As filed with the Securities and Exchange Commission on July 8, 1999
Registration Nos. 333-77605
and 811-09327
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. 1 /x/
Post-Effective Amendment No. / /
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 1 /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
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
- ------------------------------------------------------------------------------
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:
<PAGE>
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.
To learn more about the Contract, you may want to read the Statement of
Additional Information ("SAI"), dated ____, 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.
The date of this prospectus is _____, 1999.
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>
<CAPTION>
Table Of Contents
<S> <C>
Glossary..................................................................................1
Questions And Answers About SelectDirections..............................................4
Fee Table.................................................................................6
Examples...............................................................................9
Condensed Financial Information.......................................................11
Description Of The SelectDirections Contract.............................................11
Summary...............................................................................11
Contract Owner........................................................................11
Annuitant.............................................................................12
Modification Of The Contract..........................................................12
Assignment............................................................................12
Return Privilege......................................................................12
Purchases And Contract Value.............................................................13
Purchasing the Contract...............................................................13
Automatic Payment Plan................................................................13
Allocation Of Purchase Payments.......................................................13
Contract Value........................................................................14
Variable Account Accumulation Unit Value..............................................14
Transfers................................................................................14
Transfers During The Accumulation Phase...............................................14
Transfers Authorized By Telephone.....................................................15
Automatic Dollar Cost Averaging Program...............................................15
Portfolio Rebalancing.................................................................16
The Investment Alternatives..............................................................17
Variable Subaccount Investments.......................................................17
Investment Objectives of the Portfolios...............................................17
Voting Rights.........................................................................20
Additions, Deletions, And Substitutions Of Portfolios.................................20
The Fixed Account Options.............................................................21
General.............................................................................21
Standard Fixed Account Option.......................................................21
Dollar Cost Averaging Fixed Account Option..........................................21
Income Payments..........................................................................21
Payout Start Date.....................................................................21
Income Plans..........................................................................22
Income Payments: General..............................................................23
Variable Income Payments..............................................................24
Fixed Income Payments.................................................................24
Transfers During The Payout Phase.....................................................25
Death Benefit During The Payout Phase.................................................25
Certain Employee Benefit Plans........................................................25
Death Benefits...........................................................................25
The Death Benefit: General............................................................25
Standard Death Benefit................................................................26
Claim and Payment.....................................................................26
Enhanced Death Benefit Rider..........................................................28
Enhanced Death Benefit A............................................................28
Enhanced Death Benefit B............................................................28
Enhanced Death And Income Benefit Rider...............................................29
Beneficiary...........................................................................29
Access To Your Money.....................................................................30
In General............................................................................30
Partial Withdrawals...................................................................30
Total Withdrawal......................................................................30
Substantially Equal Periodic Payments.................................................31
Systematic Withdrawal Program.........................................................31
ERISA Plans...........................................................................32
Minimum Contract Value................................................................32
Contract Charges.........................................................................32
Mortality And Expense Risk Charge.....................................................32
Administrative Expense Charge.........................................................33
Contract Maintenance Charge...........................................................33
Transfer Fee..........................................................................33
Withdrawal Charge.....................................................................34
Free Withdrawal.......................................................................35
Waiver of Withdrawal Charges..........................................................35
General.............................................................................35
Confinement Waiver..................................................................35
Terminal Illness Waiver.............................................................36
Unemployment Waiver.................................................................36
Premium Taxes.........................................................................36
Deduction For Variable Account Income Taxes...........................................36
Other Expenses........................................................................36
Tax Matters..............................................................................37
Introduction..........................................................................37
Taxation Of Annuities In General......................................................37
Tax Deferral........................................................................37
Non-Natural Owners..................................................................37
Diversification Requirements........................................................37
Ownership Treatment.................................................................37
Taxation Of Partial And Full Withdrawals............................................38
Taxation Of Income Payments.........................................................38
Taxation Of Annuity Death Benefits..................................................39
Penalty Tax On Premature Distributions..............................................39
Aggregation Of Annuity Contracts....................................................39
Tax Qualified Contracts...............................................................39
Income Tax Withholding................................................................40
Performance Information..................................................................40
Yields and Standard Total Return......................................................40
Other Performance Data................................................................41
Allstate Life Insurance Company And The Variable Account.................................42
Allstate Life Insurance Company.......................................................42
Financial Statements Of Allstate....................................................42
The Variable Account..................................................................42
Administration...........................................................................43
Year 2000................................................................................43
Market Timing And Asset Allocation Services..............................................44
Distribution Of Contracts................................................................44
Legal Proceedings........................................................................44
Legal Matters............................................................................44
Experts..................................................................................44
Registration Statement...................................................................45
Table Of Contents Of the Statement Of Additional Information.............................46
</TABLE>
<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 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 Plans p. 23)
Beginning on the payout start date, you may receive income payments on a fixed
or a variable basis or a combination of the two.
<PAGE>
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. 13)
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
Account Investments p. 17)
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. 21)
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. 32)
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.
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.
37)
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 My Money p. 30)
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 certain Income Plans, you may be entitled to
withdraw the commuted value of the remaining income payments.
9. What Is The Death Benefit? (See Death Benefit p. 25)
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. 13) 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. 14)
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.
15) 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. 16) 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, semiannually, 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 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. 12)
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 Other Expenses Total Annual Expenses
(after any fee (after any fee (after any fee
waivers or waivers or waivers or reductions)
Portfolio reductions) 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 divided
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, 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 not process requests received after 3:00 p.m. Central Time on any
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.
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 the
Exchange 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 Exchange. 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 33, 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 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.
Investment Objectives of the Portfolios
Certain portfolios have similar investment objectives. You should carefully
review the prospectuses for the portfolios before investing.
<TABLE>
<CAPTION>
- -------------------------------------- ----------------------------------------------------------------------
<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 advisor'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 investingin 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. Instead, before the payout start date you may fully withdraw your
contract value for a lump sum, as described on page 30. 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" and "Fixed Income Payments" on page 24.
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 an 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 the 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 40, 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.
(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 7-8, 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.
<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............................................................................................
</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: ____, 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.................................................................3
Annuity Unit Value....................................................................................3
Illustrative Example Of Annuity Unit Value Calculation................................................4
Illustrative Example Of Variable Income Payments......................................................5
Additional Federal Income Tax Information................................................................7
Introduction..........................................................................................7
Taxation Of Allstate Life Insurance Company...........................................................7
Exceptions To The Non-Natural Owner Rule..............................................................7
IRS Required Distribution At Death Rules..............................................................8
Qualified Plans.......................................................................................8
Types Of Qualified Plans..............................................................................8
IRAs................................................................................................8
RothIRAs............................................................................................8
Simplified Employee Pension Plans...................................................................9
Savings Incentive Match Plans For Employees (SIMPLE Plans)..........................................9
Tax Sheltered Annuities.............................................................................9
Corporate And Self-Employed Pension And Profit Sharing Plans.......................................10
State And Local Government And Tax-Exempt Organization Deferred Compensation Plans.................10
Variable Account Performance............................................................................10
Standardized Total Return............................................................................10
Non-Standardized Total Return........................................................................13
Time Periods Before The Date The Variable Account Commenced Operations...............................14
Tables Of Adjusted Historic Total Return Quotations.....................................................14
Experts.................................................................................................18
Financial Statements....................................................................................19
</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.
<PAGE>
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 1
Adjusted Historic Portfolio Total Return As Of December 31, 1998 2
Assuming Contract Is Not Surrendered
Average Annual Total Return3
- ------------------------------------------------------------------------------
With Standard Death Benefit
(Total Variable Account Annual Expenses: 1.25%)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
<S> <C> <C> <C> <C> <C>
Portfolio Inception Date2 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- ------------------------------------------------------------------------------------------------------------------------------
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 VIP (VIP)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP Growth
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP High Income
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP Overseas
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II (VIP II)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII Contrafund
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII Index 500
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII 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 Emerging Growth
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Van Kampen Money Market1
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Van Kampen Domestic Income
- ------------------------------------------------------------------------------------------------------------------------------
With Enhanced Death and Income Benefit Rider
(Total Variable Account Annual Expenses: 1.65%)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Portfolio Inception Date2 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- ------------------------------------------------------------------------------------------------------------------------------
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 VIP (VIP)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP Growth
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP High Income
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP Overseas
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II (VIP II)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII Contrafund
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII Index 500
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII 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 Emerging Growth
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Van Kampen Money Market 1
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Van Kampen Domestic Income
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
</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 separate
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, 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.
- ------------------------------------------------------------------------------
Table 2
Adjusted Historic Portfolio Total Return As Of December 31, 1998 2
Assuming Contract Is Surrendered
Average Annual Total Return3
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
With Standard Death Benefit
(Total Variable Account Annual Expenses: 1.25%)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
<S> <C> <C> <C> <C> <C>
Portfolio Inception Date2 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- ------------------------------------------------------------------------------------------------------------------------------
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 VIP (VIP)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP Growth
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP High Income
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP Overseas
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II (VIP II)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII Contrafund
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII Index 500
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII 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 Emerging Growth
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Van Kampen Money Market1
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Van Kampen Domestic Income
- ------------------------------------------------------------------------------------------------------------------------------
With Enhanced Death and Income Benefit Rider
(Total Variable Account Annual Expenses: 1.65%)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Portfolio Inception Date2 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- ------------------------------------------------------------------------------------------------------------------------------
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 VIP (VIP)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP Growth
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP High Income
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIP Overseas
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity VIP II (VIP II)
- ------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII Contrafund
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII Index 500
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Fidelity VIPII 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 Emerging Growth
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Van Kampen Money Market 1
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
Van Kampen Domestic Income
- -------------------------------------------- ---------------- ------------ ------------ ------------- ------------------------
</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 separate
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; 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.
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
Allstate Life Insurance Company Financial Statements and Financial Schedule.
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 Contract3/
(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 3/
(b) Consent of Sutherland Asbill & Brennan LLP 3/
(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 No.
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.
3/ Filed herewith.
4/ To be filed subsequent amendment.
25. Directors And Officers Of The Depositor
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
The principal business address of Allstate Life Financial Services, Inc. is 3100
Sanders Road, Northbrook, Illinois 60062.
<TABLE>
<CAPTION>
29C. Compensation of Principal Underwriter
Underwriter compensation during fiscal year ended December 31, 1998:
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
NET UNDERWRITING REDEMPTION COMPENSATION ON BROKERAGE
----------
DISCOUNTS AND COMMISSIONS COMMISSION COMPENSATION
NAME OF PRINCIPAL UNDERWRITER
None None None None
Allstate Life Financial
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, has caused
this Pre-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 2nd 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 Pre-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 2nd day of July, 1999.
*/LOUIS G. LOWER, II Chairman of the Board and Director
____________________ (Principal Executive Officer)
Louis G. Lower, II
/s/MICHAEL J. VELOTTA Vice President, Secretary, General
____________________ Counsel and Director
Michael J. Velotta
*/THOMAS J. WILSON, II President and Director
____________________ (Principal Operating Officer)
Thomas J. Wilson, II
*/KEVIN R. SLAWIN Vice President and Director
____________________ (Principal Financial Officer)
Kevin R. Slawin
*/CASEY J. SYLLA Chief Investment Officer and Director
- --------------------
Casey J. Sylla
*/SAMUEL H. PILCH Controller
____________________ (Principal Accounting Officer)
Samuel H. Pilch
*/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 filed herewith.
<PAGE>
Exhibit Index
(3) Underwriting Agreement among Allstate Life Insurance Company, Allstate
Financial Advisors Separate Account, and Allstate Life Financial Services,
Inc.
(5) Form of Application for a Contract
(8)(a) Form of Participation among AIM Variable Insurance Funds, Inc., AIM
Distributors, and Allstate Life Insurance Company
(b) Form of Participation Agreement among MFS Variable Insurance Trust,
Massachusetts Financial Services Company, and Allstate Life Insurance
Company
(c) Form of Participation Agreement among Oppenheimer Variable Account
Funds, OppenheimerFunds, Inc., and Allstate Life Insurance Company
(d) Form of Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation, and Allstate Life Insurance
Company
(e) Form of Participation Agreement among Variable Insurance Products Fund
II, Fidelity Distributors Corporation, and Allstate Life Insurance
Company
(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
(9) Opinion of Michael J. Velotta, Vice President, Secretary and General
Counsel of Allstate Life Insurance Company
(10)(a) Consent of Deloitte & Touche LLP
(b) Consent of Sutherland Asbill and Brennan LLP
(15) Power of Attorney for Samuel H. Pilch
UNDERWRITING AGREEMENT
THIS AGREEMENT, is entered into on this __ day of June, 1999, by and among
ALLSTATE LIFE INSURANCE COMPANY, ("Allstate Life" or "Company") a life insurance
company organized under the laws of the State of Illinois, on its own and on
behalf of the ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I ("Separate
Account"), a separate account established pursuant to the insurance laws of the
State of Illinois, and ALLSTATE LIFE FINANCIAL SERVICES, INC., ("Principal
Underwriter"), a corporation organized under the laws of the state of Delaware.
RECITALS
WHEREAS, Company proposes to issue to the public certain variable annuity
contracts identified in the Attachment A ("Contracts"); and
WHEREAS, Company, by resolution adopted on April 30, 1999, established the
Separate Account for the purpose of issuing the Contracts; and
WHEREAS, the Separate Account is registered with the Securities and
Exchange Commission ("Commission") as a unit investment trust under the
Investment Company Act of 1940, as amended ("Investment Company Act"); and
WHEREAS, the Contracts to be issued by Company are registered with the
Commission under the Securities Act of 1933, as amended ("Securities Act"), and
the Investment Company Act (File Nos: 333-77605 and 811-09327) for offer and
sale to the public and otherwise are in compliance with all applicable laws; and
<PAGE>
WHEREAS, Principal Underwriter, a broker-dealer registered with the
Commission under the Securities Exchange Act of 1934, as amended, ("Exchange
Act"), and a member of the National Association of Securities Dealers, Inc.
("NASD"), proposes to act as principal underwriter on an agency (best efforts)
basis in the marketing and distribution of said Contracts; and
WHEREAS, Company desires to obtain the services of Principal Underwriter as
an underwriter and distributor of said Contracts issued by Company through the
Separate Account;
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions set forth herein, and for other good and valuable
consideration, the Company, the Separate Account, and the Principal Underwriter
hereby agree as follows:
1. AUTHORITY AND DUTIES
(a) Principal Underwriter will serve as underwriter and distributor on an
agency basis for the Contracts which will be issued by the Company
through the Separate Account.
(b) Principal Underwriter will use its best efforts to provide information
and marketing assistance to licensed insurance agents and
broker-dealers on a continuing basis. However, Principal Underwriter
shall be responsible for compliance with the requirements of state
broker-dealer regulations and the Exchange Act as each applies to
Principal Underwriter in connection with its duties as distributor of
said Contracts. Moreover, Principal Underwriter shall conduct its
affairs in accordance with the By-Laws and Conduct Rules of the NASD.
(c) Subject to agreement with the Company, Principal Underwriter may enter
into selling agreements with broker-dealers which are registered with
the Commission under the Exchange Act, members of the NASD, and/or
authorized by applicable law or exemptions to sell variable annuity
contracts issued by Company through the Separate Account. Any such
contractual arrangement is expressly made subject to this Agreement,
and Principal Underwriter will at all times be responsible to Company
for supervision of compliance with the federal securities laws
regarding distribution of Contracts.
2. WARRANTIES
(a) The Company represents and warrants to Principal Underwriter that:
(i) Registration Statement on Form N-4 for each of the Contracts
identified in Attachment A have been filed with the Commission in
the form previously delivered to Principal Underwriter and that
copies of any and all amendments thereto will be forwarded to
Principal Underwriter at the time that they are filed with
Commission;
(ii) The Registration Statements and any further amendments or
supplements thereto will, when they become effective, conform in
all material respects to the requirements of the Securities Act
and the Investment Company Act, and the rules and regulations of
the Commission under such Acts, and will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this
representation and warranty shall not apply to any statement or
omission made in reliance upon and in conformity with information
furnished in writing to Company by Principal Underwriter
expressly for use therein;
(iii)The Company is validly existing as a stock life insurance
company in good standing under the laws of the State of Illinois,
with power to own its properties and conduct its business as
described in the Prospectus relating to the Contracts,, and has
been duly qualified for the transaction of business and is in
good standing under the laws of each jurisdiction in which it
owns or leases properties, or conducts any business;
(iv) The Contracts to be issued by the Company and through the
Separate Account and offered for sale by Principal Underwriter on
behalf of the Company hereunder have been duly and validly
authorized and, when issued and delivered with payment therefore
as provided herein, will be duly and validly issued and will
conform to the description of such Contracts contained in the
Prospectuses relating thereto;
(v) Those persons who offer and sell the Contracts are to be
appropriately licensed and/or appointed to comply with the state
insurance laws;
(vi) The performance of this Agreement and the consummation of the
transactions contemplated by this Agreement will not result in a
violation of any of the provisions of or default under any
statute, indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which Company is a party or by
which Company is bound (including Company's Charter or By-laws as
a stock life insurance company, or any order, rule or regulation
of any court or governmental agency or body having jurisdiction
over Company or any of its properties);
(vii)There is no consent, approval, authorization or order of any
court or governmental agency or body required for the
consummation by Company of the transactions contemplated by this
Agreement, except such as may be required under the Exchange Act
or state insurance or securities laws in connection with the
distribution of the Contracts; and
(viii) There are no material legal or governmental proceedings pending
to which Company or the Separate Account is a party or of which
any property of Company or the Separate Account is the subject
(other than as set forth in the Prospectus relating to the
Contracts, or litigation incidental to the kind of business
conducted by the Company) which, if determined adversely to
Company, would individually or in the aggregate have a material
adverse effect on the financial position, surplus or operations
of Company.
(b) Principal Underwriter represents and warrants to Company that:
(i) It is a broker-dealer duly registered with the Commission under
the Exchange Act, is a member in good standing of the NASD, and
is in compliance with the securities laws in those states in
which it conducts business as a broker-dealer;
(ii) As principal underwriter, it shall permit the offer and sale of
Contracts to the public only by and through persons who are
appropriately licensed under securities laws and who are
appointed in writing by the Company to be authorized insurance
agents unless such persons are exempt from licensing and
appointment requirements;
(iii)The performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or
violation of any of the terms or provisions of or constitute a
default under any statute, indenture, mortgage, deed of trust,
note agreement or other agreement or instrument to which
Principal Underwriter is a party or by which Principal
Underwriter is bound (including the Certificate of Incorporation
or By-laws of Principal Underwriter or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over either Principal Underwriter or its property);
and
(iv) To the extent that any statements made in the Registration
Statements, or any amendments or supplements thereto, are made in
reliance upon and in conformity with written information
furnished to Company by Principal Underwriter expressly for use
therein, such statements will, when they become effective or are
filed with the Commission, as the case may be, conform in all
material respects to the requirements of the Securities Act of
1933 and the rules and regulations of the Commission thereunder,
and will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
3. BOOKS AND RECORDS
(a) Principal Underwriter shall keep, in a manner and form approved by
Company and in accordance with Rules 17a-3 and 17a-4 under the
Exchange Act, correct records and books of account as required to be
maintained by a registered broker-dealer, acting as principal
underwriter, of all transactions entered into on behalf of Company
with respect to its activities under this Agreement. Principal
Underwriter shall make such records and books of account available for
inspection by the Commission, NASD, and any other governmental agency
or body having jurisdiction over Principal Underwriter, and Company
shall have the right to inspect, make copies of or take possession of
such records and books of account at any time upon demand.
(b) Subject to applicable Commission or NASD restrictions, Company will
send confirmations of Contract transactions to Contract Owners.
Company will make such confirmations and records of transactions
available to Principal Underwriter upon request. Company will also
maintain Contract Owner records on behalf of Principal Underwriter, to
the extent permitted by applicable securities laws.
<PAGE>
4. SALES MATERIALS
(a) After authorization to commence the activities contemplated herein,
Principal Underwriter will utilize the currently effective prospectus
relating to the Contracts in connection with its underwriting,
marketing and distribution efforts. As to other types of sales
material, Principal Underwriter hereby agrees and will require any
participating or selling broker-dealers to represent and agree that
they will use only sales materials which have been authorized for use
by Company, which conform to the requirements of federal and state
laws and regulations, and which have been filed, where required, with
the appropriate regulatory authorities, including the NASD.
(b) Principal Underwriter will not distribute any prospectus, sales
literature or any other printed matter or material relating to the
Contracts in the underwriting and distribution of the Contracts if, to
the knowledge of Principal Underwriter, any of the foregoing misstates
the duties, obligation or liabilities of Company or Principal
Underwriter.
5. COMPENSATION
(a) Company agrees to pay Principal Underwriter for direct expenses
incurred on behalf of Company. Such direct expenses shall include, but
not be limited to, the costs of goods and services purchased from
outside vendors, travel expenses and state and federal regulatory fees
incurred on behalf of Company.
(b) Principal Underwriter shall present a statement after the end of the
quarter showing the apportionment of services rendered and the direct
expenses incurred. Settlements are due and payable within thirty days.
6. PURCHASE PAYMENTS
Principal Underwriter shall arrange that all orders, purchase payments and
applications collected on the sale of the Contracts are promptly and properly
transmitted to Company for immediate allocation to the Separate Account in
accordance with the procedures of Company and the directions furnished by the
purchasers of such Contracts at the time of purchase.
7. UNDERWRITING TERMS
(a) Principal Underwriter makes no representations or warranties regarding
the number of Contracts to be sold by licensed broker-dealers and
registered representatives of broker-dealers or the amount to be paid
thereunder. Principal Underwriter does, however, represent that it
will actively engage in its duties under this Agreement on a
continuous basis while there are effective registration statements
with the Commission.
(b) Principal Underwriter will use its best efforts to ensure that the
Contracts shall be offered for sale only by registered broker-dealers
and their registered representatives (who are duly licensed as
insurance agents) on the terms described in the currently effective
prospectus describing such Contracts.
(c) It is understood and agreed that Principal Underwriter may render
similar services to other affiliated companies in the distribution of
other variable contracts.
(d) The Company will use its best efforts to assure that the Contracts are
continuously registered with the Commission under the Securities Act
(and under any applicable state "blue sky" laws) and to file for
approval under state insurance laws when necessary.
(e) The Company reserves the right at any time to suspend or limit the
public offering of the Contracts upon one day's written notice to
Principal Underwriter.
8. LEGAL AND REGULATORY ACTIONS
(a) The Company agrees to advise Principal Underwriter immediately of:
(i) any request by the Commission for amendment of the Registration
Statement or for additional information relating to the
Contracts;
(ii) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement relating to the
Contracts or the initiation of any proceedings for that purpose;
and
(iii)the occurrence of any known material event which makes untrue
any statement made in the Registration Statement relating to the
Contracts or which requires the making of a change therein in
order to make any statement made therein not misleading.
(b) Each of the undersigned parties agrees to notify the other in writing
upon being apprised of the institution of any proceeding,
investigation or hearing involving the offer or sale of the Contracts.
(c) During any legal action or inquiry, Company will furnish to Principal
Underwriter such information with respect to the Separate Account and
Contracts in such form and signed by such of its officers as Principal
Underwriter may reasonably request and will warrant that the
statements therein contained when so signed are true and correct.
9. TERMINATION
(a) This Agreement will terminate automatically upon its assignment.
(b) This Agreement shall terminate without the payment of any penalty by
either party upon sixty (60) days' advance written notice.
(c) This Agreement shall terminate at the option of the Company upon
institution of formal proceedings against Principal Underwriter by the
NASD or by the Commission, or if Principal Underwriter or any
registered representative thereof at any time:
(i) employs any device, scheme, artifice, statement or omission to
defraud any person;
(ii) fails to account and pay over promptly to the Company money due
it according to the Company's records; or
(iii) violates the conditions of this Agreement.
10. INDEMNIFICATION
The Company agrees to indemnify Principal Underwriter for any liability that it
may incur to a Contract owner or party-in-interest under a Contract:
(a) arising out of any act or omission in the course of or in connection
with rendering services under this Agreement; or
(b) arising out of the purchase, retention or surrender of a contract;
provided, however, that the Company will not indemnify Principal
Underwriter for any such liability that results from the willful
misfeasance, bad faith or gross negligence of Principal Underwriter or
from the reckless disregard by such Principal Underwriter of its
duties and obligations arising under this Agreement.
11. GENERAL PROVISIONS
(a) This Agreement shall be subject to the laws of the State of Illinois.
(b) This Agreement, along with any Schedules attached hereto and
incorporated herein by reference, may be amended from time to time by
the mutual agreement and consent of the undersigned parties.
(c) In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be duly executed, to be effective as of June 25, 1999.
ALLSTATE LIFE INSURANCE COMPANY
(and ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I)
BY: ____________________________ ________________________
President and Chief Operating Officer Date
ALLSTATE LIFE FINANCIAL SERVICES, INC.
BY: ____________________________ ________________________
President and Chief Executive Officer Date
<PAGE>
UNDERWRITING AGREEMENT
Attachment A
"Contracts"
Form #
"Select Directions" Flexible Premium Deferred Variable Annuity Contract LU 4518
(and state variations)
<TABLE>
<CAPTION>
ALLSTATE LIFE INSURANCE COMPANY Application for Annuity
206 South 13th St., Ste. #100 Insurer, as used in this application means,
Mail: P.O. Box 80469 Allstate Life Insurance Company
Lincoln, NE 68501-0469
<S> <C> <C>
1. OWNER: If no Annuitant is specified in Section 3, the Owner will be the
Annuitant.
|_| Male |_| Female Birth Date __/__/___ Phone ( ) ________________
Name ________________________ SS#/TIN ________________________________
Street ______________________City_____________ State ___ Zip ______
County _______________
2. JOINT OWNER: If any.
|_| Male |_| Female Birth Date __/__/___ Phone ( ) ________________
Name ________________________ SS#/TIN ________________________________
Street ______________________City_____________ State ___ Zip ______
County _______________
Relationship to Other Owner_____________________________________________
3. ANNUITANT: Complete only if different from Owner in Section 1.
|_| Male |_| Female Birth Date __/__/___ Phone ( ) ________________
Name ________________________ SS#/TIN ________________________________
Street ______________________City_____________ State ___ Zip ______
County _______________
4. Beneficiary(IES): To receive Death Benefit if no surviving Owner(s)
Primary ___________________ Relationship to Owner(s) _________________
Soc. Sec. No. ____________ Birth Date _______________________________
Contingent__________________ Relationship to Owner(s)__________________
Soc. Sec. No. ______________ Birth Date _______________________________
5. TAX-QUALIFIED PLANS:
|_| Non-qualified |_| Traditional IRA |_| SEP-IRA |_| Roth IRA
|_| 401(k) |_| 401(a) |_| 403(b)
Tax year for which initial contribution is being made____________
|_| Other __________________________
6. INVESTMENT SELECTION: Please check selected investment choice(s) and
indicate whole percentage allocations. The initial premium will be
allocated as selected here.
Initial $ __________________________________________
|_| AIM VI Growth & Income % |_| Oppenheimer Capital Appreciation/VA % |_| Van Kampen Domestic Income %
|_| AIM VI Value % |_| Oppenheimer Small Cap Growth/VA % |_| Van Kampen Money Market %
|_| AIM VI Capital Appreciation % |_| Oppenheimer Global Securities/VA % |_| Allstate Life Company
|_| AIM VI International Equity % |_| Oppenheimer High Income/VA % DCA Fixed Account %
|_| AIM VI Diversified Income % |_| Oppenheimer Bond/VA % |_| Allstate Life Company Fixed Account %
|_| Fidelity VIPII Contrafund % |_| MFS Growth with Income %
|_| Fidelity VIP Growth % |_| MFS New Discovery %
|_| Fidelity VIP Overseas % |_| MFS Bond %
|_| Fidelity VIPII Index 500 % |_| MFS High Income % Total 100 %
|_| Fidelity VIP High Income % |_| Van Kampen Comstock %
|_| Fidelity VIPII Investment |_| Van Kampen Emerging Growth %
Grade $
</TABLE>
LR1609-1
<PAGE>
7. OPTIONAL PROGRAMS:
|_| AUTOMATIC REBALANCING PROGRAM Frequency: |_| Monthly |_| Quarterly
|_| Semi-Annual |_| Annual
% in subaccount % in subaccount % in subaccount
% in subaccount % in subaccount % in subaccount
% in subaccount % in subaccount
|_| Dollar Cost Averaging Program
Transfer to (select investment option) Percent per transfer
__________________________________ ____________________%
__________________________________ ____________________%
__________________________________ ____________________%
__________________________________ ____________________%
__________________________________ ____________________%
__________________________________ ____________________%
__________________________________ ____________________%
__________________________________ ____________________%
Note: TOTAL MUST = 100% TOTAL = ____________%
8. OPTIONAL RIDERS: May not be available in all states -- Please note there is
an additional charge for the Optional Rider: see prospectus for details.
|_| Enhanced Death Benefit Rider |_| Enhanced Death and Income
Benefit Rider
9. OWNER(S) ACKNOWLEDGEMENTS: The following states require the applicant to
acknowledge the information below that pertains to their specific state.
Check the appropriate box for your resident state, sign and date the bottom
of Section 11.
|_| ARKANSAS |_| KENTUCKY |_| MAINE |_| NEW MEXICO |_| OHIO
|_| PENNSYLVANIA
Any person who knowingly and with intent to defraud any insurance company or
other person files an application for insurance or statement of claim containing
any materially false information or conceals, for the purpose of misleading
information concerning any false materials thereto commits a fraudulent
insurance act, which is a crime and subjects such person to criminal and civil
penalties.
|_| ARIZONA Upon your written request we will provide you within a
reasonable period of time, reasonable, factual information regarding the
benefits and provisions of the annuity contract for which you are applying. If
for any reason you are not satisfied with the contract, you may return the
contract within ten days after you receive it. If the contract you are applying
for is a variable annuity, you will receive an amount equal to the sum of (1)
the difference between the premiums paid and the amounts allocated to any
account under the contract and (2) the Contract Value on the date the returned
contract is received by our company or agent.
|_| COLORADO It is unlawful to knowingly provide false, incomplete,
misleading facts or information to an insurance company for the purpose of
defrauding or attempting to defraud the company. Penalties may include
imprisonment, fines, denial of insurance, and civil damages. Any insurance
company or agent of an insurance company who knowingly provides false,
incomplete or misleading facts or information to a policyholder or claimant for
the purpose of defrauding or attempting to defraud the policyholder or claimant
with regard to a settlement or award payable from insurance proceeds shall be
reported to the Colorado Division of Insurance within the Department of
Regulatory Services.
|_| FLORIDA Any person who knowingly and with intent to injure, defraud or
deceive any insurer, files a statement of claim or an application containing any
false, incomplete or misleading information is guilty of a felony of the third
degree.
|_| NEW JERSEY Any person who includes any false or misleading information
on an application for an insurance policy is subject to criminal and civil
penalties.
LR1609-1
<PAGE>
10. REPLACEMENT(s):
A. Will the annuity applied for replace one or more existing annuity or life
insurance contracts? |_| YES |_| NO
If "YES," give name of company, policy issue date, policy number and cost
basis:
B. Have you purchased another annuity during the current calendar year? |_|
YES |_| NO
C. Do you or any joint owner currently own an annuity issued by the Insurer?
|_| YES |_| NO
D. OPTIONAL CONSENT FOR ELECTRONIC DISTRIBUTION TO MY E-MAIL ADDRESS: |_| I/WE
HEREBY CONSENT TO THE ELECTRONIC DISTRIBUTION of an annuity and fund
prospectuses statements of additional information, shareholder reports,
proxy statement and prospectus supplements. I understand that I may revoke
this consent at any time, and that in the absence of my revocation, this
consent will be valid.
|_| RECEIPT OF A VARIABLE ANNUITY AND FUND PROSPECTUS IS HEREBY ACKNOWLEDGED.
(If not checked, the appropriate prospectus will be mailed to you.)
11. AUTHORIZATIONS:
I/We hereby declare to the best of my/our knowledge, and belief, all statements
and answers are true and correct. I/WE UNDERSTAND THAT ANNUITY PAYMENTS OR
SURRENDER VALUES, WHEN BASED UPON THE INVESTMENT EXPERIENCE OF A SEPARATE
ACCOUNT, ARE VARIABLE AND NOT GUARANTEED AS TO A FIXED DOLLAR AMOUNT.
A copy of this application signed by the Agent will be the receipt for the first
purchase payment. If the Insurer declines this application, the Insurer will
have no liability except to return the first purchase payment.
I have read the above statements and represent that they are complete and true
to the best of my knowledge and belief. I agree that this application shall be a
part of the annuity issued by the Insurer. By accepting the annuity issued, I
agree to any additions or corrections to this application. The Insurer will
obtain agreement from me for any change in investment allocations, benefits,
type of plan or birthdates.
Owner's Signature______________________ Dated At_____________________
Dated On _____________________________
City State
Joint Owner's Signature__________________ Dated At_____________________
Dated On ________________________________
City State
TO THE AGENT: To the best of your knowledge will this annuity replace or
change any existing life insurance or annuity in this
or any other Company?...................... |_| YES |_| NO
Licensed Writing Agent Name (PRINT) Agent Signature
Agent Number _______________________ Region _____________ Terr.___________
Dist. _______________ Agent's Phone Number ( )
Licensed Participating Agent Name (PRINT) Agent Signature
Agent Number _______________________ Region _____________ Terr.___________
Dist. _______________ Agent's Phone Number ( )
Licensed I.D. # (FLORIDA AGENTS ONLY)_________________________________________
FOR AGENT USE ONLY:
Contact your home office for program information: |_| Option A |_| Option B
|_| Option C
LR1609-1
Exhibit 8(a)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
ALLSTATE LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
ALLSTATE LIFE FINANCIAL SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
Description Page
Section 1. Available Funds 2
1.1 Availability. 2
1.2 Addition, Deletion or Modification of Funds 2
1.3 No Sales to the General Public 2
Section 2. Processing Transactions 3
2.1 Timely Pricing and Orders 3
2.2 Timely Payments 3
2.3 Applicable Price 3
2.4 Dividends and Distributions 4
2.5 Book Entry 4
Section 3. Costs and Expenses 4
3.1 General 4
3.2 Parties To Cooperate 4
Section 4. Legal Compliance 5
4.1 Tax Laws 5
4.2 Insurance and Certain Other Laws 7
4.3 Securities Laws 7
4.4 Notice of Certain Proceedings and Other Circumstances 8
4.5 LIFE COMPANY or UNDERWRITER To Provide Documents;
Information About AVIF 9
4.6 AVIF or AIM To Provide Documents; Information About
LIFE COMPANY 10
Section 5. Mixed and Shared Funding 11
5.1 General 11
5.2 Disinterested Directors 12
5.3 Monitoring for Material Irreconcilable Conflicts 12
5.4 Conflict Remedies 13
5.5 Notice to LIFE COMPANY 14
5.6 Information Requested by Board of Directors 14
5.7 Compliance with SEC Rules 14
5.8 Other Requirements 14
Section 6. Termination 15
6.1 Events of Termination 15
<PAGE>
6.2 Notice Requirement for Termination 16
6.3 Funds To Remain Available 16
6.4 Survival of Warranties and Indemnifications 16
6.5 Continuance of Agreement for Certain Purposes 16
Section 7. Parties To Cooperate Respecting Termination 17
Section 8. Assignment 17
Section 9. Notices 17
Section 10. Voting Procedures 18
Section 11. Foreign Tax Credits 18
Section 12. Indemnification 19
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER 19
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM 21
12.3 Effect of Notice 23
12.4 Successors 23
Section 13. Applicable Law 23
Section 14. Execution in Counterparts 24
Section 15. Severability 24
Section 16. Rights Cumulative 24
Section 17. Headings 24
Section 18. Confidentiality 24
Section 19. Trademarks and Fund Names 25
Section 20. Parties to Cooperate 26
Section 21. Amendments 26
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ____ day of _________, 1999
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM")
Allstate Life Insurance Company, an Illinois life insurance company ("LIFE
COMPANY"), on behalf of itself and each of its segregated asset accounts listed
in Schedule A hereto, as the parties hereto may amend from time to time (each,
an "Account," and collectively, the "Accounts"); and Allstate Life Financial
Services, Inc., an affiliate of LIFE COMPANY and the principal underwriter of
the Contracts ("UNDERWRITER") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of fifteen separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") and/or policies
("Policies") as set forth on Schedule A hereto, as the Parties hereto may amend
from time to time, which Contracts and Policies (hereinafter collectively, the
"Policies"), if required by applicable law, will be registered under the 1933
Act; and
WHEREAS, LIFE COMPANY will fund the Policies through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Policies will be registered as securities under the 1933 Act
(or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, AIM is a broker-dealer registered with the SEC under the 1934 Act
and a member in good standing of NASD;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
Section 1. Available Funds
1.1 Availability.
AVIF will make Shares of each Fund available to LIFE COMPANY for purchase
and redemption at net asset value and with no sales charges, subject to the
terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 Addition, Deletion or Modification of Funds .
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Policies, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 No Sales to the General Public .
AVIF represents and warrants that no Shares of any Fund have been or will
be sold to the general public.
Section 2. Processing Transactions
2.1 Timely Pricing and Orders .
(a) AVIF or its designated agent will use its best efforts to provide
LIFE COMPANY with the net asset value per Share for each Fund by 6:00 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall
mean any day on which (i) the New York Stock Exchange is open for regular
trading, (ii) AVIF calculates the Fund's net asset value and (iii) LIFE
COMPANY is open for business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit
values and to process transactions that receive that same Business Day's
Account unit values. LIFE COMPANY will perform such Account processing the
same Business Day, and will place corresponding orders to purchase or
redeem Shares with AVIF by 9:00 a.m. Central Time the following Business
Day; provided, however, that AVIF shall provide additional time to LIFE
COMPANY in the event that AVIF is unable to meet the 6:00 p.m. time stated
in paragraph (a) immediately above. Such additional time shall be equal to
the additional time that AVIF takes to make the net asset values available
to LIFE COMPANY.
(c) Each order to purchase or redeem Shares will separately describe
the amount of Shares of each Fund to be purchased, redeemed or exchanged
and will not be netted; provided however, with respect to payment of the
purchase price by LIFE COMPANY and of redemption proceeds by AVIF, LIFE
COMPANY and AVIF shall net purchase and redemption orders with respect to
each Fund and shall transmit one net payment per Fund in accordance with
Section 2.2, below. Each order to purchase or redeem Shares shall also
specify whether the order results from purchase payments, surrenders,
partial withdrawals of charges or requests for other transactions under
Policies (collectively, "Policy transactions").
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be
entitled to an adjustment to the number of Shares purchased or redeemed to
reflect the correct net asset value per Share. Any material error in the
calculation or reporting of net asset value per Share, dividend or capital
gain information shall be reported promptly upon discovery to LIFE COMPANY.
Materiality and reprocessing cost reimbursement shall be determined in
accordance with standards established by the parties as provided in
Schedule B, attached hereto and herein incorporated.
2.2 Timely Payments.
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law. 2.3Applicable Price .
(a) Share purchase and redemption orders that result from Policy
transactions and that LIFE COMPANY receives prior to the close of regular
trading on the New York Stock Exchange on a Business Day will be executed
at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the orders. For purposes of this
Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for
receipt of orders relating to Policy transactions on each Business Day and
receipt by such designated agent shall constitute receipt by AVIF;
provided, that AVIF receives notice of such orders by 9:00 a.m. Central
Time on the next following Business Day or such later time as computed in
accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed
after receipt by AVIF or its designated agent of the order therefor, and
such orders will be irrevocable.
2.4 Dividends and Distributions .
AVIF will furnish notice promptly to LIFE COMPANY any income dividends or
capital gain distributions payable on the Shares of any Fund. LIFE COMPANY
hereby elects to reinvest all dividends and capital gains distributions in
additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 Book Entry .
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
Section 3. Costs and Expenses
3.1 General .
Except as otherwise specifically provided in Schedule C, attached hereto
and made a part hereof, each Party will bear, or arrange for others to bear, all
expenses incident to its performance under this Agreement.
3.2 Parties To Cooperate .
Each Party agrees to cooperate with the others, as applicable, in arranging
to print, mail and/or deliver, in a timely manner, combined or coordinated
prospectuses or other materials of AVIF and the Accounts.
Section 4. Legal Compliance
4.1 Tax Laws .
(a) AVIF represents and warrants that each Fund is currently qualified
and will continue to qualify as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). AVIF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so qualify or that it might
not so qualify in the future.
(b) AVIF represents that it will comply and maintain each Fund's
compliance with the diversification requirements set forth in Section
817(h) of the Code and Section 1.817-5(b) of the regulations under the
Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so comply or that a Fund
might not so comply in the future.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of
LIFE COMPANY or, to LIFE COMPANY's knowledge, of any Policy owner,
annuitant or participant under the Policies (collectively, "Participants"),
that any Fund has failed to comply with the diversification requirements of
Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any
facts that could give rise to any claim against AVIF or its affiliates as a
result of such a failure or alleged failure to so comply with Section
817(h) (hereinafter respectively referred to in this paragraph (c) as
"failure" or "alleged failure"):
(i) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions of Section
18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize
any liability that may arise as a result of such failure or alleged
failure;
(iii) LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such failure,
including, without limitation, demonstrating, pursuant to Treasury
Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that
such failure was inadvertent, provided that LIFE COMPANY shall not be
required to make any such demonstration of inadvertence unless AVIF
represents or provides an opinion of counsel, which representation or
opinion shall be reasonably satisfactory to LIFE COMPANY, to the
effect that a reasonable basis exists for making such demonstration;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their
legal and accounting advisors to participate in any conferences,
settlement discussions or other administrative or judicial proceeding
or contests (including judicial appeals thereof) with the IRS, any
Participant or any other claimant regarding any claims that could give
rise to liability to AVIF or its affiliates as a result of such a
failure or alleged failure; provided, however, that LIFE COMPANY will
retain control of the conduct of such conferences, discussions,
proceedings, contests or appeals thereof;
(v) any written materials to be submitted by LIFE COMPANY to the
IRS, any Participant or any other claimant in connection with any of
the foregoing proceedings or contests (including, without limitation,
any such materials to be submitted to the IRS pursuant to Treasury
Regulations Section 1.817-5(a)(2)), (a) shall be provided by LIFE
COMPANY to AVIF (together with any supporting information or
analysis); subject to the confidentiality provisions of Section 18, at
least ten (10) business days or such shorter period to which the
Parties hereto may from time to time agree, prior to the day on which
such proposed materials are to be submitted and (b) shall not be
submitted by LIFE COMPANY to any such person without the express
written consent of AVIF which shall not be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF shall
reasonably request (including, without limitation, by providing AVIF
and its accounting and legal advisors with copies of any relevant
books and records (or portions thereof) of LIFE COMPANY that may be
reasonably requested by or on behalf of AVIF and that LIFE COMPANY is
permitted to provide in accordance with applicable law) in order to
facilitate review by AVIF or its advisors of any written submissions
provided to it pursuant to the preceding clause or its assessment of
the validity or amount of any claim against its arising from such a
failure or alleged failure;
(vii) LIFE COMPANY shall not with respect to any claim of the IRS
or any Participant that would give rise to a claim against AVIF or its
affiliates (a) compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable administrative or
judicial appeals, without the express written consent of AVIF or its
affiliates, which shall not be unreasonably withheld, provided that
LIFE COMPANY shall not be required, after exhausting all
administrative remedies, to appeal any adverse IRS or judicial
decision unless AVIF or its affiliates shall have provided an opinion
of independent counsel approved by LIFE COMPANY, which approval shall
not be unreasonably withheld, to the effect that a reasonable basis
exists for taking such appeal (or, in the case of an appeal to the
United States Supreme Court, that LIFE COMPANY should be more likely
than not to prevail on such appeal) and provided further that the
costs of any such appeal shall be borne equally by the Parties hereto;
and
(viii) AVIF and its affiliates shall have no liability as a
result of such failure or alleged failure if LIFE COMPANY fails to
comply with any of the foregoing clauses (i) through (vii), and such
failure could be shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability
hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its
affiliates to act in the name of LIFE COMPANY in, and to control the
conduct of, such conferences, discussions, proceedings, contests or appeals
and all administrative or judicial appeals thereof, and in that event AVIF
or its affiliates shall bear the fees and expenses associated with the
conduct of the proceedings that it is so authorized to control; provided,
that in no event shall LIFE COMPANY have any liability resulting from
AVIF's refusal to accept the proposed settlement or compromise with respect
to any failure caused by AVIF. As used in this Agreement, the term
"affiliates" shall have the same meaning as "affiliated person" as defined
in Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Policies currently
are and at all times will be treated as annuity, endowment or life
insurance contracts under applicable provisions of the Code. LIFE COMPANY
will notify AVIF immediately upon having a reasonable basis for believing
that any of the Policies have ceased to be so treated or that they might
not be so treated in the future, provided that such notice shall be kept
confidential during the period of LIFE COMPANY's investigation of any such
circumstances to the extent permitted by applicable law.
(e) LIFE COMPANY represents and warrants that each Account is and at
all times will be a "segregated asset account" and that interests in each
Account are offered exclusively through the purchase of or transfer into a
"variable contract," within the meaning of such terms under Section 817 of
the Code and the regulations thereunder. LIFE COMPANY will notify AVIF
immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the
future.
4.2 Insurance and Certain Other Laws .
(a) AVIF and AIM will use their best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by LIFE COMPANY.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Illinois and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Section 245.21 of the Illinois
Insurance Code and the regulations thereunder, and (iii) the Policies comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
(d) AIM represents and warrants that it is a Delaware corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(e) UNDERWRITER represents and warrants that it is a Delaware corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
4.3 Securities Laws .
(a) LIFE COMPANY and UNDERWRITER represent and warrant that (i) interests
in each Account pursuant to the Policies will be registered under the 1933 Act
to the extent required by the 1933 Act, (ii) the Policies will be duly
authorized for issuance and sold in compliance with all applicable federal and
state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940
Act and Illinois law, (iii) each Account is and will remain registered under the
1940 Act, to the extent required by the 1940 Act, (iv) each Account does and
will comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Policies, together with any amendments
thereto, will at all times comply in all material respects with the requirements
of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the
registration statement for its Contracts under the 1933 Act and for its Policies
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Policies or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF and AIM represent and warrant that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF's Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will register and qualify its Shares for sale in accordance with
the laws of any state or other jurisdiction if and to the extent reasonably
deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
4.4 Notice of Certain Proceedings and Other Circumstances .
(a) AVIF and/or AIM will immediately notify LIFE COMPANY of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to AVIF's registration statement
under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or AVIF Prospectus that may affect the
offering of Shares of AVIF, (iii) the initiation of any proceedings for that
purpose or for any other purpose relating to the registration or offering of
AVIF's Shares, or (iv) any other action or circumstances that may prevent the
lawful offer or sale of Shares of any Fund in any state or jurisdiction,
including, without limitation, any circumstances in which (a) such Shares are
not registered and, in all material respects, issued and sold in accordance with
applicable state and federal law, or (b) such law precludes the use of such
Shares as an underlying investment medium of the Policies issued or to be issued
by LIFE COMPANY. AVIF will make every reasonable effort to prevent the issuance,
with respect to any Fund, of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
(b) LIFE COMPANY and/or UNDERWRITER will immediately notify AVIF of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to each Account's registration
statement under the 1933 Act relating to the Policies or each Account
Prospectus, (ii) any request by the SEC for any amendment to such registration
statement or Account Prospectus that may affect the offering of Shares of AVIF,
(iii) the initiation of any proceedings for that purpose or for any other
purpose relating to the registration or offering of each Account's interests
pursuant to the Policies, or (iv) any other action or circumstances that may
prevent the lawful offer or sale of said interests in any state or jurisdiction,
including, without limitation, any circumstances in which said interests are not
registered and, in all material respects, issued and sold in accordance with
applicable state and federal law. LIFE COMPANY will make every reasonable effort
to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
4.5 LIFE COMPANY or UNDERWRITER To Provide Documents; Information About
AVIF .
(a) LIFE COMPANY and/or UNDERWRITER will provide to AVIF or its designated
agent at least one (1) complete copy of all SEC registration statements, Account
Prospectuses, reports, any preliminary and final voting instruction solicitation
material, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to each Account or the Policies,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY and/or UNDERWRITER will provide to AVIF or its designated
agent at least one (1) complete copy of each piece of sales literature or other
promotional material not prepared by AVIF or its affiliates, in which AVIF or
any of its affiliates is named, at least ten (10) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if AVIF or its designated agent objects to such
use within ten (10) Business Days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree upon. AVIF hereby
designates its investment advisor as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY the UNDERWRITER nor any of their respective
affiliates, will give any information or make any representations or statements
on behalf of or concerning AVIF or its affiliates in connection with the sale of
the Policies other than (i) the information or representations contained in the
registration statement, including the AVIF Prospectus contained therein,
relating to Shares, as such registration statement and AVIF Prospectus may be
amended from time to time; or (ii) in reports or proxy materials for AVIF; or
(iii) in published reports for AVIF that are in the public domain and approved
by AVIF for distribution; or (iv) in sales literature or other promotional
material approved by AVIF, except with the express written permission of AVIF.
(d) LIFE COMPANY and the UNDERWRITER shall adopt and implement procedures
reasonably designed to ensure that information concerning AVIF, AIM and their
affiliates that is intended for use only by brokers or agents selling the
Policies (i.e., information that is not intended for distribution to
Participants or offeree) ("broker only materials") is so used, and neither AVIF
nor any of its affiliates shall be liable for any losses, damages or expenses
relating to the improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF or AIM To Provide Documents; Information About LIFE COMPANY and
the UNDERWRITER .
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all
SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY or UNDERWRITER a camera ready copy of
all AVIF prospectuses and a printed copy, to be reproduced by LIFE COMPANY, of
AVIF statements of additional information, additionally AVIF will provide
printed copies of proxy materials, periodic reports to shareholders and other
materials required by law to be sent to Participants who have allocated any
Policy value to a Fund. AVIF will provide such copies to LIFE COMPANY or
UNDERWRITER in a timely manner so as to enable LIFE COMPANY, as the case may be,
to print and distribute such materials within the time required by law to be
furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, UNDERWRITER, or any of their respective
affiliates is named, or that refers to the Policies, at least ten (10) Business
Days prior to its use or such shorter period as the Parties hereto may, from
time to time, agree upon. No such material shall be used if LIFE COMPANY or its
designated agent objects to such use within ten (10) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. LIFE COMPANY shall receive all such sales literature until
such time as it appoints a designated agent by giving notice to AVIF in the
manner required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
UNDERWRITER, each Account, or the Policies other than (i) the information or
representations contained in the registration statement, including each Account
Prospectus contained therein, relating to the Policies, as such registration
statement and Account Prospectus may be amended from time to time; or (ii) in
published reports for the Account or the Policies that are in the public domain
and approved by LIFE COMPANY for distribution; or (iii) in sales literature or
other promotional material approved by LIFE COMPANY or its affiliates, except
with the express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, UNDERWRITER and their respective affiliates that is intended for use
only by brokers or agents selling the Policies (i.e., information that is not
intended for distribution to Participants or offerees) ("broker only materials")
is so used, and neither LIFE COMPANY, UNDERWRITER nor any of their respective
affiliates shall be liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media, (e.g., on-line
networks such as the Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, and proxy materials
and any other material constituting sales literature or advertising under the
NASD rules, the 1933 Act or the 1940 Act.
Section 5. Mixed and Shared Funding
5.1 General .
The SEC has granted an order to AVIF exempting it from certain provisions
of the 1940 Act and rules thereunder so that AVIF may be available for
investment by certain other entities, including, without limitation, separate
accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). The Parties recognize that the SEC has imposed
terms and conditions for such orders that are substantially identical to many of
the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Policy is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 Disinterested Directors .
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board;(b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
<PAGE>
Exhibit 8(b)
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
ALLSTATE LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this 23rd day of June 1999, by and
among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), ALLSTATE LIFE INSURANCE COMPANY, an Illinois corporation (the
"Company") on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to the Accounts (the
Policies and the Accounts covered by this Agreement, and each corresponding
Portfolio covered by this Agreement in which the Accounts invest, is specified
in Schedule A attached hereto as may be modified from time to time);
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD");
WHEREAS, Allstate Life Financial Services, Inc. ("ALFS"), the underwriter
for the individual variable annuity and the variable life policies, is
registered as a broker-dealer with the SEC under the 1934 Act and is a member in
good standing of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust, MFS,
and the Company agree as follows:
ARTICLE I. Sale of Trust Shares
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that Business Day,
as defined below) and which are available for purchase by such Accounts,
executing such orders on a daily basis at the net asset value next computed
after receipt by the Trust or its designee of the order for the Shares. For
purposes of this Section 1.1, the Company shall be the designee of the Trust for
receipt of such orders from Policy owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of such
orders by 9:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange, Inc. (the "NYSE")
is open for trading and on which the Trust calculates its net asset value
pursuant to the rules of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall calculate such net asset value
on each day which the NYSE is open for trading. Notwithstanding the foregoing,
the Board of Trustees of the Trust (the "Board") may refuse to sell any Shares
to the Company and the Accounts, or suspend or terminate the offering of the
Shares if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of its fiduciary duties under federal and any applicable state laws,
necessary in the best interest of the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to insurance
companies which have entered into participation agreements with the Trust and
MFS (the "Participating Insurance Companies") and their separate accounts,
qualified pension and retirement plans and MFS or its affiliates. The Trust and
MFS will not sell Trust shares to any insurance company or separate account
unless an agreement containing provisions substantially the same as Articles III
and VII of this Agreement is in effect to govern such sales. The Company will
not resell the Shares except to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by Policy
owners on that Business Day), executing such requests on a daily basis at the
net asset value next computed after receipt by the Trust or its designee of the
request for redemption. For purposes of this Section 1.4, the Company shall be
the designee of the Trust for receipt of requests for redemption from Policy
owners and receipt by such designee shall constitute receipt by the Trust;
provided that the Trust receives notice of such request for redemption by 9:30
a.m. New York time on the next following Business Day.
1.5. Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted with
respect to any Portfolio. However, with respect to payment of the purchase price
by the Company and of redemption proceeds by the Trust, the Company and the
Trust shall net purchase and redemption orders with respect to each Portfolio
and shall transmit one net payment for all of the Portfolios in accordance with
Section 1.6 hereof.
1.6. In the event of net purchases, the Company shall pay for the Shares by
2:00 p.m. New York time on the next Business Day after an order to purchase the
Shares is made in accordance with the provisions of Section 1.1. hereof. In the
event of net redemptions, the Trust shall pay the redemption proceeds by 2:00
p.m. New York time on the next Business Day after an order to redeem the shares
is made in accordance with the provisions of Section 1.4. hereof. All such
payments shall be in federal funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only. Stock
certificates will not be issued to the Company or the Accounts. The Shares
ordered from the Trust will be recorded in an appropriate title for the Accounts
or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone followed
by written confirmation) to the Company of any dividends or capital gain
distributions payable on the Shares. The Company hereby elects to receive all
such dividends and distributions as are payable on a Portfolio's Shares in
additional Shares of that Portfolio. The Trust shall notify the Company of the
number of Shares so issued as payment of such dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:30
p.m. New York time. In the event that the Trust is unable to meet the 6:30 p.m.
time stated herein, it shall provide additional time for the Company to place
orders for the purchase and redemption of Shares. Such additional time shall be
equal to the additional time which the Trust takes to make the net asset value
available to the Company. If the Trust provides materially incorrect share net
asset value information, the Trust shall make an adjustment to the number of
shares purchased or redeemed for the Accounts to reflect the correct net asset
value per share. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gains information shall be reported
promptly upon discovery to the Company.
ARTICLE II. Certain Representations, Warranties and Covenants
2.1. The Company represents and warrants that the Policies are or will be
registered under the 1933 Act or are exempt from or not subject to registration
thereunder, and that the Policies will be issued, sold, and distributed in
compliance in all material respects with all applicable state and federal laws,
including without limitation the 1933 Act, the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the 1940 Act. The Company further represents
and warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
as a segregated asset account under applicable law and has registered or, prior
to any issuance or sale of the Policies, will register the Accounts as unit
investment trusts in accordance with the provisions of the 1940 Act (unless
exempt therefrom) to serve as segregated investment accounts for the Policies,
and that it will maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under the 1933
Act for the Policies and the registration statements under the 1940 Act for the
Accounts from time to time as required in order to effect the continuous
offering of the Policies or as may otherwise be required by applicable law. The
Company shall register and qualify the Policies for sales in accordance with the
securities laws of the various states only if and to the extent deemed necessary
by the Company.
2.2. The Company represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contract under applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), that it will maintain such treatment and that it
will notify the Trust or MFS immediately upon having a reasonable basis for
believing that the Policies have ceased to be so treated or that they might not
be so treated in the future.
2.3. The Company represents and warrants that ALFS, the underwriter for the
individual variable annuity and the variable life policies, is a member in good
standing of the NASD and is a registered broker-dealer with the SEC. The Company
represents and warrants that the Company and ALFS will sell and distribute such
policies in accordance in all material respects with all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of The Commonwealth of
Massachusetts and all applicable federal and state securities laws and that the
Trust is and shall remain registered under the 1940 Act. The Trust shall amend
the registration statement for its Shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Shares. The Trust shall register and qualify the Shares for sale in accordance
with the laws of the various states only if and to the extent deemed necessary
by the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Trust and MFS represent that the Trust and the Underwriter will sell and
distribute the Shares in accordance in all material respects with all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and any applicable
regulations thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material respects
with any applicable federal securities laws and with the securities laws of The
Commonwealth of Massachusetts. MFS represents and warrants that it is not
subject to state securities laws other than the securities laws of The
Commonwealth of Massachusetts and that it is exempt from registration as an
investment adviser under the securities laws of The Commonwealth of
Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so that
it may carry out fully the obligations imposed upon it by the conditions
contained in the exemptive application pursuant to which the SEC has granted
exemptive relief to permit mixed and shared funding (the "Mixed and Shared
Funding Exemptive Order").
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the Shares as
the Company may reasonably request for distribution to existing Policy owners
whose Policies are funded by such Shares. The Trust or its designee shall
provide the Company, at the Company's expense, with as many copies of the
current prospectus for the Shares as the Company may reasonably request for
distribution to prospective purchasers of Policies. If requested by the Company
in lieu thereof, the Trust or its designee shall provide such documentation
(including a "camera ready" copy of the new prospectus as set in type or, at the
request of the Company, as a diskette in the form sent to the financial printer)
and other assistance as is reasonably necessary in order for the parties hereto
once each year (or more frequently if the prospectus for the Shares is
supplemented or amended) to have the prospectus for the Policies and the
prospectus for the Shares printed together in one document; the expenses of such
printing to be apportioned between (a) the Company and (b) the Trust or its
designee in proportion to the number of pages of the Policy and Shares'
prospectuses, taking account of other relevant factors affecting the expense of
printing, such as covers, columns, graphs and charts; the Trust or its designee
to bear the cost of printing the Shares' prospectus portion of such document for
distribution to owners of existing Policies funded by the Shares and the Company
to bear the expenses of printing the portion of such document relating to the
Accounts; provided, however, that the Company shall bear all printing expenses
of such combined documents where used for distribution to prospective purchasers
or to owners of existing Policies not funded by the Shares. In the event that
the Company requests that the Trust or its designee provides the Trust's
prospectus in a "camera ready" or diskette format, the Trust shall be
responsible for providing the prospectus in the format in which it or MFS is
accustomed to formatting prospectuses and shall bear the expense of providing
the prospectus in such format (e.g., typesetting expenses), and the Company
shall bear the expense of adjusting or changing the format to conform with any
of its prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and provide
such statement of additional information to the Company (or a master of such
statement suitable for duplication by the Company) for distribution to any owner
of a Policy funded by the Shares. The Trust or its designee, at the Company's
expense, shall print and provide such statement to the Company (or a master of
such statement suitable for duplication by the Company) for distribution to a
prospective purchaser who requests such statement or to an owner of a Policy not
funded by the Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's proxy
materials, reports to Shareholders and other communications to Shareholders in
such quantity as the Company shall reasonably require for distribution to Policy
owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above, or
of Article V below, the Company shall pay the expense of printing or providing
documents to the extent such cost is considered a distribution expense.
Distribution expenses would include by way of illustration, but are not limited
to, the printing of the Shares' prospectus or prospectuses for distribution to
prospective purchasers or to owners of existing Policies not funded by such
Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received from
Policy owners; and
(c) vote the Shares for which no instructions have been received in
the same proportion as the Shares of such Portfolio for which instructions
have been received from Policy owners; so long as and to the extent that
the SEC continues to interpret the 1940 Act to require pass through voting
privileges for variable contract owners. The Company will in no way
recommend action in connection with or oppose or interfere with the
solicitation of proxies for the Shares held for such Policy owners. The
Company reserves the right to vote shares held in any segregated asset
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts holding Shares calculates voting privileges in the manner
required by the Mixed and Shared Funding Exemptive Order. The Trust and MFS
will notify the Company of any changes of interpretations or amendments to
the Mixed and Shared Funding Exemptive Order.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the Trust, or
any affiliate of MFS are named, at least three (3) Business Days prior to its
use. No such material shall be used if the Trust, MFS, or their respective
designees reasonably objects to such use within three (3) Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any representations
or statement on behalf of the Trust, MFS, any other investment adviser to the
Trust, or any affiliate of MFS or concerning the Trust or any other such entity
in connection with the sale of the Policies other than the information or
representations contained in the registration statement, prospectus or statement
of additional information for the Shares, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust, MFS
or their respective designees, except with the permission of the Trust, MFS or
their respective designees. The Trust, MFS or their respective designees each
agrees to respond to any request for approval on a prompt and timely basis. The
Company shall adopt and implement procedures reasonably designed to ensure that
information concerning the Trust, MFS or any of their affiliates which is
intended for use only by brokers or agents selling the Policies (i.e.,
information that is not intended for distribution to Policy owners or
prospective Policy owners) is so used, and neither the Trust, MFS nor any of
their affiliates shall be liable for any losses, damages or expenses relating to
the improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or the Accounts is named, at
least three (3) Business Days prior to its use. No such material shall be used
if the Company or its designee reasonably objects to such use within three (3)
Business Days after receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter shall
not give, any information or make any representations on behalf of the Company
or concerning the Company, the Accounts, or the Policies in connection with the
sale of the Policies other than the information or representations contained in
a registration statement, prospectus, or statement of additional information for
the Policies, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or in
reports for the Accounts, or in sales literature or other promotional material
approved by the Company or its designee, except with the permission of the
Company. The Company or its designee agrees to respond to any request for
approval on a prompt and timely basis. The parties hereto agree that this
Section 4.4. is neither intended to designate nor otherwise imply that MFS is an
underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company or
the Trust, as appropriate) will each provide to the other at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Policies, or to the Trust or
its Shares, prior to or contemporaneously with the filing of such document with
the SEC or other regulatory authorities. The Company and the Trust shall also
each promptly inform the other of the results of any examination by the SEC (or
other regulatory authorities) that relates to the Policies, the Trust or its
Shares, and the party that was the subject of the examination shall provide the
other party with a copy of relevant portions of any "deficiency letter" or other
correspondence or written report regarding any such examination.
4.6. The Trust and MFS will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Portfolio, and of any
material change in the Trust's registration statement, particularly any change
resulting in change to the registration statement or prospectus or statement of
additional information for any Account. The Trust and MFS will cooperate with
the Company so as to enable the Company to solicit proxies from Policy owners or
to make changes to its prospectus, statement of additional information or
registration statement, in an orderly manner. The Trust and MFS will make
reasonable efforts to attempt to have changes affecting Policy prospectuses
become effective simultaneously with the annual updates for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
and sales literature (such as brochures, circulars, reprints or excerpts or any
other advertisement, sales literature, or published articles), distributed or
made generally available to customers or the public, educational or training
materials or communications distributed or made generally available to some or
all agents or employees.
ARTICLE V. Fees and Expenses
5.1. The Trust shall pay no fee or other compensation to the Company under
this Agreement, and the Company shall pay no fee or other compensation to the
Trust, except that if the Trust or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution and
Shareholder servicing expenses, then, subject to obtaining any required
exemptive orders or regulatory approvals, the Trust may make payments to the
Company or to the underwriter for the Policies if and in amounts agreed to by
the Trust in writing. Each party, however, shall, in accordance with the
allocation of expenses specified in Articles III and V hereof, reimburse other
parties for expenses initially paid by one party but allocated to another party.
In addition, nothing herein shall prevent the parties hereto from otherwise
agreeing to perform, and arranging for appropriate compensation for, other
services relating to the Trust and/or to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal and
state laws, including preparation and filing of the Trust's registration
statement, and payment of filing fees and registration fees; preparation and
filing of the Trust's proxy materials and reports to Shareholders; setting in
type and printing its prospectus and statement of additional information (to the
extent provided by and as determined in accordance with Article III above);
setting in type and printing the proxy materials and reports to Shareholders (to
the extent provided by and as determined in accordance with Article III above);
the preparation of all statements and notices required of the Trust by any
federal or state law with respect to its Shares; all taxes on the issuance or
transfer of the Shares; and the costs of distributing the Trust's prospectuses
and proxy materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses of
marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies and of
distributing the Trust's Shareholder reports to Policy owners. The Company shall
bear all expenses associated with the registration, qualification, and filing of
the Policies under applicable federal securities and state insurance laws; the
cost of preparing, printing and distributing the Policy prospectus and statement
of additional information; and the cost of preparing, printing and distributing
annual individual account statements for Policy owners as required by state
insurance laws.
ARTICLE VI. Diversification and Related Limitations
6.1. The Trust and MFS represent and warrant that each Portfolio will meet
the diversification requirements of Section 851 of the Code ("Section 851
Diversification Requirements") and Section 817(h)(1) of the Code and Treas. Reg.
1.817-5, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts ("Section 817(h)(1) Diversification
Requirements"), as they may be amended from time to time (and any revenue
rulings, revenue procedures, notices, and other published announcements of the
Internal Revenue Service interpreting these sections) (collectively,
"Diversification Requirements"). In the event that any Portfolio is not so
diversified at the end of any applicable quarter, the Trust and MFS will make
every effort to adequately diversify the Portfolio so as to achieve compliance
within the grace periods afforded by Treas. Reg. 1.817-5 and Section 851(d) of
the Code (the "Grace Periods"). In the event that any Portfolio is not so
diversified at the end of any applicable Grace Period, the Trust or MFS will
promptly notify the Company of such non-diversification, such notification to be
provided in no event later than 20 days after the end of the applicable Grace
Period. The Trust will provide the Company with a certification as to quarterly
compliance with Section 817(h) and the regulations thereunder, in such forms and
at such time as the Company and the Trust shall agree.
6.2. The Trust and MFS represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the Code and
that they will make every effort to ensure the maintenance of such qualification
(under Subchapter M or any successor or similar provision). In the event that
any Portfolio is not so qualified at the end of any applicable quarter or grace
period (if applicable), the Trust or MFS will promptly notify the Company of
such nonqualification, such qualification to be provided in no event later than
20 days after the end of the applicable quarter or grace period (if applicable).
ARTICLE VII. Potential Material Conflicts
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of the
variable annuity contract owners and the variable life insurance policy owners
of the Company and/or affiliated companies ("contract owners") investing in the
Trust. The Board shall have the sole authority to determine if a material
irreconcilable conflict exists, and such determination shall be binding on the
Company only if approved in the form of a resolution by a majority of the Board,
or a majority of the disinterested trustees of the Board. The Board will give
prompt notice of any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the Board
in carrying out its responsibilities under the conditions set forth in the
Trust's exemptive application pursuant to which the SEC has granted the Mixed
and Shared Funding Exemptive Order by providing the Board, as it may reasonably
request, with all information necessary for the Board to consider any issues
raised and agrees that it will be responsible for promptly reporting any
potential or existing conflicts of which it is aware to the Board including, but
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded. The Company also agrees
that, if a material irreconcilable conflict arises, it will at its own cost
remedy such conflict up to and including (a) withdrawing the assets allocable to
some or all of the Accounts from the Trust or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Trust, or submitting to a vote of all affected contract owners
whether to withdraw assets from the Trust or any Portfolio and reinvesting such
assets in a different investment medium and, as appropriate, segregating the
assets attributable to any appropriate group of contract owners that votes in
favor of such segregation, or offering to any of the affected contract owners
the option of segregating the assets attributable to their contracts or
policies, and (b) establishing a new registered management investment company
and segregating the assets underlying the Policies, unless a majority of Policy
owners materially adversely affected by the conflict have voted to decline the
offer to establish a new registered management investment company.
7.3. A majority of the disinterested trustees of the Board shall determine
whether any proposed action by the Company adequately remedies any material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable conflict,
the Company will withdraw from investment in the Trust each of the Accounts
designated by the disinterested trustees and terminate this Agreement within six
(6) months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required to remedy any such material irreconcilable
conflict as determined by a majority of the disinterested trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rule 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent
such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3 and 7.4 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification by the Company
The Company agrees to indemnify and hold harmless the Trust, MFS, any
affiliates of MFS, and each of their respective directors/trustees, officers and
each person, if any, who controls the Trust or MFS within the meaning of Section
15 of the 1933 Act, and any agents or employees of the foregoing (each an
"Indemnified Party," or collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or expenses (including reasonable counsel fees) to which any Indemnified Party
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement, prospectus or statement of additional information for the
Policies or contained in the Policies or sales literature or other
promotional material for the Policies (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading provided
that this agreement to indemnify shall not -------- apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reasonable reliance upon and in conformity with
information furnished to the Company or its designee by or on behalf of the
Trust or MFS for use in the registration statement, prospectus or statement
of additional information for the Policies or in the Policies or sales
literature or other promotional material (or any amendment or supplement)
or otherwise for use in connection with the sale of the Policies or Shares;
or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus, statement of additional information or sales
literature or other promotional material of the Trust not supplied by the
Company or its designee, or persons under its control and on which the
Company has reasonably relied) or wrongful conduct of the Company or
persons under its control, with respect to the sale or distribution of the
Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus,
statement of additional information, or sales literature or other
promotional literature of the Trust, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was made
in reliance upon information furnished to the Trust by or on behalf of the
Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company; or
(e) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; as
limited by and in accordance with the provisions of this Article VIII.
8.2. Indemnification by the Trust
The Trust agrees to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act, and any agents or employees of the
foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust) or expenses (including reasonable counsel fees) to which
any Indemnified Party may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement, prospectus, statement of additional information or sales
literature or other promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement therein not
misleading, provided that -------- this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reasonable reliance upon and in
conformity with information furnished to the Trust, MFS, the Underwriter or
their respective designees by or on behalf of the Company for use in the
registration statement, prospectus or statement of additional information
for the Trust or in sales literature or other promotional material for the
Trust (or any amendment or supplement) or otherwise for use in connection
with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus, statement of additional information or sales
literature or other promotional material for the Policies not supplied by
the Trust, MFS, the Underwriter or any of their respective designees or
persons under their respective control and on which any such entity has
reasonably relied) or wrongful conduct of the Trust or persons under its
control, with respect to the sale or distribution of the Policies or
Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus,
statement of additional information, or sales literature or other
promotional literature of the Accounts or relating to the Policies, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Trust, MFS or the Underwriter; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Trust; or
(e) arise out of or result from any failure to comply with the
diversification requirements specified in Article VI of this Agreement; or
(f) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share or dividend
or capital gain distribution rate; or
(g) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of the Agreement; as
limited by and in accordance with the provisions of this Article VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including
without limitation, the Company, or any Participating Insurance Company or any
Policy holder, with respect to any losses, claims, damages, liabilities or
expenses that arise out of or result from (i) a breach of any representation,
warranty, and/or covenant made by the Company hereunder or by any Participating
Insurance Company under an agreement containing substantially similar
representations, warranties and covenants; (ii) the failure by the Company or
any Participating Insurance Company to maintain its segregated asset account
(which invests in any Portfolio) as a legally and validly established segregated
asset account under applicable state law and as a duly registered unit
investment trust under the provisions of the 1940 Act (unless exempt therefrom);
or (iii) the failure by the Company or any Participating Insurance Company to
maintain its variable annuity and/or variable life insurance contracts (with
respect to which any Portfolio serves as an underlying funding vehicle) as life
insurance, endowment or annuity contracts under applicable provisions of the
Code.
8.4. In no event shall the Company be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including
without limitation, the Trust or MFS, or any other Participating Insurance
Company or any Policy holder, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of any
representation, warranty, and/or covenant made by the Trust or MFS hereunder or
by any other Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by any other Participating Insurance Company to maintain its segregated
asset account (which invests in any Portfolio) as a legally and validly
established segregated asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the 1940 Act (unless
exempt therefrom); or (iii) subject to the Company's compliance with Section
2.2. hereof, the failure by any other Participating Insurance Company to
maintain its variable annuity and/or variable life insurance contracts (with
respect to which any Portfolio serves as an underlying funding vehicle) as life
insurance, endowment or annuity contracts under applicable provisions of the
Code.
8.5. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, willful misconduct, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
8.6. Promptly after receipt by an Indemnified Party under this Section 8.5.
of notice of commencement of any action, such Indemnified Party will, if a claim
in respect thereof is to be made against the indemnifying party under this
section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any Indemnified Party otherwise than under this
section. In case any such action is brought against any Indemnified Party, and
it notified the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, assume the defense thereof, with counsel satisfactory to such Indemnified
Party. After notice from the indemnifying party of its intention to assume the
defense of an action, the Indemnified Party shall bear the expenses of any
additional counsel obtained by it, and the indemnifying party shall not be
liable to such Indemnified Party under this section for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation.
8.7. Each of the parties agrees promptly to notify the other parties of the
commencement of any litigation or proceeding against it or any of its respective
officers, directors, trustees, employees or 1933 Act control persons in
connection with the Agreement, the issuance or sale of the Policies, the
operation of the Accounts, or the sale or acquisition of Shares.
8.8. A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
and the terms hereof shall be interpreted and construed in accordance therewith.
<PAGE>
ARTICLE X. Notice of Formal Proceedings
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
ARTICLE XI. Termination
11.1. This Agreement shall terminate with respect to the Accounts, or one,
some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance written
notice to the other parties; or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonably available to meet the requirements of the
Policies or are not "appropriate funding vehicles" for the Policies, as
reasonably determined by the Company. Without limiting the generality of
the foregoing, the Shares of a Portfolio would not be "appropriate funding
vehicles" if, for example, such Shares did not meet the diversification or
other requirements referred to in Article VI hereof; or if the Company
would be permitted to disregard Policy owner voting instructions pursuant
to Rule 6e-2 or 6e-3(T) under the 1940 Act. Prompt notice of the election
to terminate for such cause and an explanation of such cause shall be
furnished to the Trust by the Company; or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company by the NASD, the SEC, or any insurance
department or any other regulatory body regarding the Company's duties
under this Agreement or related to the sale of the Policies, the operation
of the Accounts, or the purchase of the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or any state securities
or insurance department or any other regulatory body regarding the Trust's
or MFS' duties under this Agreement or related to the sale of the Shares;
or
(e) at the option of the Company, the Trust or MFS upon receipt of any
necessary regulatory approvals and/or the vote of the Policy owners having
an interest in the Accounts (or any subaccounts) to substitute the shares
of another investment company for the corresponding Portfolio Shares in
accordance with the terms of the Policies for which those Portfolio Shares
had been selected to serve as the underlying investment media. The Company
will give thirty (30) days' prior written notice to the Trust of the Date
of any proposed vote or other action taken to replace the Shares; or
(f) termination by either the Trust or MFS by written notice to the
Company, if either one or both of the Trust or MFS respectively, shall
determine, in their sole judgment exercised in good faith, that the Company
has suffered a material adverse change in its business, operations,
financial condition, or prospects since the date of this Agreement or is
the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Trust and MFS,
if the Company shall determine, in its sole judgment exercised in good
faith, that the Trust or MFS has suffered a material adverse change in this
business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity; or
(h) at the option of any party to this Agreement, upon another party's
failure to cure (within 10 business days of notice from the non-breaching
party) a material breach of any provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the written
consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies and,
if applicable, the Accounts as to which the Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for cause
or for no cause.
11.4. Except as necessary to implement Policy owner initiated transactions,
or as required by state insurance laws or regulations, the Company shall not
redeem the Shares attributable to the Policies (as opposed to the Shares
attributable to the Company's assets held in the Accounts), and the Company
shall not prevent Policy owners from allocating payments to a Portfolio that was
otherwise available under the Policies, until thirty (30) days after the Company
shall have notified the Trust of its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and MFS
shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this Agreement,
for all Policies in effect on the effective date of termination of this
Agreement (the "Existing Policies"), except as otherwise provided under Article
VII of this Agreement. Specifically, without limitation, the owners of the
Existing Policies shall be permitted to transfer or reallocate investment under
the Policies, redeem investments in any Portfolio and/or invest in the Trust
upon the making of additional purchase payments under the Existing Policies.
<PAGE>
ARTICLE XII. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail, overnight courier or facsimile to the other party at the address of such
party set forth below or at such other address as such party may from time to
time specify in writing to the other party.
If to the Trust:
MFS Variable Insurance Trust
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, Secretary
If to the Company:
Allstate Life Insurance Company
3100 Sanders Road, Suite J5D
Northbrook, IL 60062
Facsimile No.: (847) 402-4371
Attn: Michael J. Velotta, Esq.
If to MFS:
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. Miscellaneous
13.1. Subject to the requirement of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Policies and all information reasonably identified as confidential
in writing by any other party hereto and, except as permitted by this Agreement
or as otherwise required by applicable law or regulation, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the affected party until such
time as it may come into the public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in connection
with inquiries by appropriate governmental authorities (including without
limitation the SEC, the NASD, and state insurance regulators) relating to this
Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument are not
binding upon any of the Trust's trustees, officers, employees, agents or
shareholders individually, but are binding solely upon the assets and property
of the Trust in accordance with its proportionate interest hereunder. The
Company further acknowledges that the assets and liabilities of each Portfolio
are separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the Portfolio on
whose behalf the Trust has executed this instrument. The Company also agrees
that the obligations of each Portfolio hereunder shall be several and not joint,
in accordance with its proportionate interest hereunder, and the Company agrees
not to proceed against any Portfolio for the obligations of another Portfolio.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
ALLSTATE LIFE INSURANCE COMPANY
By its authorized officer,
By:
Title:
MFS VARIABLE INSURANCE TRUST,
on behalf of the Portfolios
By its authorized officer and not individually,
By:
James R. Bordewick, Jr.
Assistant Secretary
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By:
Arnold D. Scott
Senior Executive Vice President
<PAGE>
As of June 23, 1999
<TABLE>
<CAPTION>
SCHEDULE A
Accounts, Policies and Portfolios
Subject to the Participation Agreement
- --------------------------------------------- ------------------------------------------- =======================================
<S> <C> <C>
Name of Separate
Account and Date Policies Funded Portfolios
Established by Board of Directors by Separate Account Applicable to Policies
- --------------------------------------------- ------------------------------------------- =======================================
Allstate Financial Advisors Individual and Group Growth with Income Series
Separate Account I Flexible Premium Deferred New Discovery Series
Variable Annuity Contracts High Income Series
Bond Series
- --------------------------------------------- ------------------------------------------- ---------------------------------------
</TABLE>
<PAGE>
Exhibit 8(c)
PARTICIPATION AGREEMENT
By and Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
ALLSTATE LIFE INSURANCE COMPANY
and
OPPENHEIMERFUNDS, INC.
THIS AGREEMENT, made and entered into as of the ___ day of ________, 1999
by and among Allstate Life Insurance Company, an Illinois corporation
(hereinafter the "Company") on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement, as may be amended
from time to time by mutual consent (each account referred to as the "Account"),
Oppenheimer Variable Account Funds, an open-end diversified management
investment company organized under the laws of the State of Massachusetts
(hereinafter the "Fund") and OppenheimerFunds, Inc., a Colorado Corporation
(hereinafter the "Adviser").
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment vehicle
for separate accounts established for variable life insurance policies and
variable annuity contracts to be offered by insurance companies (hereinafter
"Participating Insurance Companies"); and
WHEREAS, beneficial interests in the Fund are divided into several series
of shares, each representing the interest in a particular managed portfolio
(collectively the "Portfolios") of securities and other assets (the Portfolios
covered by this Agreement are specified in Schedule 2 attached hereto as may be
amended from time to time by mutual consent); and
<PAGE>
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"), dated
July 16, 1986 (File No. 812-6234), granting Participating Insurance Companies
and variable annuity and variable life insurance separate accounts exemptions
from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated life insurance
companies (hereinafter the "Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 and serves as the investment adviser to the
Fund;
WHEREAS, the Company has registered or will register certain variable
annuity and/or life insurance contracts (hereinafter "Contracts") under the 1933
Act (unless an exemption from registration is available); and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company
under the insurance laws of the State of Illinois, to set aside and invest
assets attributable to the Contracts. (The Contract(s) and the Account(s)
covered by the Agreement are specified in Schedule 2 attached hereto, as may be
amended from time to time by mutual consent); and
WHEREAS, the Company has registered the Account as a unit investment trust
under the 1940 Act (unless an exemption from registration is available); and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts named in Schedule 3
and the Fund is authorized to sell such shares to unit investment trusts such as
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Fund, the
Adviser and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of the Fund which
the Company orders on behalf of the Account, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Fund. For purposes of this Section
1.1, the Company shall be the designee of the Fund for receipt of such orders
from each Account and receipt by such designee shall constitute receipt by the
Fund; provided that the Fund receives written (or facsimile) notice of such
order on the next following Business Day by no later than 10:00 A.M. New York
time; however, the Company undertakes to use its best efforts to provide such
notice to the Fund by no later than 9:30 A.M. New York time. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which the Fund calculates its net asset value pursuant to the rules of the
SEC.
1.2. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with Section 1.1 hereof.
Payment shall be in federal funds transmitted by wire pursuant to instructions
of the Fund's Treasurer or by a credit for any shares redeemed.
<PAGE>
1.3. The Fund agrees to make an indefinite number of Fund shares available
for purchase at the applicable net asset value per share by the Company for
their separate Accounts listed in Schedule 2, on those days on which the Fund
calculates its net asset value pursuant to rules of the SEC; provided, however,
that the Board of Trustees of the Fund (hereinafter the "Trustees") may refuse
to sell shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Trustees, acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, in the best interests of the shareholders
of any Portfolio.
1.4. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts, qualified pension
and retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), and regulations promulgated thereunder (collectively, "Qualified
Investors"), and/or to one or more registered investment companies that restrict
the sale of shares of such registered investment companies to Qualified
Investors, the sale of which will not impair the tax treatment currently
afforded the contracts.
1.5. The Fund shall not sell Fund shares to any insurance company or
separate account unless a contractual obligation is in effect with respect to
such sales to abide by the conditions of the Mixed and Shared Funding Exemptive
Order that are addressed in Section 3.4 and Article VII of this Agreement.
<PAGE>
1.6. The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.6, the Company shall be the designee of the Fund for receipt of
requests for redemption and receipt by such designee shall constitute receipt by
the Fund; provided that the Fund receives written (or facsimile) notice of such
request for redemption on the next following Business Day by no later than 10:00
A.M. New York time; however the Company undertakes to use its best efforts to
provide such notice to the Fund by no later than 9:30 A.M. New York time.
1.7. The Fund shall pay for the Fund shares that are redeemed within the
time period specified in the Fund's prospectus or statement of additional
information, provided, however, that if the Fund does not pay for the Fund
shares that are redeemed on the next Business Day after a request to redeem
shares is made, then the Fund shall apply any such delay in redemptions
uniformly to all holders of shares of that Portfolio. Payment shall be in
federal funds transmitted by wire pursuant to the instructions of the Company or
by a credit toward any shares purchased on the Business Day on which the
redemption payment is made.
1.8. The Company agrees to purchase and redeem the shares of the Portfolios
named in Schedule 2 offered by the then current prospectus and statement of
additional information of the Fund in accordance with the provisions of such
prospectus and statement of additional information.
1.9. Issuance and transfer of the Funds' shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
<PAGE>
1.10. The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income, dividends or capital gain distributions payable on
the Portfolio's shares. The Company hereby elects to receive all such dividends
and distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and
thereafter to receive all such dividends and distributions in cash. The Fund
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.11. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6:30 p.m. New York time. In the
event the Fund is unable to meet the 6:30 p.m. time stated herein, it shall
provide additional time for the Company to place orders for the purchase and
redemption of shares. Such additional time shall be equal to the additional time
which the Fund takes to make the closing net asset value available to the
Company. If the Fund provides materially incorrect share net asset value
information, the Fund shall make an adjustment to the number of shares purchased
or redeemed for the Accounts to reflect the correct net asset value per share.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gains information shall be reported promptly upon discovery
to the Company.
ARTICLE II. Representations and Warranties
<PAGE>
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act (unless an exemption from registration is
available) and, that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable state
law and that it has registered the Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts, and that it will maintain such
registration for so long as any Contracts are outstanding or until registration
is no longer required under federal and state securities laws. The Company shall
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company shall register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. Subject to Article VI hereof, the Company represents that it believes
that the Contracts are currently and at the time of issuance will be treated as
life insurance or annuity contracts under applicable provisions of the Internal
Revenue Code and that it will make every effort to maintain such treatment and
that it will notify the Fund and the Adviser immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.3. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance and sold in accordance with applicable state and federal law and that
the Fund is and shall remain registered under the 1940 Act for as long as the
Fund shares are sold. The Fund shall amend the registration statement for its
shares under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Fund shall register
and qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund.
2.4. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code and that it
will maintain such qualification (under Subchapter M or any successor or similar
provision) and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
<PAGE>
2.5. If the Fund considers the adoption of one or more plans under Rule
12b-1 under the 1940 Act to finance distribution expenses (a "12b-1 Plan"), the
Company agrees to provide the Trustees any information as may be reasonably
necessary for the Trustees to determine whether to adopt a 12b-1 Plan or Plans.
The Fund shall notify the Company upon commencing to finance distribution
expenses pursuant to Rule 12b-1.
2.6. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply with applicable provisions of the 1940 Act.
2.7. The Adviser represents and warrants that it is and will remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance with any applicable
state and federal securities laws.
2.8. The Fund and Adviser each represent and warrant that all of its
respective Directors, Trustees, officers, employees, investment advisers, and
transfer agent of the Fund are and shall continue to be at all times covered by
a blanket fidelity bond (which may, at the Fund's election, be in the form of a
joint insured bond) or similar coverage for the benefit of the Fund in an amount
not less than the minimal coverage as required currently by Section 17(g) and
Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from time
to time. The aforesaid Bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable insurance company. The Adviser agrees to make
all reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Company in the event
that such coverage no longer applies.
2.9. The Company represents and warrants that all of its directors,
officers, employees, agents, investment advisers, and other individuals and
entities dealing with the money and/or securities of the Fund are covered by a
blanket fidelity bond or similar coverage in an amount not less than the
equivalent of U.S. $3 million. The aforesaid bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable insurance company.
The Company agrees that any amount received under such bond in connection with
claims that derive from arrangements described in this Agreement will be paid by
the Company for the benefit of the Fund. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the Adviser in
the event that such coverage no longer applies.
2.10. The Fund and Adviser represent that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with
applicable state securities laws, if any, and the Fund and Adviser represent
that their respective operations are and shall at all times remain in material
compliance with applicable state securities laws to the extent required to
perform this Agreement. The Fund and the Adviser also represent that they will
comply with any applicable state insurance law restrictions, as provided in
advance and in writing by the Company to the Fund and the Adviser, including the
furnishing of information about the Fund not otherwise available to the Company
which is required by state insurance law to enable the Company to obtain the
authority needed to issue the Contracts in any applicable state.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1. At least annually, the Fund or the Adviser shall provide the Company,
free of charge, with as many copies of the current prospectuses for the
Portfolios as the Company may reasonably request for distribution to existing
Contract owners whose Contracts are funded by such Portfolios. The Fund or the
Adviser shall provide the Company, at the Company's expense, with as many copies
of the current prospectuses for the Portfolios as the Company may reasonably
request for distribution to prospective purchasers of Contracts. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a "camera ready" copy of the new prospectuses dated on or after May
1, 1999 as set in type or, at the request of the Company, as a diskette in the
form sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once each year (or more frequently if
the prospectuses for the Portfolios are supplemented or amended) to have the
prospectus for the Contracts and the prospectuses for the Portfolios printed
together in one document. With respect to any prospectuses for the Portfolios
that are printed in combination with any one or more Contract prospectus (the
"Prospectus Booklet"), the costs of printing Prospectus Booklets for
distribution to existing Contract owners shall be prorated to the Fund based on
(a) the ratio of the number of pages of the prospectuses included for the
Portfolios in the Prospectus Booklets to the number of pages in the Prospectus
Booklet as a whole; and (b) the ratio of the number of Contract owners with
Contract value allocated to the Fund to the total number of Contract owners;
provided, however, that the Company shall bear all printing expenses of such
combined documents where used for distribution to prospective purchasers or to
owners of existing Contracts not funded by the Portfolios.
3.2. The Fund's prospectus shall state that the statement of additional
information for the Fund is available from the Fund (or its transfer agent). The
Fund or its designee shall print and provide such Statement to the Company and
to any owner of a Contract or prospective owner who requests such Statement at
the Fund's expense.
3.3. The Fund or the Adviser, at its expense, shall provide the Company
with copies of the Fund's communications to shareholders and with copies of the
Fund's proxy material and semi-annual and annual reports to shareholders (or
may, at the Fund or the Adviser's option, reimburse the Company for the pro rata
cost of printing such materials) in such quantities as the Company shall
reasonably require, for distributing to Contract owners at the Company's
expense. Upon request, the Adviser shall be permitted to review and approve the
typeset form of such proxy material, communications and shareholder reports
prior to such printing.
<PAGE>
3.4. If and to the extent required by law (or the Mixed and Shared Funding
Exemptive Order) the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners or participants; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Portfolio for which instructions
have been received from the Company's Contract owners; so long as and to
the extent that the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable Contract owners. The Company
reserves the right to vote Fund shares held in any Account in its own
right, to the extent permitted by law.
3.5. The Fund will comply with all applicable provisions of the 1940 Act
requiring voting by shareholders.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or the Adviser is named, at least ten business days prior to its
use. No such material shall be used if the Fund or its designee reasonably
objects in writing to such use within ten business days after receipt of such
material.
<PAGE>
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or the Adviser concerning either of them in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund. The Fund agrees to respond to
any request for approval in a prompt and timely basis. The Company shall adopt
and implement procedures reasonably designed to ensure that information
promulgated or distributed by the Company or a subsidiary thereof, or their
respective employees or agents, concerning the Fund or the Adviser which is
intended only for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Contract owners or
prospective Contract owners) is so used, by their employees and neither the Fund
nor the Adviser shall be liable for any losses, damages, or expenses relating to
the improper use of such broker only materials. The parties hereto agree that
this section is not intended to designate or otherwise imply that the Company is
an underwriter or distributor of the Fund's shares.
4.3. The Adviser or Fund shall furnish or cause to be furnished, to the
Company or its designee, each piece of sales literature or other promotional
material which the Adviser or Fund prepared or caused to be prepared, in which
the Company or its separate account is named, at least ten business days prior
to its use. No such material shall be used if the Company or its designee
reasonably objects in writing to such use within ten business days after receipt
of such material.
4.4. The Adviser and the Fund shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than information or representations contained
in (i) the registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, (ii) reports for the Account which are in the public domain or approved
by the Company for distribution to Contract owners or participants, or (iii)
sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company. The Company agrees to
respond to any request for approval on a prompt and timely basis. The Adviser
shall adopt and implement procedures reasonably designed to ensure that
information promulgated or distributed by the Fund and/or the Adviser or any
subsidiary thereof, or their respective employees or agents, concerning the
Company, any of its affiliates, or the Contracts which is intended only for use
only by brokers or agents selling the shares (i.e., information that it not
intended for distribution to shareowners or prospective shareowners) is so used
by their employees and agents, and neither the Company nor any of its affiliates
shall be liable for any losses, damages, or expenses relating to the improper
use of such broker only materials. The parties agree that this section is not
intended to designate or otherwise imply that the Adviser is an underwriter or
distributor of the Contracts.
<PAGE>
4.5. The Adviser will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials
prepared by or at the request of the Fund, the Adviser, or any subsidiary of the
Adviser, in which the Company or its separate account is named, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to any Portfolio or its shares, contemporaneously with the
filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials in which the Fund (or any Portfolio) or the Adviser is
named, applications for exemptions, requests for no action letters, and all
amendments to any of the above, that relate to the Contracts or each Account,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, electronic media, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and proxy materials and any other
material constituting sales literature or advertising under NASD rules, the 1940
Act or the 1933 Act.
<PAGE>
4.8. The Company agrees and acknowledges that the Adviser is the sole owner
of the OppenheimerFunds, Inc. clasped hands mark and that all use of any
designation comprised in whole or part of such mark under this Agreement shall
inure to the benefit of the Adviser or the Fund. The Company shall not use such
mark on its own behalf or on behalf of each Account in connection with marketing
the Contracts without prior written consent of the Adviser, which consent shall
not be unreasonably withheld, delayed or conditioned. Upon termination of this
Agreement for any reason, the Company shall cease all use of any such mark.
4.9. Except as otherwise expressly provided in this Agreement or as
required by applicable law or regulation, neither the Fund nor the Adviser, nor
any subsidiary of the Adviser shall use any trademark, trade name, service mark
or logo of the Company or any of its affiliates, or any variation of any such
trademark, trade name, service mark or logo, without the Company's prior written
consent, the granting of which shall be at the Company's sole option.
ARTICLE V. Fees and Expenses
5.1. The Fund and Adviser shall pay no fee or other compensation to the
Company under this Agreement, and the Company shall pay no fee or other
compensation to the Fund or Adviser, except as provided herein or in any other
written agreement.
5.2. All expenses incident to performance by each party of its respective
duties under this Agreement shall be paid by that party. The Fund shall see to
it that all its shares are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, the preparation of all statements and
notices required by any federal or state law, and all applicable taxes on the
issuance and transfer of the Fund's shares to the Company.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials, communications and reports to Contract owners and
of printing and distributing the Fund's prospectus to prospective Contract
owners.
ARTICLE VI. Diversification
<PAGE>
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Internal Revenue Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund represents and warrants that each
Portfolio of the Fund will comply with Section 817(h) of the Internal Revenue
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations (and any
revenue rulings, revenue procedures, notices, and other published announcements
of the Internal Revenue Service interpreting these sections). In the event of a
breach of this Article VI by the Fund, it will take all reasonable steps (a) to
notify the Company of such breach and (b) to adequately diversify each Portfolio
of the Fund so as to achieve compliance within the grace period afforded by
Treasury Regulation 1.817-5. The Fund and Adviser represent that each Portfolio
is qualified as a Regulated Investment Company under Subchapter M of the Code
and that they will maintain such qualification (under Subchapter M or any
successor provision).
ARTICLE VII. Potential Conflicts
7.1. The Board of Trustees of the Fund (the "Board") will monitor the Fund
for the existence of any material irreconcilable conflict between the interests
of the Contract owners of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by Participating Insurance Companies or
by variable annuity contract and variable life insurance Contract owners; or (f)
a decision by an insurer to disregard the voting instructions of Contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
<PAGE>
7.2. The Company has received a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. The Company agrees to be bound by the responsibilities
of a participating insurance company as set forth in the Mixed and Shared
Funding Exemptive Order, including without limitation the requirement that the
Company report any potential or existing conflicts of which it is aware to the
Board. The Company agrees to assist the Board in carrying out its
responsibilities in monitoring such conflicts under the Mixed and Shared Funding
Exemptive Order, by providing the Board in a timely manner with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded and by confirming in writing,
at the Fund's request, that the Company is unaware of any such potential or
existing material irreconcilable conflicts.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company and the relevant Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority of
the disinterested Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., variable annuity Contract owners or life insurance
Contract owners, of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected Contract owners the
option of making such a change; and (2) establishing a new registered management
investment company or managed separate account.
<PAGE>
7.4. If the Company's disregard of voting instructions could conflict with
the majority of Contract owners voting instructions, and if the Company and/or
the Fund and the Adviser reasonably determine that a material irreconcilable
conflict (as set forth in the Mixed and Shared Funding Exemptive Order) may
arise as a result, then the Company may be required, at the Fund's election, to
withdraw the Account's investment in the Fund and terminate this Agreement. Any
such withdrawal and termination must take place within six (6) months after the
Fund gives written notice that this provision is being implemented. Until such
withdrawal and termination is implemented, the Fund shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Fund. Such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the disinterested members of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Fund informs the Company in writing that it has determined that
such decision has created an irreconcilable material conflict. Until such
withdrawal and termination is implemented, the Fund shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Fund, subject to applicable regulatory limitation. Such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
<PAGE>
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. Upon request, the Company shall at least annually submit to the Board
such reports, materials or data as the Board may reasonably request so that the
Board may fully carry out the duties imposed upon it as delineated in the Mixed
and Shared Funding Exemptive Order, and said reports, materials and data shall
be submitted more frequently if deemed appropriate by the Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, the (a) the Fund and/or the Participating Insurance Companies
(including the Company), as appropriate, shall take such reasonable steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 7.1,
7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
<PAGE>
(a). The Company agrees to indemnify and hold harmless the Fund and
the Adviser, each member of their Board of Trustees or Board of Directors,
each of their officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Company) or litigation (including
reasonable legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Contracts or contained in sales literature or
other promotional material for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances which they were
made; provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund or
the Adviser for use in the registration statement, prospectus or
statement of additional information for the Contracts or sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
<PAGE>
(ii) arise out of or as a result of statements or representations
by or on behalf of the Company (other than statements or
representations contained in the Fund registration statement, Fund
prospectus or sales literature or other promotional material of the
Fund not supplied by the Company or persons under its control) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or distribution of the Contracts or Fund shares,
provided any such statement or representation or such wrongful conduct
was not made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Advisor or the Fund;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund registration
statement, Fund prospectus, statement of additional information or
sales literature or other promotional material of the Fund or any
amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such statement
or omission was made in reliance upon information furnished to the
Fund or the Adviser by or on behalf of the Company or persons under
its control; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company.
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the
Company may otherwise have.
(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.2. Indemnification by Adviser and Fund
<PAGE>
8.2(a)(1). The Adviser agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or litigation (including reasonable legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement, prospectus, statement of additional information or sales
literature of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Adviser or the Fund by
or on behalf of the Company for use in the Fund registration statement,
prospectus or statement of additional information, or sales literature or
other promotional material for the Contracts or of the Fund; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Contracts or in
the Contract registration statement, the Contract prospectus, statement of
additional information, or sales literature or other promotional material
for the Contracts not supplied by the Adviser or the Fund or persons under
the control of the Adviser or the Fund respectively) or wrongful conduct of
the Adviser or persons under its control, with respect to the sale or
distribution of the Contracts, provided any such statement or
representation or such wrongful conduct was not made in reliance upon and
in conformity with information furnished to the Adviser or the Fund by or
on behalf of the Company; or
<PAGE>
(iii) arise out of any untrue statement or allegedly untrue statement
of a material fact contained in a registration statement, prospectus,
statement of additional information or sales literature covering the
Contracts (or any amendment thereof or supplement thereto), or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon information furnished to
the Company by or on behalf of the Fund or persons under the control of the
Adviser; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or the Fund in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Adviser or the Fund;
(v) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share or dividend
or capital gain distribution rate;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Adviser may
otherwise have.
8.2(a)(2) The Fund agrees to indemnify and hold harmless the Indemnified
Parties [as defined in Section 8.2(a)(1)] against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the operations of the Fund or the sale or acquisition of the Fund's
shares and:
<PAGE>
(i) arise out of or are based upon (a) any untrue statement or alleged
untrue statement of any material fact or (b) the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, if such fact,
statement or omission is contained in the registration statement for the
Fund or the Contracts, or in the prospectus or statement of additional
information for the Contracts or the Fund, or in any amendment to any of
the foregoing, or in sales literature or other promotional material for the
Contracts or of the Fund, provided, however, that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement,
fact or omission or such alleged statement, fact or omission was made in
reliance upon and in conformity with information furnished to the Adviser
or the Fund by or on behalf of the Indemnified Party; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Contracts or in
the Contract registration statement, the Contract prospectus, statement of
additional information, or sales literature or other promotional material
for the Contracts not supplied by the Adviser or the Fund or persons under
the control of the Adviser or the Fund respectively) or wrongful conduct of
the Fund or persons under its control with respect to the sale or
distribution of Contracts, provided any such statement or representation or
such wrongful conduct was not made in reliance upon and in conformity with
information furnished to the Adviser or the Fund by or on behalf of the
Company; or
(iii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund (including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements specified in
Article VI of this Agreement);
(iv) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share or dividend
or capital gain distribution rate;
except to the extent provided in Section 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Fund may
otherwise have.
<PAGE>
(b). The Fund and Adviser shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement.
8.3 Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("indemnifying party" for the purpose of this Section 8.3) shall not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provisions of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the indemnified
party of the indemnifying party's election to assume the defense thereof, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by it, and the indemnifying party will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, which shall not be unreasonably withheld, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
<PAGE>
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1 This Agreement shall terminate:
(a) at the option of any party upon six month's advance written notice
to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
<PAGE>
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the requirements of the
Contracts as determined by the Company reasonably and in good faith; or
(c) at the option of the Fund or the Adviser upon institution of
formal proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the administration of the Contracts, the operation of the
Account, or the purchase of the Fund shares, which would have a material
adverse effect on the Company's ability to perform its obligations under
this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Adviser by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body,
which would have a material adverse effect on the Adviser's or the Fund's
ability to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals or the vote of the Contract owners having an
interest in the Account (or any subaccount) to substitute the shares of
another investment company for the corresponding Portfolio shares of the
Fund in accordance with the terms of the Contracts for which those
Portfolio shares had been selected to serve as the underlying investment
media. The Company will give 45 days prior written notice to the Fund of
the date of any proposed vote or other action taken to replace the Fund's
shares; or
<PAGE>
(f) at the option of the Company or the Fund upon a determination by a
majority of the Board, or a majority of the disinterested Board members,
that an irreconcilable material conflict exists among the interests of (i)
all Contract owners of variable insurance products of all separate accounts
or (ii) the interests of the Participating Insurance Companies investing in
the Fund as delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue
Code, or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof or if the
Company reasonably believes that the Fund will fail to meet such
requirements; or
(i) at the option of any party to this Agreement, upon another party's
failure to cure a material breach of any provision of this Agreement within
thirty days after written notice thereof; or
(j) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund or the Adviser
has suffered a material adverse change in its business, operations or
financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Company; or
(k) at the option of the Fund or the Adviser, if the Fund or Adviser
respectively, shall determine in its sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is
the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Fund or the
Adviser; or
<PAGE>
(l) subject to the Fund's compliance with Article VI hereof, at the
option of the Fund in the event any of the Contracts are not issued or sold
in accordance with applicable requirements of federal and/or state law.
10.2 Notice Requirement.
(a) In the event that any termination of this Agreement is based upon
the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such
provisions.
(b) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written
notice of the election to terminate this Agreement for cause shall be
furnished by the party terminating the Agreement to the non-terminating
parties, with said termination to be effective upon receipt of such notice
by the non-terminating parties.
(c) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(j) or 10.1(k), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the
party terminating this Agreement to the non-terminating parties. Such prior
written notice shall be given by the party terminating this Agreement to
the non-terminating parties at least 30 days before the effective date of
termination. 10.3 It is understood and agreed that the right to terminate
this Agreement pursuant to Section 10.1(a) may be exercised for any reason
or for no reason.
10.4. Effect of Termination.
<PAGE>
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement and subject to Section 1.3 of this
Agreement, the Company may require the Fund to continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement as provided in paragraph (b) below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to reallocate
investments in the Fund, redeem investments in the Fund and/or invest in
the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.4 shall not apply to any
terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions
of this Agreement shall remain in effect except for Section 10.1(a) and
thereafter the Fund, the Adviser, or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.4, upon written
notice to the other party, such notice to be for a period that is
reasonable under the circumstances but need not be for more than 90 days.
10.5 Except as necessary to implement Contract owner initiated or approved
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Fund shares attributable to the Contracts (as opposed to Fund
shares attributable to the Company's assets held in the Account), and the
Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts, until 45 days after
the Company shall have notified the Fund or the Adviser of its intention to do
so.
ARTICLE XI. Notices
Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given on the date received or rejected by the addressee.
If to the Fund:
Oppenheimer Variable Account Funds
6801 Tucson Way
Englewood, CO 80112
Attn: Treasurer
If to the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0669
Attn: Andrew J. Donohue, Esq.
Executive Vice President and General Counsel
If to the Company:
Allstate Life Insurance Company
3100 Sanders Road
Suite J5D
Northbrook, IL 60062
Attention: Michael J. Velotta, Esq.
ARTICLE XII. Miscellaneous
12.1. The Company and the Adviser each understand and agree that the
obligations of the Fund under this Agreement are not binding upon any
shareholder or Trustee of the Fund personally, but bind only the Fund and the
Fund's property; the Company and the Adviser each represent that it has notice
of the provisions of the Declaration of Trust of the Fund disclaiming
shareholder and Trustee liability for acts or obligations of the Fund.
<PAGE>
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential and all information
reasonably identified as confidential in writing by any other party hereto
(including without limitation the names and addresses of the owners of the
Contracts) and, except as contemplated by this Agreement, shall not disclose,
disseminate or utilize such confidential information until such time as it may
come into the public domain without the express written consent of the affected
party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto without the
prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
<PAGE>
12.9. Except as may otherwise be required under Article VII, the rights,
remedies and obligations contained in this Agreement are cumulative and are in
addition to any and all rights, remedies and obligations, at law or in equity,
which the parties hereto are entitled to under state and federal laws.
12.10. It is understood by the parties that this Agreement is not an
exclusive arrangement in any respect.
12.11. The foregoing constitutes the entire Agreement between the parties
hereto, and shall not be modified, amended or assigned except by an Agreement in
writing signed by an authorized representative of each such party.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed as of the date specified below.
ALLSTATE LIFE INSURANCE COMPANY
By its authorized officer,
By: ___________________________________
Title: __________________________________
Date:___________________________________
OPPENHEIMER VARIABLE ACCOUNT FUNDS
By its authorized officer,
By: ___________________________________
Title: _________________________________
Date: ___________________________________
OPPENHEIMERFUNDS, INC.
By its authorized officer,
By: ___________________________________
Title: _________________________________
Date: ___________________________________
<PAGE>
SCHEDULE 1
Allstate Financial Advisors Separate Account I
<PAGE>
SCHEDULE 2
Portfolios of Oppenheimer Variable Account Funds:
Oppenheimer Capital Appreciation Fund
Oppenheimer Small Cap Growth Fund
Oppenheimer Global Securities Fund
Oppenheimer High Income Fund
Oppenheimer Bond Fund
<PAGE>
Exhibit 8(d)
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
ALLSTATE LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of July, 1999 by
and among ALLSTATE LIFE INSURANCE COMPANY, (hereinafter the "Company"), an
Illinois corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets, any one or more of which may be made available
under this Agreement, as may be amended from time to time by mutual agreement of
the parties hereto (each such series hereinafter referred to as a "Portfolio");
and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated October 15, 1985 (File No. 812-6102), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 10:00 a.m. Boston time on the next
following Business Day. Beginning within three months of the effective date of
this Agreement, the Company agrees that orders for the purchase or redemption of
shares of the Funds on behalf of the Accounts will be placed directly by the
Company with the Funds or their transfer agent by electronic transmission.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules of
the Securities and Exchange Commission and the Fund shall use reasonable efforts
to calculate such net asset value on each day which the New York Stock Exchange
is open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this reference,
as such Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Boston time)
and shall use its best efforts to make such net asset value per share available
by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 245.21 of the Illinois Insurance Code and has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Illinois and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund currently does not
intend to make any payments to finance distribution expenses pursuant to Rule
12b-1 under the 1940 Act or otherwise, although it may make such payments in the
future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan under
which it makes no payments for distribution expenses. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
(b) With respect to Service Class shares, the Fund has adopted a Rule
12b-1 Plan under which it makes payments to finance distribution expenses.
The Fund represents and warrants that it has a board of trustees, a
majority of whom are not interested persons of the Fund, which has
formulated and approved the Fund's Rule 12b-1 Plan to finance distribution
expenses of the Fund and that any changes to the Fund's Rule 12b-1 Plan
will be approved by a similarly constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Illinois and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Illinois to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Illinois and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that the Adviser shall perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
Illinois and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many printed copies
of the Fund's current prospectus and Statement of Additional Information as the
Company may reasonably request. If requested by the Company in lieu thereof, the
Fund shall provide camera-ready film containing the Fund's prospectus and
Statement of Additional Information, and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or Statement of Additional Information for the Fund is amended
during the year) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document, and to have the Statement of
Additional Information for the Fund and the Statement of Additional Information
for the Contracts printed together in one document. Alternatively, the Company
may print the Fund's prospectus and/or its Statement of Additional Information
in combination with other fund companies' prospectuses and statements of
additional information. Except as provided in the following three sentences, all
expenses of printing and distributing Fund prospectuses and Statements of
Additional Information shall be the expense of the Company. For prospectuses and
Statements of Additional Information provided by the Company to its existing
owners of Contracts in order to update disclosure annually as required by the
1933 Act and/or the 1940 Act, the cost of printing shall be borne by the Fund.
If the Company chooses to receive camera-ready film in lieu of receiving printed
copies of the Fund's prospectus, the Fund will reimburse the Company in an
amount equal to the product of A and B where A is the number of such
prospectuses distributed to owners of the Contracts, and B is the Fund's per
unit cost of typesetting and printing the Fund's prospectus. The same procedures
shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of its
proxy statements, reports to shareholders, and other communications (except for
prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Fund shares in
accordance with instructions received from Contract owners; and (iii) vote Fund
shares for which no instructions have been received in a particular separate
account in the same proportion as Fund shares of such portfolio for which
instructions have been received in that separate account, so long as and to the
extent that the Securities and Exchange Commission continues to interpret the
1940 Act to require pass-through voting privileges for variable contract owners.
The Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards set forth on Schedule B attached hereto and
incorporated herein by this reference, which standards will also be provided to
the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or its investment adviser or the Underwriter is named, at least
fifteen Business Days prior to its use. No such material shall be used if the
Fund or its designee reasonably objects to such use within fifteen Business Days
after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or its separate
account(s), is named at least fifteen Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following that
refer to the Fund or any affiliate of the Fund: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally available to customers or
the public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, Statements of
Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to the
Company under this agreement, except that if the Fund or any Portfolio adopts
and implements a plan pursuant to Rule 12b-1 to finance distribution expenses,
then the Underwriter may make payments to the Company or to the underwriter for
the Contracts if and in amounts agreed to by the Underwriter in writing and such
payments will be made out of existing fees otherwise payable to the Underwriter,
past profits of the Underwriter or other resources available to the Underwriter.
No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and each
trustee of the Board and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
Registration Statement or prospectus for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied by the
Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon
information furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company and its affiliated principal underwriter within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Underwriter which
shall not be unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on behalf of the
Company for use in the Registration Statement or prospectus for the Fund or
in sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not supplied by
the Underwriter or persons under its control) or wrongful conduct of the
Fund, Adviser or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus, or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was made
in reliance upon information furnished to the Company by or on behalf of
the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Underwriter; as limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements
specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund;as limited by and in accordance with the provisions of Sections 8.3(b)
and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to
meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts issued or to be
issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such Portfolio
fails to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that the Company and/or its affiliated companies has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment exercised
in good faith, that either the Fund or the Underwriter has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time such notice was
given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Allstate Life Insurance Company
3100 Sanders Road, Suite J5D
northbrook, IL 60062
Attention: Michael J. Velotta, Esq.
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement. The Company
shall promptly notify the Fund and the Underwriter of any change in control of
the Company.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any
event within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if any),
as soon as practical and in any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as practical
after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange Commission or
any state insurance regulator, as soon as practical after the filing
thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company, as soon as practical after the receipt
thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative.
ALLSTATE LIFE INSURANCE COMPANY
By: _________________________
Name: _________________________
Title: _________________________
VARIABLE INSURANCE PRODUCTS FUND
By: ________________________
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: _______________________
Kevin J. Kelly
Vice President
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
Allstate Financial Advisors LU 4518 FL
Separate Account I (and state variations)
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At
this time the Underwriter will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months
before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense,
shall produce and personalize the Voting Instruction Cards. The Legal
Department of the Underwriter or its affiliate ("Fidelity Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found
on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as
printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company)
addressed to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible)
of the procedure are "hand verified," i.e., examined as to why they did
not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur.
This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always
be followed up in writing.
<PAGE>
Exhibit 8(e)
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
ALLSTATE LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of July, 1999 by
and among ALLSTATE LIFE INSURANCE COMPANY, (hereinafter the "Company"), an
Illinois corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND II, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter the
"Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets, any one or more of which may be made available
under this Agreement, as may be amended from time to time by mutual agreement of
the parties hereto (each such series hereinafter referred to as a "Portfolio");
and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 17, 1986 (File No. 812-6422), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 10:00 a.m. Boston time on the next
following Business Day. Beginning within three months of the effective date of
this Agreement, the Company agrees that orders for the purchase or redemption of
shares of the Funds on behalf of the Accounts will be placed directly by the
Company with the Funds or their transfer agent by electronic transmission.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules of
the Securities and Exchange Commission and the Fund shall use reasonable efforts
to calculate such net asset value on each day which the New York Stock Exchange
is open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this reference,
as such Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Boston time)
and shall use its best efforts to make such net asset value per share available
by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 245.21 of the Illinois Insurance Code and has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Illinois and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund currently does not
intend to make any payments to finance distribution expenses pursuant to Rule
12b-1 under the 1940 Act or otherwise, although it may make such payments in the
future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan under
which it makes no payments for distribution expenses. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have a board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
(b) With respect to Service Class shares, the Fund has adopted a Rule
12b-1 Plan under which it makes payments to finance distribution expenses.
The Fund represents and warrants that it has a board of trustees, a
majority of whom are not interested persons of the Fund, which has
formulated and approved the Fund's Rule 12b-1 Plan to finance distribution
expenses of the Fund and that any changes to the Fund's Rule 12b-1 Plan
will be approved by a similarly constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Illinois and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Illinois to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Illinois and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that the Adviser shall perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
Illinois and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many printed copies
of the Fund's current prospectus and Statement of Additional Information as the
Company may reasonably request. If requested by the Company in lieu thereof, the
Fund shall provide camera-ready film containing the Fund's prospectus and
Statement of Additional Information, and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or Statement of Additional Information for the Fund is amended
during the year) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document, and to have the Statement of
Additional Information for the Fund and the Statement of Additional Information
for the Contracts printed together in one document. Alternatively, the Company
may print the Fund's prospectus and/or its Statement of Additional Information
in combination with other fund companies' prospectuses and statements of
additional information. Except as provided in the following three sentences, all
expenses of printing and distributing Fund prospectuses and Statements of
Additional Information shall be the expense of the Company. For prospectuses and
Statements of Additional Information provided by the Company to its existing
owners of Contracts in order to update disclosure annually as required by the
1933 Act and/or the 1940 Act, the cost of printing shall be borne by the Fund.
If the Company chooses to receive camera-ready film in lieu of receiving printed
copies of the Fund's prospectus, the Fund will reimburse the Company in an
amount equal to the product of A and B where A is the number of such
prospectuses distributed to owners of the Contracts, and B is the Fund's per
unit cost of typesetting and printing the Fund's prospectus. The same procedures
shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of its
proxy statements, reports to shareholders, and other communications (except for
prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Fund shares in
accordance with instructions received from Contract owners; and (iii) vote Fund
shares for which no instructions have been received in a particular separate
account in the same proportion as Fund shares of such portfolio for which
instructions have been received in that separate account, so long as and to the
extent that the Securities and Exchange Commission continues to interpret the
1940 Act to require pass-through voting privileges for variable contract owners.
The Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards set forth on Schedule B attached hereto and
incorporated herein by this reference, which standards will also be provided to
the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or its investment adviser or the Underwriter is named, at least
fifteen Business Days prior to its use. No such material shall be used if the
Fund or its designee reasonably objects to such use within fifteen Business Days
after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or its separate
account(s), is named at least fifteen Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following that
refer to the Fund or any affiliate of the Fund: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally available to customers or
the public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, Statements of
Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to the
Company under this agreement, except that if the Fund or any Portfolio adopts
and implements a plan pursuant to Rule 12b-1 to finance distribution expenses,
then the Underwriter may make payments to the Company or to the underwriter for
the Contracts if and in amounts agreed to by the Underwriter in writing and such
payments will be made out of existing fees otherwise payable to the Underwriter,
past profits of the Underwriter or other resources available to the Underwriter.
No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and each
trustee of the Board and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
Registration Statement or prospectus for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied by the
Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon
information furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company and its affiliated principal underwriter within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Underwriter which
shall not be unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on behalf of the
Company for use in the Registration Statement or prospectus for the Fund or
in sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not supplied by
the Underwriter or persons under its control) or wrongful conduct of the
Fund, Adviser or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus, or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was made
in reliance upon information furnished to the Company by or on behalf of
the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Underwriter; as limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements
specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund;as limited by and in accordance with the provisions of Sections 8.3(b)
and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to
meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts issued or to be
issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such Portfolio
fails to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that the Company and/or its affiliated companies has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment exercised
in good faith, that either the Fund or the Underwriter has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time such notice was
given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Allstate Life Insurance Company
3100 Sanders Road, Suite J5D
northbrook, IL 60062
Attention: Michael J. Velotta, Esq.
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement. The Company
shall promptly notify the Fund and the Underwriter of any change in control of
the Company.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any
event within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if any),
as soon as practical and in any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as practical
after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange Commission or
any state insurance regulator, as soon as practical after the filing
thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company, as soon as practical after the receipt
thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative.
ALLSTATE LIFE INSURANCE COMPANY
By: _________________________
Name: _________________________
Title: _________________________
VARIABLE INSURANCE PRODUCTS FUND II
By: ________________________
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: _______________________
Kevin J. Kelly
Vice President
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
Allstate Financial Advisors LU 4518 FL
Separate Account I (and state variations)
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At
this time the Underwriter will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months
before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense,
shall produce and personalize the Voting Instruction Cards. The Legal
Department of the Underwriter or its affiliate ("Fidelity Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found
on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as
printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company)
addressed to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible)
of the procedure are "hand verified," i.e., examined as to why they did
not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must
always be followed up in writing.
<PAGE>
Exhibit 8(f)
PARTICIPATION AGREEMENT
Among
VAN KAMPEN LIFE INVESTMENT TRUST,
VAN KAMPEN FUNDS INC.,
VAN KAMPEN ASSET MANAGEMENT INC.,
and
ALLSTATE LIFE INSURANCE COMPANY
DATED AS OF
JUNE 27, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. Fund Shares 4
ARTICLE II Representations and Warranties 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements; Voting 7
ARTICLE IV. Sales Material and Information 9
ARTICLE V Reserved 10
ARTICLE VI. Diversification 10
ARTICLE VII. Potential Conflicts 10
ARTICLE VIII. Indemnification 12
ARTICLE IX. Applicable Law 16
ARTICLE X. Termination 17
ARTICLE XI. Notices 19
ARTICLE XII. Foreign Tax Credits 19
ARTICLE XIII. Miscellaneous 19
SCHEDULE A Separate Accounts and Contracts 23
SCHEDULE B Participating Life Investment Trust Portfolios 24
SCHEDULE C Proxy Voting Procedures 25
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
Among
VAN KAMPEN LIFE INVESTMENT TRUST,
VAN KAMPEN FUNDS INC.,
VAN KAMPEN ASSET MANAGEMENT INC.,
and
ALLSTATE LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 27th day of June, 1999 by
and among ALLSTATE LIFE INSURANCE COMPANY (hereinafter the "Company"), an
Illinois corporation, on its own behalf and on behalf of each separate account
of the Company set forth on Schedule A hereto as may be amended from time to
time (each such account hereinafter referred to as the "Account"), and VAN
KAMPEN LIFE INVESTMENT TRUST (hereinafter the "Fund"), a Delaware business
trust, VAN KAMPEN FUNDS INC. (hereinafter the "Underwriter"), a Delaware
corporation, and VAN KAMPEN ASSET MANAGEMENT INC. (hereinafter the "Adviser"), a
Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established by insurance companies for individual and group life insurance
policies and annuity contracts with variable accumulation and/or pay-out
provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into
participation agreements with the Fund and the Underwriter (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule B (each such series hereinafter referred to as a "Portfolio") as may be
amended from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 19, 1990 (File No. 812-7552), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act") and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by Variable Annuity Product separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser is the investment adviser of the Portfolios of the
Fund; and
WHEREAS, the Underwriter is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a
member in good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD") and serves as principal underwriter of the shares of the
Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Products; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Underwriter and the Adviser agree as follows:
ARTICLE I. Fund Shares
1.1. The Fund and the Underwriter agree to make available for purchase by
the Company shares of the Portfolios and shall execute orders placed for each
Account on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of such order. For purposes of this Section 1.1, the
Company shall be the designee of the Fund and Underwriter for receipt of such
orders from each Account and receipt by such designee shall constitute receipt
by the Fund; provided that the Fund receives notice of such order by 10:00 a.m.
(CST) on the next following Business Day. Notwithstanding the foregoing, the
Company shall use its best efforts to provide the Fund with notice of such
orders by 9:15 a.m. (CST) on the next following Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which the Fund calculates its net asset value pursuant to the rules of the
Securities and Exchange Commission, as set forth in the Fund's prospectus and
statement of additional information. Notwithstanding the foregoing, the Board of
Trustees of the Fund (hereinafter the "Board") may refuse to permit the Fund to
sell shares of any Portfolio to any person, or suspend or terminate the offering
of shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.2. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies for their Variable Insurance
Products. No shares of any Portfolio will be sold to the general public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
which afford the Company substantially the same protections currently provided
by Sections 2.1, 2.4, 2.9, 3.4 and Article VII of this Agreement is in effect to
govern such sales.
1.4. The Fund and the Underwriter agree to redeem for cash, on the
Company's request, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt by the Fund or its designee of the request for
redemption. For purposes of this Section 1.4, the Company shall be the designee
of the Fund for receipt of requests for redemption from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the
Underwriter receives notice of such request for redemption on the next following
Business Day in accordance with the timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under which
amounts may be invested in the Fund are listed on Schedule A attached hereto and
incorporated herein by reference, as such Schedule A may be amended from time to
time by mutual written agreement of all of the parties hereto. The Company will
give the Fund and the Underwriter sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares of
each Portfolio. Each order shall describe the net amount of shares and dollar
amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem Portfolio shares is made in accordance with the provisions of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
Portfolio securities or otherwise incur substantial additional costs, and if the
Portfolio has determined to settle redemption transactions for all shareholders
on a delayed basis, proceeds shall be wired to the Company within seven (7) days
and the Portfolio shall notify in writing the person designated by the Company
as the recipient for such notice of such delay by 3:00 p.m. Houston time on the
same Business Day that the Company transmits the redemption order to the
Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry only.
Share certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.8. The Underwriter shall use its best efforts to furnish same day notice
by 6:00 p.m. Houston time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Fund's shares. The Company hereby elects to receive all such
dividends and capital gain distributions as are payable on the Portfolio shares
in additional shares of that Portfolio. The Company reserves the right to revoke
this election and to receive all such dividends and capital gain distributions
in cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Underwriter shall make the net asset value per share of each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:00 p.m.
Houston time. In the event that Underwriter is unable to meet the 6:00 p.m. time
stated immediately above, then Underwriter shall provide the Company with
additional time to notify Underwriter of purchase or redemption orders pursuant
to Sections 1.1 and 1.4, respectively, above. Such additional time shall be
equal to the additional time that Underwriter takes to make the net asset values
available to the Company; provided, however, that notification must be made by
10:00 a.m. Houston time on the Business Day such order is to be executed,
regardless of when net asset value is made available.
1.10. If Underwriter provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level pursuant to the SEC's recommended guidelines. Any material error
in the calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to the
Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the interests of the Accounts
(the "Contracts") are or will be registered and will maintain the registration
under the 1933 Act and the regulations thereunder to the extent required by the
1933 Act; that the Contracts will be issued and sold in compliance with all
applicable federal and state laws and regulations. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under the Illinois Insurance Code and the regulations thereunder
and has registered or, prior to any issuance or sale of the Contracts, will
register and will maintain the registration of each Account as a unit investment
trust in accordance with and to the extent required by the provisions of the
1940 Act and the regulations thereunder to serve as a segregated investment
account for the Contracts. The Company shall amend its registration statement
for its contracts under the 1933 Act and the 1940 Act from time to time as
required in order to effect the continuous offering of its Contracts.
2.2. The Fund and the Underwriter represent and warrant that Fund shares
sold pursuant to this Agreement shall be registered under the 1933 Act and the
regulations thereunder to the extent required by the 1933 Act, duly authorized
for issuance in accordance with the laws of the State of Delaware and sold in
compliance with all applicable federal and state securities laws and regulations
and that the Fund is and shall remain registered under the 1940 Act and the
regulations thereunder to the extent required by the 1940 Act. The Fund shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Fund.
2.3. The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") and that each will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provision) and that each will notify the Company immediately upon having
a reasonable basis for believing that the Fund has ceased to so qualify or that
the Fund might not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is duly organized and
validly existing under the laws of the State of Delaware and that the Fund does
and will comply in all material respects with the 1940 Act.
2.8. The Underwriter represents and warrants that it is and shall remain
duly registered under all applicable federal and state laws and regulations and
that it will perform its obligations for the Fund and the Company in compliance
with the laws and regulations of its state of domicile and any applicable state
and federal laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, and other individuals/entities dealing with the money
and/or securities of the Fund are covered by a blanket fidelity bond or similar
coverage, in an amount equal to the greater of $5 million or any amount required
by applicable federal or state law or regulation. The aforesaid includes
coverage for larceny and embezzlement is issued by a reputable bonding company.
The Company agrees to make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy Statements; Voting
3.1. The Fund shall provide the Company with as many printed copies of the
Fund's current prospectus and statement of additional information as the Company
may reasonably request. If requested by the Company in lieu of providing printed
copies the Fund shall provide camera-ready film or computer diskettes containing
the Fund's prospectus and statement of additional information, and such other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the prospectus and/or statement of additional information
for the Fund is amended during the year) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document or
separately. The Company may elect to print the Fund's prospectus and/or its
statement of additional information in combination with other fund companies'
prospectuses and statements of additional information.
3.2(a). Except as otherwise provided in this Section 3.2, all expenses of
preparing, setting in type and printing and distributing Fund prospectuses and
statements of additional information shall be the expense of the Company. For
prospectuses and statements of additional information provided by the Company to
its existing owners of Contracts in order to update disclosure as required by
the 1933 Act and/or the 1940 Act, the cost of setting in type, printing and
distributing shall be borne by the Fund. If the Company chooses to receive
camera-ready film or computer diskettes in lieu of receiving printed copies of
the Fund's prospectus and/or statement of additional information, the Fund shall
bear the cost of typesetting to provide the Fund's prospectus and/or statement
of additional information to the Company in the format in which the Fund is
accustomed to formatting prospectuses and statements of additional information,
respectively, and the Company shall bear the expense of adjusting or changing
the format to conform with any of its prospectuses and/or statements of
additional information. In such event, the Fund will reimburse the Company in an
amount equal to the product of x and y where x is the number of such
prospectuses distributed to owners of the Contracts, and y is the Fund's per
unit cost of printing the Fund's prospectuses. The same procedures shall be
followed with respect to the Fund's statement of additional information. The
Fund shall not pay any costs of typesetting, printing and distributing the
Fund's prospectus and/or statement of additional information to prospective
Contract owners. Such expenses shall be borne by the Company as provided in the
Company's General Agency Agreement with Dean Witter Reynolds Inc.
3.2(b). The Fund, at its expense, shall provide the Company with, and pay
the distribution costs of, copies of its proxy statements, reports to
shareholders, and other communications (except for prospectuses and statements
of additional information, which are covered in Section 3.2(a) above) to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners. The Fund shall not pay any costs of
distributing such proxy-related material, reports to shareholders, and other
communications to prospective Contract owners.
3.2(c). The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Contract owners.
3.2(d) The Fund shall pay no fee or other compensation to the Company under
this Agreement, except that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution expenses, then the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
3.2(e) All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Underwriter, the Company or such other person as the Fund may
designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Contract Owners to whom voting
privileges are required to be extended and shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Portfolio for which instructions
have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund, the Underwriter or their designee, each piece of sales literature or other
promotional material prepared by the Company or any person contracting with the
Company in which the Fund, the Adviser or the Underwriter is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund, the
Adviser, the Underwriter or their designee reasonably objects to such use within
ten Business Days after receipt of such material.
4.2. Neither the Company nor any person contracting with the Company shall
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund in connection with the sale of the Contracts other
than the information or representations contained in the registration statement
or Fund prospectus, as such registration statement or Fund prospectus may be
amended or supplemented from time to time, or in reports to shareholders or
proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund or its designee.
4.3. The Fund shall furnish, or shall cause to be furnished, to the Company
or its designee, each piece of sales literature or other promotional material
prepared by the Fund in which the Company or its Accounts, are named at least
ten Business Days prior to its use. No such material shall be used if the
Company or its designee reasonably objects to such use within ten Business Days
after receipt of such material.
4.4. Neither the Fund nor the Underwriter shall give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement or prospectus may be amended or supplemented from time to
time, or in published reports or solicitations for voting instruction for each
Account which are in the public domain or approved by the Company for
distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract, contemporaneously with the filing of such document
with the Securities and Exchange Commission or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. [Reserved]
ARTICLE VI. Diversification
6.1. The Adviser will ensure that the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating exclusively
to the diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such Section or
Regulations. For purposes of this Section 6.1, non-compliance shall not be
deemed a breach of this provision provided compliance is achieved within the
grace period afforded by Regulation 1.817-5. In the event the Fund ceases to so
qualify, it will take all reasonable steps (a) to notify Company of such event
and (b) to adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 1.817-5.
6.2 The Adviser, upon the prior written request of the Company by February
1, shall provide written confirmation by no later than February 15, that the
Fund was adequately diversified within the meaning of Section 817(h) and
Regulation 1.817-5 as of December 31 of the prior year.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract owners and variable life insurance contract owners;
or (f) a decision by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflict of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever contract
owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
7.5. For purposes of Sections 7.3 through 7.4 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 through 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7 Each of the Company and the Adviser shall at least annually submit to
the Board such reports, materials or data as the Board may reasonably request so
that the Board may fully carry out the obligations imposed upon them by the
provisions hereof and in the Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Board. All reports received by the Board of potential or existing conflicts,
and all Board action with regard to determining the existence of a conflict,
notifying Participating Insurance Companies of a conflict, and determining
whether any proposed action adequately remedies a conflict, shall be properly
recorded in the minutes of the Board or other appropriate records, and such
minutes or other records shall be made available to the Securities and Exchange
Commission upon request.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund, the
Underwriter and each member of their respective Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
registration statement or prospectus for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by the
Company, or persons under its control and other than statements or
representations authorized by the Fund or the Underwriter) or unlawful
conduct of the Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such a statement or
omission was made in reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense thereof. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by Underwriter
8.2(a). The Underwriter agrees, with respect to each Portfolio that it
distributes, to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal and other expenses),
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares that it distributes or
the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Fund or the Underwriter by or on behalf of the
Company for use in the registration statement or prospectus for the Fund or
in sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Contracts not supplied by
the Fund, the Underwriter or persons under their respective control and
other than statements or representations authorized by the Company) or
unlawful conduct of the Fund or Underwriter or persons under their control,
with respect to the sale or distribution of the Contracts or Portfolio
shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the Underwriter
to provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Underwriter; as limited by and in accordance with the provisions of
Section 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification by the Adviser
8.3(a). The Adviser agrees to indemnify and hold harmless the Company and
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the operations of the
Adviser or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Adviser, the Fund or the Underwriter by or on
behalf of the Company for use in the registration statement or prospectus
for the Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Portfolio
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Contracts not supplied by
the Fund, the Adviser or persons under its control and other than
statements or representations authorized by the Company) or unlawful
conduct of the Fund, the Adviser or persons under their control, with
respect to the sale or distribution of the Contracts or Portfolio shares;
or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Fund or the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or the Adviser in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Fund or the Adviser, including without limitation any
failure by the Fund to comply with the conditions of Article VI hereof.
8.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process (including any
IRS administrative process) giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify the Adviser of any such claim shall not relieve the Adviser from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Adviser will be
entitled to participate, at its own expense, in the defense thereof. The Adviser
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action, except with respect to any claim or action
related to Section 817(h) of the Code or Regulation 1.817-5, Indemnified Party
shall permit the Adviser to attend and otherwise assist Indemnified Party with
respect to any conferences, settlement discussions, or other administrative or
judicial proceeding or contests (including judicial appeals thereof) with the
IRS or any other claimant regarding any claims that could give rise to liability
to Adviser, provided that Indemnified Party shall control, in good faith, the
conduct of such conferences, discussions, proceedings, or contests (or appeals
thereof). After notice from the Adviser to such party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company agrees to promptly notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of each Account, or the sale or
acquisition of shares of the Adviser.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Illinois.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts. Reasonable advance
notice of election to terminate shall be furnished by the Company, said
termination to be effective ten (10) days after receipt of notice unless
the Fund makes available a sufficient number of shares to reasonably meet
the requirements of the Account within said ten (10) day period; or
(c) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Portfolio in the event any
of the Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the use of
such shares as the underlying investment medium of the Contracts issued or
to be issued by the Company. The terminating party shall give prompt notice
to the other parties of its decision to terminate; or
(d) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar provision; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such Portfolio
fails to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund, the Adviser or the Underwriter by
written notice to the Company, if either one or more of the Fund, the
Adviser or the Underwriter, shall determine, in its or their sole judgment
exercised in good faith, that the Company and/or their affiliated companies
has suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity, provided that the Fund, the Adviser
or the Underwriter will give the Company sixty (60) days' advance written
notice of such determination of its intent to terminate this Agreement, and
provided further that after consideration of the actions taken by the
Company and any other changes in circumstances since the giving of such
notice, the determination of the Fund, the Adviser or the Underwriter shall
continue to apply on the 60th day since giving of such notice, then such
60th day shall be the effective date of termination; or
(g) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Fund, the Adviser or the
Underwriter has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity, provided that
the Company will give the Fund, the Adviser and the Underwriter sixty (60)
days' advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after consideration of
the actions taken by the Fund, the Adviser or the Underwriter and any other
changes in circumstances since the giving of such notice, the determination
of the Company shall continue to apply on the 60th day since giving of such
notice, then such 60th day shall be the effective date of termination; or
(h) termination by the Fund, the Adviser or the Underwriter by written
notice to the Company, if the Company gives the Fund, the Adviser and the
Underwriter the written notice specified in Section 1.5 hereof and at the
time such notice was given there was no notice of termination outstanding
under any other provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective sixty (60) days
after the notice specified in Section 1.5 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this Agreement,
which breach has not been cured to the satisfaction of the terminating
party within ten (10) days after written notice of such breach is delivered
to the Fund or the Company, as the case may be; or
(j) termination by the Fund, Adviser or Underwriter by written notice
to the Company in the event an Account or Contract is not registered or
sold in accordance with applicable federal or state law or regulation, or
the Company fails to provide pass-through voting privileges as specified in
Section 3.4.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Adviser 90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Van Kampen Life Investment Trust
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
Attention: General Counsel
If to Underwriter:
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
Attention: General Counsel
If to Adviser:
Van Kampen Asset Management Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
Attention: General Counsel
If to the Company:
Allstate Life Insurance Company
3100 Sanders Road
Northbrook, Illinois 60062
Attention: Michael J. Velotta, Esq.
ARTICLE XII. Foreign Tax Credits
12.1. The Fund and Adviser agree to consult in advance with the Company
concerning whether any series of the Fund qualifies to provide a foreign tax
credit pursuant to Section 853 of the Code.
ARTICLE XIII. Miscellaneous
13.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund. Each of the Company, Adviser and
Underwriter acknowledges and agrees that, as provided by Article 8, Section 8.1,
of the Fund's Agreement and Declaration of Trust, the shareholders, trustees,
officers, employees and other agents of the Fund and its Portfolios shall not
personally be bound by or liable for matters set forth hereunder, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder. A Certificate of Trust referring to the Fund's Agreement and
Declaration of Trust is on file with the Secretary of State of Delaware.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any
event within 90 days after the end of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory), as soon
as practical and in any event within 45 days following such period;
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as practical
after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange Commission or
any state insurance regulator, as soon as practical after the filing
thereof;
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company, as soon as practical after the receipt
thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
as of the date specified above.
ALLSTATE LIFE INSURANCE COMPANY
on behalf of itself and each of its Accounts named in
Schedule A hereto, as amended from time to time
By: ________________________________________________
VAN KAMPEN LIFE INVESTMENT TRUST
By: _______________________________________________
Dennis J. McDonnell
Executive Vice President
VAN KAMPEN FUNDS INC.
By: ________________________________________________
Patrick J. Woelfel
Senior Vice President
VAN KAMPEN ASSET MANAGEMENT INC.
By: ________________________________________________
Dennis J. McDonnell
President
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account and Form Numbers and Names of Contracts
Date Established by Board of Directors Funded by Separate Account
ALLSTATE FINANCIAL ADVISORS LU4518
SEPARATE ACCOUNT I
April 30, 1999
<PAGE>
SCHEDULE B
PARTICIPATING LIFE INVESTMENT TRUST PORTFOLIOS
Comstock Portfolio
Domestic Income Portfolio
Emerging Growth Portfolio
Money Market Portfolio
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of
voting instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will
inform the Company of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run,"
or other activity, which will generate the names, address and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting
instruction solicitation material. The Fund will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Fund or its affiliate must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units (or equivalent shares)
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce, and the Fund will pay
for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid
for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For example, if the account registration is under "John A.
Smith, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g.,
mutilated, illegible) of the procedure are "hand verified," (i.e.,
examined as to why they did not complete the system). Any questions on
those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
12. The actual tabulation of votes is done in units (or equivalent shares)
which is then converted to shares. (It is very important that the fund
receives the tabulations stated in terms of a percentage and the number
of shares.) The Fund must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 A.M. Houston time.
The Fund may request an earlier deadline if reasonable and if required
to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will
be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must
always be followed up in writing.
July 2, 1999
TO ALLSTATE LIFE INSURANCE COMPANY:
NORTHBROOK, ILLINOIS 60062
FROM: MICHAEL J. VELOTTA
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
RE: FORM N-4 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940
FILE NO. 333-77605, 811-09327
With reference to the Registration Statement on Form N-4 filed by
Allstate Life Insurance Company (the "Company"), as depositor, and Allstate
Financial Advisors Separate Account I (the "Separate Account"), as registrant,
with the Securities and Exchange Commission covering the Flexible Premium
Deferred Variable Annuity Contracts ("Contracts"), I have examined such
documents and such law as I have considered necessary and appropriate, and on
the basis of such examination, it is my opinion that:
1. The Company is duly organized and existing under the laws of the State
of Illinois and has been duly authorized to do business by the Director
of Insurance of the State of Illinois.
2. The Separate Account is a separate account of the Company validly
existing pursuant to Illinois law and the regulations issued
thereunder.
3. The securities registered by the above Registration Statement when
issued will be valid, legal and binding obligations of the Company.
I hereby consent to the filing of this opinion as an exhibit to the
above referenced Registration Statement and to the use of my name under the
caption "Legal Matters" in the Prospectus constituting a part of the
Registration Statement.
Sincerely,
/s/ MICHAEL J. VELOTTA
- ----------------------
Michael J. Velotta
Vice President, Secretary and
General Counsel
Exhibit 10(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-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
July 7, 1999
Exhibit 10(b)
Exhibit 10(b)
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
July 2, 1999
VIA EDGARLINK
Board of Directors
Allstate Life Insurance Company
3100 Sanders Road
Northbrook, IL 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
Pre-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
Exhibit 15
Power of Attorney
With Respect to the Allstate Life Insurance Company Filing on Form N-4 for
The Allstate Financial Advisors Separate Account I
Know all men by these presents that Samuel H. Pilch whose signature
appears below, constitutes and appoints Louis G. Lower, II, and Michael J.
Velotta, and each of them, his attorney-in-fact, with power of substitution, and
herein any and all capacities, to sign any reports and amendments thereto for
the Form N-4 for the Allstate Financial Advisors Separate Account I and to file
the same, with exhibits thereto and other documents, in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Date: July 2, 1999
/s/ Samuel H. Pilch
- -------------------
Samuel H. Pilch
