/A 18.12%
====== ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Money Market (1) 4/7/86 -2.84% 2.47% 3.37%
====== ====== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Domestic Income 11/4/87 -1.88% 2.47% -4.10%
======= ====== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
</TABLE>
1 An investment in the Van Kampen Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government and there can be no assurance that the Van
Kampen Money Market Portfolio will maintain a stable $1.00 share price. The Van
Kampen Money Market Portfolio does not advertise total return.
2 The variable account commenced operations in July 1999. Once available,
standardized performance data for the periods after the inception of Contract
sales will reflect the actual performance of the Contracts.
3 Total return includes changes in share price, reinvestment of dividends, and
capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an initial
hypothetical investment of $20,000, since this is closer to the average purchase
payment of a contract expected to be written, rather than the $1,000 required by
the SEC for the standardized returns; and (3) reflect the deduction of either
1.65% (for the Enhanced Death and Living Benefit Rider) or 1.25% (for the
Standard Death Benefit) in annual variable account charges and a $35 annual
contract maintenance charge; and (4) reflect the applicable withdrawal charge.
The impact of the contract maintenance charge on investment returns will vary
depending on the size of the Contract and is reflected as an annual charge of
0.175% of Variable Subaccount assets. The investment return and value of a
Contract will fluctuate so that a Contract, when surrendered, may be worth more
or less than the amount of the purchase payments.
4 Total returns reflect that certain investment advisers waived all or part of
the advisory fee or reimbursed the portfolio for a portion of its expenses.
Otherwise, total returns would have been lower.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Table 2
Adjusted Historic Portfolio Total Return As Of December 31, 1998 (2)
Assuming Contract Is Not Surrendered
Average Annual Total Return(3)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
With Standard Death Benefit
(Total Variable Account Annual Expenses: 1.25%)
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
<S> <C> <C> <C> <C>
10 Year or
Portfolio Inception Date(2) 1 Year (%) 5 Year (%) Since Inception (%)
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds, Inc.
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Capital Appreciation 5/5/93 17.83% 15.77% 17.27%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Diversified Income 5/5/93 2.30% 5.78% 6.03%
====== ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Growth and Income 5/5/93 32.45% 19.92% 19.35%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. International Equity 5/5/93 14.03% 9.93% 11.94%
====== ====== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Value 5/5/93 30.72% 20.18% 20.36%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP (VIP)
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP Growth 10/9/86 37.75% 20.22% 17.92%
======= ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP High Income 9/19/85 -5.52% 7.44% 7.02%
======= ====== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP Overseas 1/28/87 11.40% 8.34% 8.71%
======= ====== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP II (VIP II)
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Contrafund 1/3/95 28.36% N/A 27.01%
====== ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Index 500 8/27/92 22.62% 19.63% 17.37%
======= ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Investment Grade 12/5/88 7.49% 5.37% 5.30%
======= ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS Bond 10/24/95 5.46% N/A 5.56%
======== ===== === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS Growth with Income 10/9/95 20.80% N/A 24.38%
======= ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS High Income 7/26/95 -1.42% N/A 7.41%
======= ====== === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS New Discovery 4/29/98 N/A N/A 1.99%
======= === === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Bond/VA 4/3/85 5.47% 5.67% 7.85%
====== ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Capital Appreciation/VA 4/3/85 22.45% 20.57% 15.05%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Global Securities/VA 11/12/90 12.68% 8.29% 11.08%
======== ====== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer High Income/VA 4/30/86 -0.95% 7.26% 11.15%
======= ====== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Small Cap Growth/VA 5/1/98 N/A N/A -7.10%
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Comstock 4/30/99 N/A N/A N/A
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Emerging Growth 7/3/95 35.79% N/A 24.69%
====== ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Money Market(1) 4/7/86 3.71% 3.52% 3.94%
====== ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Domestic Income 11/4/87 4.74% -0.86% -3.45%
======= ===== ====== ======
- ------------------------------------------------------------------------------------------------------------
With Enhanced Death and Income Benefit Rider
(Total Variable Account Annual Expenses: 1.65%)
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
10 Year or
Portfolio Inception Date(2) 1 Year (%) 5 Year (%) Since Inception (%)
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds, Inc.
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Capital Appreciation 5/5/93 17.35% 15.30% 16.80%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Diversified Income 5/5/93 1.88% 5.35% 5.60%
====== ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Growth and Income 5/5/93 31.92% 19.43% 18.87%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. International Equity 5/5/93 13.57% 9.49% 11.49%
====== ====== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
AIM V.I. Value 5/5/93 30.19% 19.69% 19.87%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP (VIP)
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP Growth 10/9/86 37.19% 19.73% 17.44%
======= ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP High Income 9/19/85 -5.91% 7.00% 6.58%
======= ====== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIP Overseas 1/28/87 10.95% 7.90% 8.27%
======= ====== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
Fidelity VIP II (VIP II)
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Contrafund 1/3/95 27.84% N/A 26.50%
====== ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Index 500 8/27/92 22.12% 19.14% 16.89%
======= ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Fidelity VIPII Investment Grade 12/5/88 7.05% 4.94% 4.88%
======= ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS Bond 10/24/95 5.03% N/A 5.13%
======== ===== === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS Growth with Income 10/9/95 20.31% N/A 23.88%
======= ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS High Income 7/26/95 -1.82% N/A 6.97%
======= ====== === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
MFS New Discovery 4/29/98 N/A N/A 1.58%
======= === === =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Bond/VA 4/3/85 5.04% 5.24% 7.41%
====== ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Capital Appreciation/VA 4/3/85 21.96% 20.09% 14.58%
====== ====== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Global Securities/VA 11/12/90 12.22% 7.86% 10.63%
======== ====== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer High Income/VA 4/30/86 -1.35% 6.83% 10.70%
======= ====== ===== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Oppenheimer Small Cap Growth/VA 5/1/98 N/A N/A -7.48%
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- ------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust
- ------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Comstock 4/30/99 N/A N/A N/A
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Emerging Growth 7/3/95 16.68% N/A 19.05%
====== ====== === ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Money Market (1) 4/7/86 3.29% 3.10% 3.52%
====== ===== ===== =====
- -------------------------------------------- ---------------- ------------ ------------ --------------------
- -------------------------------------------- ---------------- ------------ ------------ --------------------
Van Kampen Domestic Income 11/4/87 4.25% -1.28% -3.85%
======= ===== ====== ======
- -------------------------------------------- ---------------- ------------ ------------ --------------------
</TABLE>
1 An investment in the Van Kampen Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government and there can be no assurance that the Van
Kampen Money Market Portfolio will maintain a stable $1.00 share price. The Van
Kampen Money Market Portfolio does not advertise total return.
2 The variable account commenced operations in July 1999. Once available,
standardized performance data for the periods after the inception of Contract
sales will reflect the actual performance of the Contracts.
3 Total return includes changes in share price, reinvestment of dividends, and
capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an initial
hypothetical investment of $20,000, since this is closer to the average purchase
payment of a contract expected to be written, rather than the $1,000 required by
the SEC for the standardized returns; (3) reflect the deduction of either 1.65%
(for the Enhanced Death and Living Benefit Rider) or 1.25% (for the Standard
Death Benefit) in annual variable account charges and a $35 annual contract
maintenance charge, but do not reflect the applicable withdrawal charge. The
impact of the contract maintenance charge on investment returns will vary
depending on the size of the Contract and is reflected as an annual charge of
0.175% of Variable Subaccount assets. The investment return and value of a
Contract will fluctuate so that a Contract, when surrendered, may be worth more
or less than the amount of the purchase payments.
4 Total returns reflect that certain investment advisers waived all or part of
the advisory fee or reimbursed the portfolio for a portion of its expenses.
Otherwise, total returns would have been lower.
Experts
The combined statutory basis financial statements of Allstate Life Insurance
Company included in this Statement of Additional Information (which is
incorporated by reference in the prospectus of Allstate Financial Advisors
Separate Account I of Allstate Life Insurance Company) have been audited by
Deloitte & Touche LLP, 180 N. Stetson Avenue, Chicago, Illinois 60601-6710,
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 financial statements of Allstate Life Insurance Company, which are included
in this SAI, should be considered only as bearing on the ability of Allstate to
meet its obligation under the Contract. They should not be considered as bearing
on the investment performance of the assets held in the variable account.
The financial statements of Allstate Financial Advisors Separate Account I are
not available since as of December 31, 1998, the separate account had not
commenced operations.
<PAGE>
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>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF FINANCIAL POSITION
(Statutory Basis)
DECEMBER 31,
---------------------------
($ in thousands) 1998 1997
------------- -------------
ASSETS
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 $36,182,681
=========== ===========
See notes to combined financial statements (statutory basis).
F-3
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF OPERATIONS
(Statutory Basis)
YEAR ENDED DECEMBER 31,
------------------------
<S> <C> <C>
($ in thousands) 1998 1997
----------- -----------
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
=========== ===========
<FN>
See notes to combined financial statements (statutory basis).
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF CAPITAL AND SURPLUS
(Statutory Basis)
YEAR ENDED DECEMBER 31,
-------------------------
<S> <C> <C>
($ in thousands) 1998 1997
----------- -----------
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
=========== ===========
<FN>
See notes to combined financial statements (statutory basis).
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(Statutory Basis)
YEAR ENDED DECEMBER 31,
---------------------------
<S> <C> <C>
($ in thousands) 1998 1997
------------ ------------
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
============ ============
<FN>
See notes to combined financial statements (statutory basis).
</FN>
</TABLE>
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
=========== =========== =========== ===========
SCHEDULED MATURITIES
The scheduled maturities for bonds are as follows at December 31, 1998:
STATEMENT FAIR
VALUE VALUE
----------- -----------
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 $25,480,640
=========== ===========
Actual maturities may differ from those scheduled as a result of
prepayment by the issuers.
</TABLE>
F-14
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ in thousands)
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31
1998 1997
----------- -----------
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)
----------- -----------
Realized capital gains, after tax $ 148,863 $ 68,498
=========== ===========
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 $28,754 were realized on sales of bonds during 1998 and 1997,
respectively.
INVESTMENT CONCENTRATION FOR MUNICIPAL BOND AND COMMERCIAL MORTGAGE
PORTFOLIOS AND OTHER INVESTMENT INFORMATION
The Company maintains a diversified portfolio of state and municipal bonds.
The largest concentrations in the portfolio are presented below. Except for the
following, holdings in no other state exceeded 5.0% of the portfolio at December
31, 1998 and 1997:
(% OF TOTAL STATE AND MUNICIPAL BONDS CARRYING VALUE)
1998 1997
---- ----
California 34.3% 34.5%
Illinois 13.5 11.1
Ohio 12.7 10.5
New York 10.9 10.6
Georgia 1.2 5.4
F-15
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory Basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ 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:
(% OF COMMERCIAL MORTGAGES CARRYING VALUE)
1998 1997
---- ----
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
The types of properties collateralizing the commercial mortgage loans
at December 31, are as follows:
(% OF COMMERCIAL MORTGAGES CARRYING VALUE)
1998 1997
---- ----
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%
===== =====
The contractual maturities of the commercial mortgage loan portfolio as of
December 31, 1998, for loans that were not in foreclosure are as follows:
NUMBER OF LOANS STATEMENT VALUE PERCENT
--------------- --------------- -------
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%
=== =========== =====
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
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:
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 $95,233 at December
31, 1998. The Company includes the impact of credit guarantees in its analysis
of credit risk, and the referenced credits were current with respect to their
contractual terms at December 31, 1998.
7. INCOME TAXES
The Company joins the Corporation and its other eligible domestic
subsidiaries (the "Allstate Group") in the filing of a consolidated federal
income tax return and is party to a federal income tax allocation agreement (the
"Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the
Company pays to or receives from the Corporation the amount, if any, by which
the Allstate Group's federal income tax liability was affected by virtue of
inclusion of the Company in the consolidated federal return. Effectively, this
results in the Company's annual income tax provision being computed, with
adjustments, as if the Company filed a separate return.
Prior to Sears, Roebuck and Co's ("Sears") distribution ("Sears
distribution") on June 30, 1995 of its 80.3% ownership in the Corporation to
Sears shareholders, the Allstate Group,including the Company, joined with Sears
and its domestic business units (the "Sears Group")in the filing of a
consolidated federal income tax return (the Sears Tax Group") and were parties
to a federal income tax allocation agreement (the "Tax Sharing Agreement").
Under the Tax Sharing Agreement, the Company, through the Corporation, paid to
or received from the Sears Group the amount, if any, by which the Sears Tax
Group's federal income tax liability was affected by virtue of inclusion of the
Company in the consolidated federal income tax return.
F-21
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(Statutory basis)
YEARS ENDED DECEMBER 31, 1998 AND 1997
($ 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:
1998 1997
---- ----
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 %
===== ====
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:
1998
----
1999 $2,633
2000 2,425
2001 939
2002 782
2003 36
Thereafter 276
------
$7,091
======
* * *
F-23
<PAGE>
Part C
Other Information
24A. Financial Statements
All required financial statements are included in Part B of this Registration
Statement.
24B. Exhibits
The following exhibits, correspond to those required by paragraph (b) of item 24
as to exhibits in Form N-4:
(1) Resolution of the Board of Directors of Allstate Life Insurance Company
authorizing establishment of the Allstate Financial Advisors Separate
Account I 2/
(2) Not Applicable
(3) Underwriting Agreement among Allstate Life Insurance Company, Allstate
Financial Advisors Separate Account, and Allstate Life Financial Services,
Inc.3/
(4) Form of Contract and Certificate Amendments 2/
(5) Form of Application for a Contract 3/
(6)(a) Articles of Incorporation of Allstate Life Insurance Company 1/
(b) By-laws of Allstate Life Insurance Company 1/
(7) Not applicable
(8)(a) Form of Participation Agreement among AIM Variable Insurance Funds, Inc.,
AIM Distributors, and Allstate Life Insurance Company 3/
(b) Form of Participation Agreement among MFS Variable Insurance Trust,
Massachusetts Financial Services Company, and Allstate Life Insurance
Company 3/
(c) Form of Participation Agreement among Oppenheimer Variable Account
Funds, OppenheimerFunds, Inc., and Allstate Life Insurance Company 3/
(d) Form of Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation, and Allstate Life Insurance
Company 3/
(e) Form of Participation Agreement among Variable Insurance Products Fund
II, Fidelity Distributors Corporation, and Allstate Life Insurance
Company 3/
(f) Form of Participation Agreement among Van Kampen Life Investment Trust,
Van Kampen Distributors, Inc., Van Kampen Asset Management, Inc., and
Allstate Life Insurance Company 3/
(9) Opinion of Michael J. Velotta, Vice President, Secretary and General
Counsel of Allstate Life Insurance Company 3/
(10)(a) Consent of Deloitte & Touche LLP 4/
(b) Consent of Sutherland Asbill & Brennan LLP 4/
(11) Not applicable
(12) Not applicable
(13) Performance Data Calculations 4/
(14) Not applicable
(15) Powers of Attorney 2/ 3/
1/ Incorporated herein by reference to Depositor's Form N-4 Registration
Statement filed with the SEC via EDGARLINK on February 9, 1999 (File Nos.
333-72017, 811-09227).
2/ Incorporated herein by reference to Registrant's Form N-4 Registration
Statement filed with the SEC via EDGARLINK on May 3, 1999 (File Nos. 333-77605,
811-09327).
3/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Form N-4 Registration Statement filed with the SEC via EDGARLINK on
July 8, 1999 (File Nos. 333-77605, 811-09327).
4/ Filed herewith.
25. Directors And Officers Of The Depositor
Name and Principal Position and Office With
Business Address Depositor of The Account
Louis G. Lower, II Director and Chairman
Thomas J. Wilson, II Director and President
Michael J. Velotta Director, Vice President, Secretary
and General Counsel
John L. Carl Director
Marla G. Friedman Director and Vice President
Robert W. Gary Director
Peter H. Heckman Director and Vice President
Phillip E. Lawson Director
Edward M. Liddy Director
John C. Lounds Director and Vice President
Robert W. Pike Director
Timothy H. Plohg Director and Vice President
Kevin R. Slawin Director and Vice President
Casey J. Sylla Director and Chief Investment Officer
Charles F. Thalheimer Director and Vice President
B. Eugene Wraith Director
Karen C. Gardner Vice President
Thomas A. McAvity, Jr. Vice President
Mary J. McGinn Vice President and Assistant Secretary
Samuel H. Pilch Controller
James P. Zils Treasurer
C. Nelson Strom Assistant Vice President and Corporate
Actuary
Patricia W. Wilson Assistant Vice President, Assistant
Secretary and Assistant Treasurer
Denis Bailey Assistant Vice President
Richard L. Baker Assistant Vice President
D. Steven Boger Assistant Vice President
Lawrence W. Dahl Assistant Vice President
Sarah R. Donahue Assistant Vice President
Douglas F. Gaer Assistant Vice President
Brent H. Hamann Assistant Vice President
John R. Hunter Assistant Vice President
Ronald Johnson Assistant Vice President
Robert Park Assistant Vice President
Barry S. Paul Assistant Vice President
Robert E. Rich Assistant Vice President
Robert N. Roeters Assistant Vice President
Leonard G. Sherman Assistant Vice President
Linda L. Shumilas Assistant Vice President
Robert E. Transon Assistant Vice President
Timothy N. Vander Pas Assistant Vice President
G. Craig Whitehead Assistant Vice President
Laura R. Zimmerman Assistant Vice President
Joanne M. Derrig Assistant Secretary and Chief
Compliance Officer
Emma M. Kalaidjian Assistant Secretary
Paul N. Kierig Assistant Secretary
Brenda D. Sneed Assistant Secretary and Assistant
General Counsel
Nancy M. Bufalino Assistant Treasurer
The principal business address of the foregoing officers and directors is 3100
Sanders Road, Northbrook, Illinois 60062.
26. Persons Controlled By Or Under Common Control With Depositor Or Registrant
Information in response to this item is incorporated by reference to the Form
10-K Annual Report of The Allstate Corporation, File #1-11840 (March 26, 1999).
27. Number Of Contract Owners
Registrant intends to begin operations shortly after the effective date of this
Registration Statement. As of the date hereof there are no contract owners.
28. Indemnification
The by-laws of Allstate Life Insurance Company (Depositor) provide for the
indemnification of its Directors, Officers and Controlling Persons, against
expenses, judgements, fines and amounts paid in settlement as incurred by such
person, if such person acted properly. No indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of a duty
to the Company, unless a court determines such person is entitled to such
indemnity.
Insofar as indemnification for liability arising out of the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than payment by the registrant of expenses incurred by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of is counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
29A. Relationship Of Principal Underwriter To Other Investment Companies
The Fund's principal underwriter, Allstate Life Financial Services,
Inc., currently acts as a principal underwriter, depositor, sponsor, or
investment adviser for the following entities:
- Glenbrook Life and Annuity Company Separate Account A
- Glenbrook Life Multi-Manager Variable Account
- Glenbrook Life and Annuity Company Variable Annuity Account
- Glenbrook Life Variable Life Separate Account B
- Allstate Life of New York Separate Account A
- Glenbrook Life AIM Variable Life Separate Account A
- Glenbrook Life Scudder Variable Account (A)
- Glenbrook Life Variable Life Separate Account A
- Allstate Life Insurance Company Separate Account A
29B. Principal Underwriter
Following are the names, business addresses, positions, and offices of
each director, officer or partner of the principal underwriter:
Name and Principal Business Positions and Offices
Address of Each Such Person with Underwriter
Louis G. Lower, II Director
Kevin R. Slawin Director
Michael J. Velotta Director and Secretary
Thomas J. Wilson II Director
John R. Hunter Director and President, Chief
Executive Officer
Janet M. Albers Vice President and Controller
Brent H. Hamann Vice President
Andrea J. Schur Vice President
Terry Young General Counsel and Assistant Secretary
James P. Zils Treasurer
Lisa A. Burnell Ass't Vice President & Compliance
Officer
Robert N. Roeters Assistant Vice President
Emma M. Kalaidjian Assistant Secretary
Brenda D. Sneed Assistant Secretary
Gregory C. Sernett Assistant Secretary
Nancy M. Bufalino Assistant Treasurer
The principal business address of Allstate Life Financial Services, Inc. is 3100
Sanders Road, Northbrook, Illinois 60062.
29C. Compensation of Principal Underwriter
Underwriter compensation during fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NET UNDERWRITING REDEMPTION COMPENSATION ON BROKERAGE
NAME OF PRINCIPAL UNDERWRITER DISCOUNTS AND COMMISSIONS COMMISSION COMPENSATION
<S> <C> <C> <C> <C>
Allstate Life Financial None None None None
Services, Inc.
</TABLE>
30. Location Of Accounts And Records
The Depositor, Allstate Life Insurance Company, is located at 3100 Sanders Road,
Northbrook, Illinois 60062.
The Distributor, Allstate Life Financial Services, Inc., is located at 3100
Sanders Road, Northbrook, Illinois 60062.
Each company maintains those accounts and records required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the rules
promulgated thereunder.
31. Management Services
None.
32. Undertakings
Registrant promises to file a post-effective amendment to the Registration
Statement as frequently as is necessary to ensure that the audited financial
statements in the Registration Statement are never more than 16 months old for
so long as payments under the variable annuity contracts may be accepted.
Registrant furthermore agrees to include either as part of any application to
purchase a contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or a post card or
similar written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information. Finally,
Registrant agrees to deliver any Statement of Additional Information and any
financial statements required to be made available under this Form N-4 promptly
upon written or oral request.
33. Representations Pursuant To Section 403(B) Of The Internal Revenue Code
The Company represents that it is relying upon the letter, dated November 28,
1988, from the Commission staff to the American Council of Life Insurance and
that it intends to comply with the provisions of paragraphs 1-4 of that letter.
34. Representation Regarding Contract Expenses
Allstate Life Insurance Company ("Allstate Life") represents that the fees and
charges deducted under the Contracts described in the prospectus included in
this Registration Statement (as amended or supplemented), in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Allstate Life.
<PAGE>
Signatures
As required by the Securities Act of 1933 and the Investment Company Act of
1940, Registrant, Allstate Financial Advisors Separate Account I, certifies that
it meets the requirements of Securities Act Rule 485(b) for effectiveness of
this registration statement and has caused this Post-Effective Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the Township of Northfield, State of Illinois, on the 29th day of July, 1999.
Allstate Financial Advisors
Separate Account I
(Registrant)
By: Allstate Life Insurance Company
(Depositor)
(SEAL)
Attest: /s/Brenda D. Sneed By: /s/Michael J. Velotta
Brenda D. Sneed Michael J. Velotta
Assistant Secretary and Vice President, Secretary and
Assistant General Counsel General Counsel
As required by the Securities Act of 1933, this Post-Effective Amendment No. 1
to the Registration Statement has been duly signed below by the following
Directors and Officers of Allstate Life Insurance Company on the 29th day of
July, 1999.
<TABLE>
<CAPTION>
<S> <C>
*/LOUIS G. LOWER, II Chairman of the Board and Director
Louis G. Lower, II (Principal Executive Officer)
/s/MICHAEL J. VELOTTA Vice President, Secretary, General
Michael J. Velotta Counsel and Director
*/THOMAS J. WILSON, II President and Director
Thomas J. Wilson, II (Principal Operating Officer)
*/KEVIN R. SLAWIN Vice President and Director
Kevin R. Slawin (Principal Financial Officer)
*/CASEY J. SYLLA Chief Investment Officer and Director
Casey J. Sylla
*/SAMUEL H. PILCH Controller
Samuel H. Pilch (Principal Accounting Officer)
*/MARLA G. FRIEDMAN Vice President and Director
Marla G. Friedman
*/PETER H. HECKMAN Vice President and Director
Peter H. Heckman
*/JOHN C. LOUNDS Vice President and Director
John C. Lounds
*/TIMOTHY H. PLOHG Vice President and Director
Timothy H. Plohg
*/ By Michael J. Velotta, pursuant to Powers of Attorney previously filed.
</TABLE>
<PAGE>
Exhibit Index
(10) (a) Consent of Deloitte & Touche LLP
(b) Consent of Sutherland Asbill and Brennan LLP
(13) Performance Data Calculations
Exhibit 10(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 333-77605 of Allstate Financial Advisors Separate Account I of
Allstate Life Insurance Company on Form N-4 of our report dated April 2, 1999
relating to the combined statutory basis financial statements of Allstate Life
Insurance Company, contained in the Statement of Additional Information (which
is incorporated by reference in the Prospectus of Allstate Financial Advisors
Separate Account I of Allstate Life Insurance Company), which is part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Statement of Additional Information.
Chicago, Illinois
August 4, 1999
Exhibit 10(b)
Letterhead of Sutherland Asbill & Brennan LLP 1275
Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
STEPHEN E. ROTH
DIRECT LINE: 202.383.0158
Internet: [email protected]
August 4, 1999
VIA EDGARLINK
Board of Directors
Allstate Life Insurance Company
3100 Sanders Road
Northbrook, Illinois 60062
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the SelectDirections Variable Annuity Prospectus filed as part of
Post-Effective Amendment No. 1 to the registration statement on Form N-4 for
Allstate Financial Advisors Separate Account 1 (File No. 333-77605). In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
Sutherland Asbill & Brennan LLP
By: /s/ Stephen E. Roth
--------------------
Stephen E. Roth
<TABLE>
<CAPTION>
AIM V.I. Capital Appreciation
31-Dec-97 NO. YEARS 1.000
TO
31-Dec-98
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.912733 47.81776
FEE 31-Dec-98 1.75 24.641289 0.07102
RESULTING VALUE 31-Dec-98 24.641289 47.74674 1176.5412
1.000
FORMULA: 1000*(1+T)= 1176.5412 - (0.85 * 1000 * 0.07)
= 1117.0412
T = 11.70%
R = 11.70%
AIM V.I. Diversified Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 13.617000 73.43761
FEE 31-Dec-98 1.75 13.929952 0.12563
RESULTING VALUE 31-Dec-98 13.929952 73.31199 1021.2324
1.000
FORMULA: 1000*(1+T)= 1021.2324 - (0.85 * 1000 * 0.07)
= 961.7324
T = -3.83%
R = -3.83%
AIM V.I. Growth & Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.548368 48.66567
FEE 31-Dec-98 1.75 27.217122 0.06430
RESULTING VALUE 31-Dec-98 27.217122 48.60137 1322.7894
1.000
FORMULA: 1000*(1+T)= 1322.7894 - (0.85 * 1000 * 0.07)
= 1263.2894
T = 26.33%
R = 26.33%
AIM V.I. International Equity
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 16.605183 60.22216
FEE 31-Dec-98 1.75 18.935214 0.09242
RESULTING VALUE 31-Dec-98 18.935214 60.12974 1138.5695
1.000
FORMULA: 1000*(1+T)= 1138.5695 - (0.85 * 1000 * 0.07)
= 1079.0695
T = 7.91%
R = 7.91%
AIM V.I. Value
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 21.839915 45.78772
FEE 31-Dec-98 1.75 28.549180 0.06130
RESULTING VALUE 31-Dec-98 28.549180 45.72643 1305.4520
1.000
FORMULA: 1000*(1+T)= 1305.4520 - (0.85 * 1000 * 0.07)
= 1245.9520
T = 24.60%
R = 24.60%
Fidelity VIP Growth
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 44.092995 22.67934
FEE 31-Dec-98 1.75 60.737231 0.02881
RESULTING VALUE 31-Dec-98 60.737231 22.65053 1375.7303
1.000
FORMULA: 1000*(1+T)= 1375.7303 - (0.85 * 1000 * 0.07)
= 1316.2303
T = 31.62%
R = 31.62%
Fidelity VIP High Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 19.595195 51.03292
FEE 31-Dec-98 1.75 18.512652 0.09453
RESULTING VALUE 31-Dec-98 18.512652 50.93839 943.0047
1.000
FORMULA: 1000*(1+T)= 943.0047 - (0.85 * 1000 * 0.07)
= 883.5047
T = -11.65%
R = -11.65%
Fidelity VIP Overseas
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.665585 48.38963
FEE 31-Dec-98 1.75 23.020885 0.07602
RESULTING VALUE 31-Dec-98 23.020885 48.31361 1112.2221
1.000
FORMULA: 1000*(1+T)= 1112.2221 - (0.85 * 1000 * 0.07)
= 1052.7221
T = 5.27%
R = 5.27%
Fidelity VIP II Contrafund
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.249687 49.38348
FEE 31-Dec-98 1.75 25.991605 0.06733
RESULTING VALUE 31-Dec-98 25.991605 49.31615 1281.8059
1.000
FORMULA: 1000*(1+T)= 1281.8059 - (0.85 * 1000 * 0.07)
= 1222.3059
T = 22.23%
R = 22.23%
Fidelity VIP II Index 500
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 112.692588 8.87370
FEE 31-Dec-98 1.75 138.183373 0.01266
RESULTING VALUE 31-Dec-98 138.183373 8.86103 1224.4475
1.000
FORMULA: 1000*(1+T)= 1224.4475 - (0.85 * 1000 * 0.07)
= 1164.9475
T = 16.49%
R = 16.49%
Fidelity VIP II Investment Grade
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 15.585869 64.16068
FEE 31-Dec-98 1.75 16.752571 0.10446
RESULTING VALUE 31-Dec-98 16.752571 64.05622 1073.1064
1.000
FORMULA: 1000*(1+T)= 1073.1064 - (0.85 * 1000 * 0.07)
= 1013.6064
T = 1.36%
R = 1.36%
MFS Bond
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 11.268374 88.74395
FEE 31-Dec-98 1.75 11.883219 0.14727
RESULTING VALUE 31-Dec-98 11.883219 88.59668 1052.8138
1.000
FORMULA: 1000*(1+T)= 1052.8138 - (0.85 * 1000 * 0.07)
= 993.3138
T = -0.67%
R = -0.67%
MFS Growth with Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 16.749615 59.70286
FEE 31-Dec-98 1.75 20.232848 0.08649
RESULTING VALUE 31-Dec-98 20.232848 59.61637 1206.2090
1.000
FORMULA: 1000*(1+T)= 1206.2090 - (0.85 * 1000 * 0.07)
= 1146.7090
T = 14.67%
R = 14.67%
MFS High Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 12.966917 77.11933
FEE 31-Dec-98 1.75 12.782226 0.13691
RESULTING VALUE 31-Dec-98 12.782226 76.98242 984.0068
1.000
FORMULA: 1000*(1+T)= 984.0068 - (0.85 * 1000 * 0.07)
= 924.5068
T = -7.55%
R = -7.55%
MFS New Discovery
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 10.133738 0.17269
RESULTING VALUE 31-Dec-98 10.133738 #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.07)
= #VALUE!
T = N/A
R = N/A
Oppenheimer Bond/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 27.888422 35.85717
FEE 31-Dec-98 1.75 29.413264 0.05950
RESULTING VALUE 31-Dec-98 29.413264 35.79768 1052.9265
1.000
FORMULA: 1000*(1+T)= 1052.9265 - (0.85 * 1000 * 0.07)
= 993.4265
T = -0.66%
R = -0.66%
Oppenheimer Capital Appreciation/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 50.912172 19.64167
FEE 31-Dec-98 1.75 62.342381 0.02807
RESULTING VALUE 31-Dec-98 62.342381 19.61360 1222.7584
1.000
FORMULA: 1000*(1+T)= 1222.7584 - (0.85 * 1000 * 0.07)
= 1163.2584
T = 16.33%
R = 16.33%
Oppenheimer Global Securities/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.869779 47.91618
FEE 31-Dec-98 1.75 23.515912 0.07442
RESULTING VALUE 31-Dec-98 23.515912 47.84176 1125.0426
1.000
FORMULA: 1000*(1+T)= 1125.0426 - (0.85 * 1000 * 0.07)
= 1065.5426
T = 6.55%
R = 6.55%
Oppenheimer High Income/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 36.346709 27.51281
FEE 31-Dec-98 1.75 36.001563 0.04861
RESULTING VALUE 31-Dec-98 36.001563 27.46420 988.7541
1.000
FORMULA: 1000*(1+T)= 988.7541 - (0.85 * 1000 * 0.07)
= 929.2541
T = -7.07%
R = -7.07%
Oppenheimer Sm Cap Growth/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 9.519592 0.18383
RESULTING VALUE 31-Dec-98 9.519592 #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.07)
= #VALUE!
T = N/A
R = N/A
Van Kampen Comstock
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 #VALUE! #VALUE!
RESULTING VALUE 31-Dec-98 #VALUE! #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.07)
= #VALUE!
T = N/A
R = N/A
Van Kampen Domestic Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 7.260424 137.73300
FEE 31-Dec-98 1.75 7.604208 0.23014
RESULTING VALUE 31-Dec-98 7.604208 137.50287 1045.6004
1.000
FORMULA: 1000*(1+T)= 1045.6004 - (0.85 * 1000 * 0.07)
= 986.1004
T = -1.39%
R = -1.39%
Van Kampen Emerging Growth
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 15.938091 62.74277
FEE 31-Dec-98 1.75 21.642771 0.08086
RESULTING VALUE 31-Dec-98 21.642771 62.66191 1356.1774
1.000
FORMULA: 1000*(1+T)= 1356.1774 - (0.85 * 1000 * 0.07)
= 1296.6774
T = 29.67%
R = 29.67%
Van Kampen Money Market
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 1.624155 615.70478
FEE 31-Dec-98 1.75 1.684363 1.03897
RESULTING VALUE 31-Dec-98 1.684363 614.66581 1035.3204
1.000
FORMULA: 1000*(1+T)= 1035.3204 - (0.85 * 1000 * 0.07)
= 975.8204
T = -2.42%
R = -2.42%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AIM V.I. Capital Appreciation
31-Dec-97 NO. YEARS 1.000
TO
31-Dec-98
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.912733 47.81776
FEE 31-Dec-98 1.75 24.641289 0.07102
RESULTING VALUE 31-Dec-98 24.641289 47.74674 1176.5412
1.000
FORMULA: 1000*(1+T)= 1176.5412 without surrender charge
= 1176.5412
T = 17.65%
R = 17.65%
AIM V.I. Diversified Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 13.617000 73.43761
FEE 31-Dec-98 1.75 13.929952 0.12563
RESULTING VALUE 31-Dec-98 13.929952 73.31199 1021.2324
1.000
FORMULA: 1000*(1+T)= 1021.2324 without surrender charge
= 1021.2324
T = 2.12%
R = 2.12%
AIM V.I. Growth & Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.548368 48.66567
FEE 31-Dec-98 1.75 27.217122 0.06430
RESULTING VALUE 31-Dec-98 27.217122 48.60137 1322.7894
1.000
FORMULA: 1000*(1+T)= 1322.7894 without surrender charge
= 1322.7894
T = 32.28%
R = 32.28%
AIM V.I. International Equity
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 16.605183 60.22216
FEE 31-Dec-98 1.75 18.935214 0.09242
RESULTING VALUE 31-Dec-98 18.935214 60.12974 1138.5695
1.000
FORMULA: 1000*(1+T)= 1138.5695 without surrender charge
= 1138.5695
T = 13.86%
R = 13.86%
AIM V.I. Value
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 21.839915 45.78772
FEE 31-Dec-98 1.75 28.549180 0.06130
RESULTING VALUE 31-Dec-98 28.549180 45.72643 1305.4520
1.000
FORMULA: 1000*(1+T)= 1305.4520 without surrender charge
= 1305.4520
T = 30.55%
R = 30.55%
Fidelity VIP Growth
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 44.092995 22.67934
FEE 31-Dec-98 1.75 60.737231 0.02881
RESULTING VALUE 31-Dec-98 60.737231 22.65053 1375.7303
1.000
FORMULA: 1000*(1+T)= 1375.7303 without surrender charge
= 1375.7303
T = 37.57%
R = 37.57%
Fidelity VIP High Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 19.595195 51.03292
FEE 31-Dec-98 1.75 18.512652 0.09453
RESULTING VALUE 31-Dec-98 18.512652 50.93839 943.0047
1.000
FORMULA: 1000*(1+T)= 943.0047 without surrender charge
= 943.0047
T = -5.70%
R = -5.70%
Fidelity VIP Overseas
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.665585 48.38963
FEE 31-Dec-98 1.75 23.020885 0.07602
RESULTING VALUE 31-Dec-98 23.020885 48.31361 1112.2221
1.000
FORMULA: 1000*(1+T)= 1112.2221 without surrender charge
= 1112.2221
T = 11.22%
R = 11.22%
Fidelity VIP II Contrafund
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.249687 49.38348
FEE 31-Dec-98 1.75 25.991605 0.06733
RESULTING VALUE 31-Dec-98 25.991605 49.31615 1281.8059
1.000
FORMULA: 1000*(1+T)= 1281.8059 without surrender charge
= 1281.8059
T = 28.18%
R = 28.18%
Fidelity VIP II Index 500
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 112.692588 8.87370
FEE 31-Dec-98 1.75 138.183373 0.01266
RESULTING VALUE 31-Dec-98 138.183373 8.86103 1224.4475
1.000
FORMULA: 1000*(1+T)= 1224.4475 without surrender charge
= 1224.4475
T = 22.44%
R = 22.44%
Fidelity VIP II Investment Grade
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 15.585869 64.16068
FEE 31-Dec-98 1.75 16.752571 0.10446
RESULTING VALUE 31-Dec-98 16.752571 64.05622 1073.1064
1.000
FORMULA: 1000*(1+T)= 1073.1064 without surrender charge
= 1073.1064
T = 7.31%
R = 7.31%
MFS Bond
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 11.268374 88.74395
FEE 31-Dec-98 1.75 11.883219 0.14727
RESULTING VALUE 31-Dec-98 11.883219 88.59668 1052.8138
1.000
FORMULA: 1000*(1+T)= 1052.8138 without surrender charge
= 1052.8138
T = 5.28%
R = 5.28%
MFS Growth with Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 16.749615 59.70286
FEE 31-Dec-98 1.75 20.232848 0.08649
RESULTING VALUE 31-Dec-98 20.232848 59.61637 1206.2090
1.000
FORMULA: 1000*(1+T)= 1206.2090 without surrender charge
= 1206.2090
T = 20.62%
R = 20.62%
MFS High Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 12.966917 77.11933
FEE 31-Dec-98 1.75 12.782226 0.13691
RESULTING VALUE 31-Dec-98 12.782226 76.98242 984.0068
1.000
FORMULA: 1000*(1+T)= 984.0068 without surrender charge
= 984.0068
T = -1.60%
R = -1.60%
MFS New Discovery
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 10.133738 0.17269
RESULTING VALUE 31-Dec-98 10.133738 #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! without surrender charge
= #VALUE!
T = N/A
R = N/A
Oppenheimer Bond/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 27.888422 35.85717
FEE 31-Dec-98 1.75 29.413264 0.05950
RESULTING VALUE 31-Dec-98 29.413264 35.79768 1052.9265
1.000
FORMULA: 1000*(1+T)= 1052.9265 without surrender charge
= 1052.9265
T = 5.29%
R = 5.29%
Oppenheimer Capital Appreciation/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 50.912172 19.64167
FEE 31-Dec-98 1.75 62.342381 0.02807
RESULTING VALUE 31-Dec-98 62.342381 19.61360 1222.7584
1.000
FORMULA: 1000*(1+T)= 1222.7584 without surrender charge
= 1222.7584
T = 22.28%
R = 22.28%
Oppenheimer Global Securities/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.869779 47.91618
FEE 31-Dec-98 1.75 23.515912 0.07442
RESULTING VALUE 31-Dec-98 23.515912 47.84176 1125.0426
1.000
FORMULA: 1000*(1+T)= 1125.0426 without surrender charge
= 1125.0426
T = 12.50%
R = 12.50%
Oppenheimer High Income/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 36.346709 27.51281
FEE 31-Dec-98 1.75 36.001563 0.04861
RESULTING VALUE 31-Dec-98 36.001563 27.46420 988.7541
1.000
FORMULA: 1000*(1+T)= 988.7541 without surrender charge
= 988.7541
T = -1.12%
R = -1.12%
Oppenheimer Sm Cap Growth/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 9.519592 0.18383
RESULTING VALUE 31-Dec-98 9.519592 #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! without surrender charge
= #VALUE!
T = N/A
R = N/A
Van Kampen Comstock
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 #VALUE! #VALUE!
RESULTING VALUE 31-Dec-98 #VALUE! #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! without surrender charge
= #VALUE!
T = N/A
R = N/A
Van Kampen Domestic Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 7.260424 137.73300
FEE 31-Dec-98 1.75 7.604208 0.23014
RESULTING VALUE 31-Dec-98 7.604208 137.50287 1045.6004
1.000
FORMULA: 1000*(1+T)= 1045.6004 without surrender charge
= 1045.6004
T = 4.56%
R = 4.56%
Van Kampen Emerging Growth
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 15.938091 62.74277
FEE 31-Dec-98 1.75 21.642771 0.08086
RESULTING VALUE 31-Dec-98 21.642771 62.66191 1356.1774
1.000
FORMULA: 1000*(1+T)= 1356.1774 without surrender charge
= 1356.1774
T = 35.62%
R = 35.62%
Van Kampen Money Market
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 1.624155 615.70478
FEE 31-Dec-98 1.75 1.684363 1.03897
RESULTING VALUE 31-Dec-98 1.684363 614.66581 1035.3204
1.000
FORMULA: 1000*(1+T)= 1035.3204 without surrender charge
= 1035.3204
T = 3.53%
R = 3.53%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AIM V.I. Capital Appreciation
31-Dec-97 NO. YEARS 1.000
TO
31-Dec-98
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.521249 48.72998
FEE 31-Dec-98 1.75 24.082104 0.07267
RESULTING VALUE 31-Dec-98 24.082104 48.65731 1171.7704
1.000
FORMULA: 1000*(1+T)= 1171.7704 - (0.85 * 1000 * 0.07)
= 1112.2704
T = 11.23%
R = 11.23%
AIM V.I. Diversified Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 13.362023 74.83897
FEE 31-Dec-98 1.75 13.613752 0.12855
RESULTING VALUE 31-Dec-98 13.613752 74.71042 1017.0891
1.000
FORMULA: 1000*(1+T)= 1017.0891 - (0.85 * 1000 * 0.07)
= 957.5891
T = -4.24%
R = -4.24%
AIM V.I. Growth & Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.163720 49.59402
FEE 31-Dec-98 1.75 26.599530 0.06579
RESULTING VALUE 31-Dec-98 26.599530 49.52823 1317.4277
1.000
FORMULA: 1000*(1+T)= 1317.4277 - (0.85 * 1000 * 0.07)
= 1257.9277
T = 25.79%
R = 25.79%
AIM V.I. International Equity
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 16.294306 61.37113
FEE 31-Dec-98 1.75 18.505482 0.09457
RESULTING VALUE 31-Dec-98 18.505482 61.27657 1133.9524
1.000
FORMULA: 1000*(1+T)= 1133.9524 - (0.85 * 1000 * 0.07)
= 1074.4524
T = 7.45%
R = 7.45%
AIM V.I. Value
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 21.431072 46.66122
FEE 31-Dec-98 1.75 27.901334 0.06272
RESULTING VALUE 31-Dec-98 27.901334 46.59850 1300.1603
1.000
FORMULA: 1000*(1+T)= 1300.1603 - (0.85 * 1000 * 0.07)
= 1240.6603
T = 24.07%
R = 24.07%
Fidelity VIP Growth
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 42.129317 23.73644
FEE 31-Dec-98 1.75 57.797545 0.03028
RESULTING VALUE 31-Dec-98 57.797545 23.70616 1370.1580
1.000
FORMULA: 1000*(1+T)= 1370.1580 - (0.85 * 1000 * 0.07)
= 1310.6580
T = 31.07%
R = 31.07%
Fidelity VIP High Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 18.642488 53.64091
FEE 31-Dec-98 1.75 17.541224 0.09976
RESULTING VALUE 31-Dec-98 17.541224 53.54114 939.1772
1.000
FORMULA: 1000*(1+T)= 939.1772 - (0.85 * 1000 * 0.07)
= 879.6772
T = -12.03%
R = -12.03%
Fidelity VIP Overseas
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 19.769269 50.58356
FEE 31-Dec-98 1.75 21.933258 0.07979
RESULTING VALUE 31-Dec-98 21.933258 50.50377 1107.7123
1.000
FORMULA: 1000*(1+T)= 1107.7123 - (0.85 * 1000 * 0.07)
= 1048.2123
T = 4.82%
R = 4.82%
Fidelity VIP II Contrafund
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.005468 49.98633
FEE 31-Dec-98 1.75 25.574229 0.06843
RESULTING VALUE 31-Dec-98 25.574229 49.91791 1276.6119
1.000
FORMULA: 1000*(1+T)= 1276.6119 - (0.85 * 1000 * 0.07)
= 1217.1119
T = 21.71%
R = 21.71%
Fidelity VIP II Index 500
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 110.276399 9.06812
FEE 31-Dec-98 1.75 134.673470 0.01299
RESULTING VALUE 31-Dec-98 134.673470 9.05513 1219.4857
1.000
FORMULA: 1000*(1+T)= 1219.4857 - (0.85 * 1000 * 0.07)
= 1159.9857
T = 16.00%
R = 16.00%
Fidelity VIP II Investment Grade
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 15.022616 66.56630
FEE 31-Dec-98 1.75 16.081767 0.10882
RESULTING VALUE 31-Dec-98 16.081767 66.45748 1068.7538
1.000
FORMULA: 1000*(1+T)= 1068.7538 - (0.85 * 1000 * 0.07)
= 1009.2538
T = 0.93%
R = 0.93%
MFS Bond
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 11.168862 89.53464
FEE 31-Dec-98 1.75 11.730595 0.14918
RESULTING VALUE 31-Dec-98 11.730595 89.38545 1048.5446
1.000
FORMULA: 1000*(1+T)= 1048.5446 - (0.85 * 1000 * 0.07)
= 989.0446
T = -1.10%
R = -1.10%
MFS Growth with Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 16.599003 60.24458
FEE 31-Dec-98 1.75 19.969752 0.08763
RESULTING VALUE 31-Dec-98 19.969752 60.15695 1201.3194
1.000
FORMULA: 1000*(1+T)= 1201.3194 - (0.85 * 1000 * 0.07)
= 1141.8194
T = 14.18%
R = 14.18%
MFS High Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 12.839560 77.88429
FEE 31-Dec-98 1.75 12.605426 0.13883
RESULTING VALUE 31-Dec-98 12.605426 77.74546 980.0146
1.000
FORMULA: 1000*(1+T)= 980.0146 - (0.85 * 1000 * 0.07)
= 920.5146
T = -7.95%
R = -7.95%
MFS New Discovery
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 10.106058 0.17316
RESULTING VALUE 31-Dec-98 10.106058 #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.07)
= #VALUE!
T = N/A
R = N/A
Oppenheimer Bond/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 26.482736 37.76045
FEE 31-Dec-98 1.75 27.817604 0.06291
RESULTING VALUE 31-Dec-98 27.817604 37.69754 1048.6552
1.000
FORMULA: 1000*(1+T)= 1048.6552 - (0.85 * 1000 * 0.07)
= 989.1552
T = -1.08%
R = -1.08%
Oppenheimer Capital Appreciation/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 48.346319 20.68410
FEE 31-Dec-98 1.75 58.960866 0.02968
RESULTING VALUE 31-Dec-98 58.960866 20.65442 1217.8023
1.000
FORMULA: 1000*(1+T)= 1217.8023 - (0.85 * 1000 * 0.07)
= 1158.3023
T = 15.83%
R = 15.83%
Oppenheimer Global Securities/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.274193 49.32379
FEE 31-Dec-98 1.75 22.752346 0.07692
RESULTING VALUE 31-Dec-98 22.752346 49.24687 1120.4819
1.000
FORMULA: 1000*(1+T)= 1120.4819 - (0.85 * 1000 * 0.07)
= 1060.9819
T = 6.10%
R = 6.10%
Oppenheimer High Income/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 34.665710 28.84695
FEE 31-Dec-98 1.75 34.197446 0.05117
RESULTING VALUE 31-Dec-98 34.197446 28.79578 984.7420
1.000
FORMULA: 1000*(1+T)= 984.7420 - (0.85 * 1000 * 0.07)
= 925.2420
T = -7.48%
R = -7.48%
Oppenheimer Sm Cap Growth/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 9.493800 0.18433
RESULTING VALUE 31-Dec-98 9.493800 #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.07)
= #VALUE!
T = N/A
R = N/A
Van Kampen Comstock
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 #VALUE! #VALUE!
RESULTING VALUE 31-Dec-98 #VALUE! #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.07)
= #VALUE!
T = N/A
R = N/A
Van Kampen Domestic Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 6.967171 143.53028
FEE 31-Dec-98 1.75 7.263147 0.24094
RESULTING VALUE 31-Dec-98 7.263147 143.28934 1040.7315
1.000
FORMULA: 1000*(1+T)= 1040.7315 - (0.85 * 1000 * 0.07)
= 981.2315
T = -1.88%
R = -1.88%
Van Kampen Emerging Growth
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 15.776336 63.38607
FEE 31-Dec-98 1.75 18.407498 0.09507
RESULTING VALUE 31-Dec-98 18.407498 63.29100 1165.0290
1.000
FORMULA: 1000*(1+T)= 1165.0290 - (0.85 * 1000 * 0.07)
= 1105.5290
T = 10.55%
R = 10.55%
Van Kampen Money Market
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 1.548616 645.73787
FEE 31-Dec-98 1.75 1.599505 1.09409
RESULTING VALUE 31-Dec-98 1.599505 644.64378 1031.1110
1.000
FORMULA: 1000*(1+T)= 1031.1110 - (0.85 * 1000 * 0.07)
= 971.6110
T = -2.84%
R = -2.84%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AIM V.I. Capital Appreciation
31-Dec-97 NO. YEARS 1.000
TO
31-Dec-98
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.521249 48.72998
FEE 31-Dec-98 1.75 24.082104 0.07267
RESULTING VALUE 31-Dec-98 24.082104 48.65731 1171.7704
1.000
FORMULA: 1000*(1+T)= 1171.7704 without surrender charge
= 1171.7704
T = 17.18%
R = 17.18%
AIM V.I. Diversified Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 13.362023 74.83897
FEE 31-Dec-98 1.75 13.613752 0.12855
RESULTING VALUE 31-Dec-98 13.613752 74.71042 1017.0891
1.000
FORMULA: 1000*(1+T)= 1017.0891 without surrender charge
= 1017.0891
T = 1.71%
R = 1.71%
AIM V.I. Growth & Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.163720 49.59402
FEE 31-Dec-98 1.75 26.599530 0.06579
RESULTING VALUE 31-Dec-98 26.599530 49.52823 1317.4277
1.000
FORMULA: 1000*(1+T)= 1317.4277 without surrender charge
= 1317.4277
T = 31.74%
R = 31.74%
AIM V.I. International Equity
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 16.294306 61.37113
FEE 31-Dec-98 1.75 18.505482 0.09457
RESULTING VALUE 31-Dec-98 18.505482 61.27657 1133.9524
1.000
FORMULA: 1000*(1+T)= 1133.9524 without surrender charge
= 1133.9524
T = 13.40%
R = 13.40%
AIM V.I. Value
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 21.431072 46.66122
FEE 31-Dec-98 1.75 27.901334 0.06272
RESULTING VALUE 31-Dec-98 27.901334 46.59850 1300.1603
1.000
FORMULA: 1000*(1+T)= 1300.1603 without surrender charge
= 1300.1603
T = 30.02%
R = 30.02%
Fidelity VIP Growth
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 42.129317 23.73644
FEE 31-Dec-98 1.75 57.797545 0.03028
RESULTING VALUE 31-Dec-98 57.797545 23.70616 1370.1580
1.000
FORMULA: 1000*(1+T)= 1370.1580 without surrender charge
= 1370.1580
T = 37.02%
R = 37.02%
Fidelity VIP High Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 18.642488 53.64091
FEE 31-Dec-98 1.75 17.541224 0.09976
RESULTING VALUE 31-Dec-98 17.541224 53.54114 939.1772
1.000
FORMULA: 1000*(1+T)= 939.1772 without surrender charge
= 939.1772
T = -6.08%
R = -6.08%
Fidelity VIP Overseas
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 19.769269 50.58356
FEE 31-Dec-98 1.75 21.933258 0.07979
RESULTING VALUE 31-Dec-98 21.933258 50.50377 1107.7123
1.000
FORMULA: 1000*(1+T)= 1107.7123 without surrender charge
= 1107.7123
T = 10.77%
R = 10.77%
Fidelity VIP II Contrafund
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.005468 49.98633
FEE 31-Dec-98 1.75 25.574229 0.06843
RESULTING VALUE 31-Dec-98 25.574229 49.91791 1276.6119
1.000
FORMULA: 1000*(1+T)= 1276.6119 without surrender charge
= 1276.6119
T = 27.66%
R = 27.66%
Fidelity VIP II Index 500
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 110.276399 9.06812
FEE 31-Dec-98 1.75 134.673470 0.01299
RESULTING VALUE 31-Dec-98 134.673470 9.05513 1219.4857
1.000
FORMULA: 1000*(1+T)= 1219.4857 without surrender charge
= 1219.4857
T = 21.95%
R = 21.95%
Fidelity VIP II Investment Grade
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 15.022616 66.56630
FEE 31-Dec-98 1.75 16.081767 0.10882
RESULTING VALUE 31-Dec-98 16.081767 66.45748 1068.7538
1.000
FORMULA: 1000*(1+T)= 1068.7538 without surrender charge
= 1068.7538
T = 6.88%
R = 6.88%
MFS Bond
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 11.168862 89.53464
FEE 31-Dec-98 1.75 11.730595 0.14918
RESULTING VALUE 31-Dec-98 11.730595 89.38545 1048.5446
1.000
FORMULA: 1000*(1+T)= 1048.5446 without surrender charge
= 1048.5446
T = 4.85%
R = 4.85%
MFS Growth with Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 16.599003 60.24458
FEE 31-Dec-98 1.75 19.969752 0.08763
RESULTING VALUE 31-Dec-98 19.969752 60.15695 1201.3194
1.000
FORMULA: 1000*(1+T)= 1201.3194 without surrender charge
= 1201.3194
T = 20.13%
R = 20.13%
MFS High Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 12.839560 77.88429
FEE 31-Dec-98 1.75 12.605426 0.13883
RESULTING VALUE 31-Dec-98 12.605426 77.74546 980.0146
1.000
FORMULA: 1000*(1+T)= 980.0146 without surrender charge
= 980.0146
T = -2.00%
R = -2.00%
MFS New Discovery
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 10.106058 0.17316
RESULTING VALUE 31-Dec-98 10.106058 #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! without surrender charge
= #VALUE!
T = N/A
R = N/A
Oppenheimer Bond/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 26.482736 37.76045
FEE 31-Dec-98 1.75 27.817604 0.06291
RESULTING VALUE 31-Dec-98 27.817604 37.69754 1048.6552
1.000
FORMULA: 1000*(1+T)= 1048.6552 without surrender charge
= 1048.6552
T = 4.87%
R = 4.87%
Oppenheimer Capital Appreciation/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 48.346319 20.68410
FEE 31-Dec-98 1.75 58.960866 0.02968
RESULTING VALUE 31-Dec-98 58.960866 20.65442 1217.8023
1.000
FORMULA: 1000*(1+T)= 1217.8023 without surrender charge
= 1217.8023
T = 21.78%
R = 21.78%
Oppenheimer Global Securities/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 20.274193 49.32379
FEE 31-Dec-98 1.75 22.752346 0.07692
RESULTING VALUE 31-Dec-98 22.752346 49.24687 1120.4819
1.000
FORMULA: 1000*(1+T)= 1120.4819 without surrender charge
= 1120.4819
T = 12.05%
R = 12.05%
Oppenheimer High Income/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 34.665710 28.84695
FEE 31-Dec-98 1.75 34.197446 0.05117
RESULTING VALUE 31-Dec-98 34.197446 28.79578 984.7420
1.000
FORMULA: 1000*(1+T)= 984.7420 without surrender charge
= 984.7420
T = -1.53%
R = -1.53%
Oppenheimer Sm Cap Growth/VA
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 9.493800 0.18433
RESULTING VALUE 31-Dec-98 9.493800 #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! without surrender charge
= #VALUE!
T = N/A
R = N/A
Van Kampen Comstock
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 #VALUE! #VALUE!
FEE 31-Dec-98 1.75 #VALUE! #VALUE!
RESULTING VALUE 31-Dec-98 #VALUE! #VALUE! #VALUE!
1.000
FORMULA: 1000*(1+T)= #VALUE! without surrender charge
= #VALUE!
T = N/A
R = N/A
Van Kampen Domestic Income
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 6.967171 143.53028
FEE 31-Dec-98 1.75 7.263147 0.24094
RESULTING VALUE 31-Dec-98 7.263147 143.28934 1040.7315
1.000
FORMULA: 1000*(1+T)= 1040.7315 without surrender charge
= 1040.7315
T = 4.07%
R = 4.07%
Van Kampen Emerging Growth
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 15.776336 63.38607
FEE 31-Dec-98 1.75 18.407498 0.09507
RESULTING VALUE 31-Dec-98 18.407498 63.29100 1165.0290
1.000
FORMULA: 1000*(1+T)= 1165.0290 without surrender charge
= 1165.0290
T = 16.50%
R = 16.50%
Van Kampen Money Market
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 31-Dec-97 1000.00 1.548616 645.73787
FEE 31-Dec-98 1.75 1.599505 1.09409
RESULTING VALUE 31-Dec-98 1.599505 644.64378 1031.1110
1.000
FORMULA: 1000*(1+T)= 1031.1110 without surrender charge
= 1031.1110
T = 3.11%
R = 3.11%
</TABLE>
