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SELECTDIRECTIONS VARIABLE ANNUITY
ALLSTATE LIFE INSURANCE COMPANY
Nebraska Service Center
P.O. Box 80469, Lincoln, Nebraska 68501-0469
Telephone Number: 1-800-632-3492
Prospectus dated May 1, 2000
Allstate Life Insurance Company ("we" or "Allstate") is offering the
SELECTDIRECTIONS VARIABLE ANNUITY, an individual and group flexible premium
deferred variable annuity contract ("Contract"). 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 Fixed Account Option" and "Dollar Cost Averaging Fixed
Account Option") and 24 variable sub-accounts ("Variable Sub-Accounts") of the
Allstate Financial Advisors Separate Account I ("Variable Account"). Money you
direct into a Variable Sub-Account is invested exclusively in one of the
following mutual fund portfolios ("Portfolios"):
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS: MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE
AIM V.I. Capital Appreciation TRUST-SM-:
AIM V.I. Diversified Income MFS Bond
AIM V.I. Growth and Income MFS Growth with Income
AIM V.I. International Equity MFS High Income
AIM V.I. Value MFS New Discovery
FIDELITY VARIABLE INSURANCE PRODUCTS FUND OPPENHEIMER VARIABLE ACCOUNT FUNDS:
(VIP): Oppenheimer Bond/VA
Fidelity VIP Oppenheimer Capital Appreciation/VA
CONTRAFUND-REGISTERED TRADEMARK- Oppenheimer Global Securities/VA
Fidelity VIP Growth Oppenheimer High Income/VA
Fidelity VIP High Income Oppenheimer Small Cap Growth/VA
Fidelity VIP Index 500 VAN KAMPEN LIFE INVESTMENT TRUST:
Fidelity VIP Overseas Van Kampen LIT Comstock
Fidelity VIP Investment Grade Bond Van Kampen LIT Domestic Income
Van Kampen LIT Emerging Growth
Van Kampen LIT Money Market
</TABLE>
We (Allstate) have filed the Statement of Additional Information, dated May 1,
2000, with the Securities and Exchange Commission ("SEC"). It contains more
information about the Contract and is incorporated herein by reference, which
means it is legally a part of this prospectus. Its table of contents appears on
page B-1 of this prospectus. For a free copy, contact us at the address or
telephone number above, or go to the SEC's Web site (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 Web site. 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.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR
HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS
PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A
FEDERAL CRIME.
IMPORTANT The Contracts may be distributed through broker-dealers that
NOTICES have relationships with banks or other financial
institutions or by employees of such banks. However, the
Contracts are not deposits, or obligations of, or guaranteed
by such institutions or any federal regulatory agency.
Investment in the Contracts involves investment risks,
including possible loss of principal.
The Contracts are not FDIC insured.
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary.................................................... 4
Questions and Answers about SelectDirections................ 7
Expense Table............................................... 14
Examples.................................................. 17
Explanation of Expense Table and Examples................... 19
Financial Information..................................... 19
Description of the SelectDirections Contract................ 19
Summary................................................... 19
Contract Owner............................................ 19
Annuitant................................................. 20
Modification of the Contract.............................. 20
Assignment................................................ 20
Return Privilege.......................................... 20
Purchases and Contract Value................................ 21
Purchasing the Contract................................... 21
Automatic Payment Plan.................................... 21
Allocation of Purchase Payments........................... 21
Contract Value............................................ 22
Variable Account Accumulation Unit Value.................. 22
Transfers................................................... 22
Transfers During the Accumulation Phase................... 22
Transfers Authorized by Telephone......................... 23
Automatic Dollar Cost Averaging Program................... 23
Automatic Portfolio Rebalancing Program................... 23
The Investment Alternatives................................. 24
Variable Sub-account Investments.......................... 24
Investment Objectives of the Portfolios................... 25
Voting Rights............................................. 26
Additions, Deletions, and Substitutions of Portfolios..... 27
The Fixed Account Options................................. 27
General................................................. 27
Standard Fixed Account Option........................... 28
Dollar Cost Averaging Fixed Account Option.............. 28
Income Payments............................................. 28
Payout Start Date......................................... 28
Income Plans.............................................. 28
Income Payments: General.................................. 29
Variable Income Payments.................................. 30
Fixed Income Payments..................................... 31
Transfers During the Payout Phase......................... 31
Death Benefit During the Payout Phase..................... 31
Certain Employee Benefit Plans............................ 32
Death Benefits.............................................. 32
The Death Benefit: General................................ 32
Standard Death Benefit.................................... 32
Claim and Payment......................................... 33
Enhanced Death Benefit Rider.............................. 34
Enhanced Death Benefit A................................ 34
Enhanced Death Benefit B................................ 35
Enhanced Death and Income Benefit Rider................... 35
Beneficiary............................................... 35
Access to Your Money........................................ 36
In General................................................ 36
</TABLE>
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<TABLE>
<S> <C>
Partial Withdrawals....................................... 36
Total Withdrawal.......................................... 37
Substantially Equal Periodic Payments..................... 37
Systematic Withdrawal Program............................. 38
ERISA Plans............................................... 38
Minimum Contract Value.................................... 38
Expenses.................................................... 39
Mortality and Expense Risk Charge......................... 39
Administrative Expense Charge............................. 39
Contract Maintenance Charge............................... 40
Transfer Fee.............................................. 40
Withdrawal Charge......................................... 40
Free Withdrawal........................................... 41
Waiver of Withdrawal Charges.............................. 42
General................................................. 42
Confinement Waiver...................................... 42
Terminal Illness Waiver................................. 42
Unemployment Waiver..................................... 42
Premium Taxes............................................. 43
Deduction for Variable Account Income Taxes............... 43
Other Expenses............................................ 43
Tax Matters................................................. 43
Introduction.............................................. 43
Taxation of Annuities in General.......................... 44
Tax Deferral............................................ 44
Non-Natural Owners...................................... 44
Diversification Requirements............................ 44
Ownership Treatment..................................... 44
Taxation of Partial and Full Withdrawals................ 45
Taxation of Income Payments............................. 45
Taxation of Annuity Death Benefits...................... 45
Penalty Tax on Premature Distributions.................. 46
Aggregation of Annuity Contracts........................ 46
Tax Qualified Contracts................................... 46
Restrictions under Section 403(b) Plans................. 46
Income Tax Withholding.................................... 47
Performance Information..................................... 47
Yields and Standard Total Return.......................... 47
Other Performance Data.................................... 48
Allstate Life Insurance Company and the Variable Account.... 49
Allstate Life Insurance Company........................... 49
The Variable Account...................................... 49
Administration.............................................. 50
Year 2000................................................... 50
Market Timing and Asset Allocation Services................. 50
Distribution of Contracts................................... 51
Legal Proceedings........................................... 51
Legal Matters............................................... 51
Registration Statement...................................... 51
Appendix A - Accumulation Unit Values....................... A-1
Table of Contents of the Statement of Additional
Information................................................ B-1
</TABLE>
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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 Sub-Accounts 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 when the last surviving Contract owner dies.
COMPANY ("WE," "US," "OUR," "ALLSTATE") - Allstate Life Insurance Company.
CONTRACT - SelectDirections, a flexible premium deferred variable annuity. In
certain states, the Contract is available only as a group Contract. In those
states we issue you a certificate that represents your ownership and that
summarizes the provisions of the group Contract. References to "Contract" in
this prospectus include certificates, unless the context requires otherwise.
CONTRACT ANNIVERSARY - Each anniversary of the issue date.
CONTRACT OWNER ("YOU") - The person(s) having the privileges of ownership
defined in the Contract. If your Contract is issued as part of a retirement
plan, your ownership privileges may be modified by the plan.
CONTRACT VALUE - The sum of the values of your interests in the Variable
Sub-Accounts 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 Option ("DCA
Account") and the Standard Fixed Account Option. 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 Option.
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INCOME PLAN - A series of payments we will make on a scheduled basis to you or
to another person designated by you. We will apply your money to provide these
payments (called "income payments") on the Payout Start Date. Income payments
will 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 we apply your money to
provide 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 Sub-Account.
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 we apply your money to an Income Plan.
PORTFOLIO(S) - The underlying mutual funds in which the Variable Sub-Accounts
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 Sub-Accounts in order to price Accumulation Units and
annuity units. Each Valuation Period begins at the close of normal trading on
the NYSE (currently 3:00 p.m. Central time on each Valuation Date) and ends at
the close of the NYSE on the next Valuation Date.
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VARIABLE ACCOUNT - The Allstate Financial Advisors Separate Account I is a
separate investment account composed of Variable Sub-Accounts that we
established to receive and invest purchase payments paid under the Contract.
VARIABLE SUB-ACCOUNT - 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 Sub-Accounts 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.
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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 may 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 Sub-Accounts 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 Sub-Accounts and the amount of interest
we credit to the Fixed Account Options.
During the Accumulation Phase, each Variable Sub-Account 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 Sub-Accounts. 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. On the Payout
Start Date, we will apply your money to provide income payments according to an
Income Plan. Your income payments will 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 Sub-Accounts, the amount of your income payments
will vary up or down depending on the performance of the corresponding Portfolio
in which you are invested at that time.
2. WHAT INCOME PLANS DOES SELECTDIRECTIONS OFFER? (SEE INCOME PAYMENTS PAGE 28)
Beginning on the Payout Start Date, you may receive income payments on a fixed
or a variable basis or a combination of the two.
We offer a variety of Income Plans including:
- a life annuity, with payments guaranteed for five to twenty years;
- a joint and full survivorship annuity, with payments guaranteed for five
to twenty years; and
- fixed payments for a specified period of five to thirty years.
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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 Sub-Accounts 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 Sub-Accounts 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 PAGE 21)
You can obtain a Contract application from your Personal Financial
Representative. 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 older than age 90
before we receive your application.
4. WHAT ARE MY INVESTMENT ALTERNATIVES UNDER SELECTDIRECTIONS? (SEE VARIABLE
SUB-ACCOUNT INVESTMENTS PAGE 24)
During the Accumulation Phase, you can allocate and reallocate your investment
among the Fixed Account Options and the Variable Sub-Accounts. Each Variable
Sub-Account invests in a single Portfolio. The Portfolios we offer through the
Variable Sub-Accounts under this Contract are:
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS: MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE
AIM V.I. Capital Appreciation TRUST-SM-:
AIM V.I. Diversified Income MFS Bond
AIM V.I. Growth and Income MFS Growth with Income
AIM V.I. International Equity MFS High Income
AIM V.I. Value MFS New Discovery
FIDELITY VARIABLE INSURANCE PRODUCTS FUND OPPENHEIMER VARIABLE ACCOUNT FUNDS:
(VIP): Oppenheimer Bond/VA
Fidelity VIP Oppenheimer Capital Appreciation/VA
CONTRAFUND-REGISTERED TRADEMARK- Oppenheimer Global Securities/VA
Fidelity VIP Growth Oppenheimer High Income/VA
Fidelity VIP High Income Oppenheimer Small Cap Growth/VA
Fidelity VIP Index 500 VAN KAMPEN LIFE INVESTMENT TRUST:
Fidelity VIP Investment Grade Bond Van Kampen LIT Comstock
Fidelity VIP Overseas Van Kampen LIT Domestic Income
Van Kampen LIT Emerging Growth
Van Kampen LIT Money Market
</TABLE>
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.
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5. WHAT ARE THE FIXED ACCOUNT OPTIONS? (SEE FIXED ACCOUNT OPTIONS PAGE 27)
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 that 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 minimum purchase payment amount that may be allocated to the DCA
Account is $100. The payments, plus interest, will be transferred out of the DCA
Account in equal monthly installments and placed in the Variable Sub-Accounts 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 Sub-Accounts 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%. Transfers into the DCA Account are not permitted.
6. WHAT ARE MY EXPENSES UNDER SELECTDIRECTIONS? (SEE EXPENSES PAGE 39)
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 Sub-Accounts. 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 LIT Money Market Variable Sub-Account. If the Van
Kampen LIT Money Market Variable Sub-Account has insufficient funds, then we
will subtract the contract maintenance charge in equal parts from the other
Variable Sub-Accounts in the proportion that your value in each bears to your
total value in all Variable Sub-Accounts, excluding the Van Kampen LIT Money
Market Variable Sub-Account.
After the Payout Start Date, the contract maintenance charge will be deducted in
equal parts from each variable 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.
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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 Sub-Accounts and an administrative expense charge at an annual rate of
.10% of your average daily net assets in the Variable Sub-Accounts. If you
select our optional Enhanced Death Benefit Rider, we will charge a mortality and
expense risk charge at an annual rate of 1.35% of your average daily net assets
in the Variable Sub-Accounts. These charges are assessed each day during the
Accumulation Phase and will be assessed during the Payout Phase if you choose
variable income payments. We guarantee that we will not raise these charges.
TRANSFER FEE
Although we currently waive the transfer fee, the Contract permits us to charge
you up to $10 per transfer for each transfer after the 12th transfer in any
Contract Year.
WITHDRAWAL CHARGE
During the Accumulation Phase, you may withdraw all or part of your Contract
Value before your death or, if the Contract is owned by a company or other legal
entity, before the Annuitant's death. Certain withdrawals may be made without
payment of any withdrawal charge. Other withdrawals are subject to the
withdrawal charge.
In most states, we also may waive the withdrawal charge if you: (1) require
long-term medical or custodial care outside the home; (2) become unemployed; (3)
are diagnosed with a terminal illness; or (4) begin taking your required minimum
distribution payments under a qualified plan. These provisions will apply to the
Annuitant if the Contract is owned by a company or other legal entity.
Additional restrictions and costs may apply to Contracts issued in connection
with qualified plans. In addition, withdrawals may trigger tax liabilities and
penalties. You should consult with your tax counselor to determine what effect a
withdrawal might have on your tax liability.
Each year, free of withdrawal charge, you may withdraw the free withdrawal
amount which equals the greater of:
(1) earnings not previously withdrawn; or
(2) 15% of purchase payments that have been held by us for less than seven
years.
Any free withdrawal amount which is not withdrawn during a Contract Year may not
be carried over to increase the free withdrawal amount available in a subsequent
year. In addition, you may withdraw, free of withdrawal charge, any purchase
payment that has been held by us for more than seven years.
We calculate the withdrawal charge from the date you made the purchase
payment(s) being withdrawn. The withdrawal charge will vary depending on the
number of years since you made the purchase payment(s).
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PAYMENT YEAR: 1 2 3 4 5 6 7 8+
---------------------------------------------
WITHDRAWAL CHARGE: 7% 7% 6% 6% 5% 4% 3% 0
</TABLE>
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
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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
PAGE 43)
You should consult a qualified tax adviser for personalized answers. Generally,
earnings under variable annuities are not taxed until amounts are withdrawn or
distributions are made. This deferral of taxes is designed to encourage
long-term personal savings and supplemental retirement plans. The taxable
portion of a withdrawal or distribution is taxed as ordinary income.
Special rules apply if the Contract is owned by a company or other legal entity.
Generally, such an owner must include in income any increase in the excess of
the Contract Value over the "investment in the contract" during the taxable
year.
8. DO I HAVE ACCESS TO MY MONEY? (SEE ACCESS TO YOUR MONEY PAGE 36)
At any time during the Accumulation Phase, we will pay you all or part of the
value of your Contract, minus any applicable charge, if you request a full or
partial withdrawal. Generally, a partial withdrawal must equal at least $50, and
after the withdrawal your remaining Contract Value must equal at least $500.
Although you have access to your money during the Accumulation Phase, certain
charges, such as the contract maintenance charge, the withdrawal charge, and
premium tax charges, may be deducted if you withdraw all or part of your
Contract Value. You may also incur federal income tax liability or tax
penalties.
After the Payout Start Date, under variable income payments pursuant to Income
Plan 3, you may be entitled to a full or partial withdrawal of the commuted
value of the remaining income payments associated with the amount withdrawn. The
minimum amount you may withdraw at a time is $1,000.
9. WHAT IS THE DEATH BENEFIT? (SEE DEATH BENEFITS PAGE 32)
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 and each subsequent
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 currently offer an optional Enhanced Death Benefit Rider,* which is
described later in this prospectus.
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We will determine the value of the death benefit as of the end of the Valuation
Period during which we receive all of the information that we need to process
the claim.
* The Enhanced Death and Income Benefit Rider, which was previously offered
under this Contract, is available only to Contract owners who selected this
option prior to May 1, 2000.
10. WHAT ELSE SHOULD I KNOW ABOUT SELECTDIRECTIONS?
ALLOCATION OF PURCHASE PAYMENTS (SEE ALLOCATION OF PURCHASE PAYMENTS PAGE 21)
In your Contract application, you may allocate your initial purchase payment to
the Variable Sub-Accounts 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. Purchase payments allocated to the DCA Account must be
at least $100.
TRANSFERS (SEE TRANSFERS DURING THE ACCUMULATION PHASE PAGE 22)
During the Accumulation Phase, you may transfer Contract Value among the
Variable Sub-Accounts and from the Variable Sub-Accounts to the Standard Fixed
Account Option. The minimum amount that may be transferred is $100. If the total
amount remaining in the Standard Fixed Account Option or in a Variable
Sub-Account after a transfer would be less than $100, the entire amount will be
transferred. Transfers into the DCA Account are not permitted.
The maximum amount you may transfer from the Standard Fixed Account Option
during any Contract Year is the greater of 30% of the Standard Fixed Account
Option balance as of the last Contract Anniversary or the greatest of any prior
transfer from the Standard Fixed Account Option. 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
PAGE 23)
Under the Automatic Dollar Cost Averaging Program, amounts are
automatically transferred at regular intervals from the Standard Fixed
Account Option or a Variable Sub-Account of your choosing to up to 8
options, including other Variable Sub-Accounts or the Standard Fixed
Account Option. Transfers may be made monthly, quarterly, or annually.
PORTFOLIO REBALANCING (SEE AUTOMATIC PORTFOLIO REBALANCING PROGRAM
PAGE 23)
Under the Automatic Portfolio Rebalancing Program, you can maintain the
percentage of your Contract Value allocated to each Variable Sub-Account
at a pre-set level. Investment results will shift the balance of your
Contract Value allocations. If you elect rebalancing, we will
automatically transfer your Contract Value back to the specified
percentages at the frequency (monthly, quarterly, semi-annually,
annually) that you specify. You may not include the Fixed Account
Options in a Portfolio Rebalancing Program. You also may not elect
rebalancing after the Payout Start Date.
TRANSFERS DURING THE PAYOUT PHASE (SEE TRANSFERS DURING THE PAYOUT PHASE
PAGE 31) You may not make any transfers among the Variable Sub-Accounts
for the first six months after the Payout Start Date. Thereafter, you
may make transfers among the Variable Sub-Accounts, but these transfers
must be at least 6 months apart. You can make transfers from the
Variable
12
<PAGE>
Sub-Account 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 PAGE 20)
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 Personal Financial
Representative. 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 Personal Financial Representative) receive the Contract from you. The
Contract Value may be more or less than your purchase payments. If this Contract
is qualified under Section 408 of the Tax Code, we will refund the greater of
any purchase payments or the Contract Value. In certain states, 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
P.O. Box 80469
Lincoln, Nebraska 68501-0469
Overnight mail address:
Allstate Life Insurance Company
Nebraska Service Center
2940 S. 84th Street
Lincoln, Nebraska 68506
Or call us at:
1-800-632-3492
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<PAGE>
EXPENSE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE
(as a percentage of Purchase Payments)*
<TABLE>
<CAPTION>
WITHDRAWAL CHARGE
PAYMENT YEAR PERCENTAGE
- ------------ -----------------
<S> <C>
First................................................... 7%
Second.................................................. 7%
Third................................................... 6%
Fourth.................................................. 6%
Fifth................................................... 5%
Sixth................................................... 4%
Seventh................................................. 3%
Eighth and later........................................ 0%
</TABLE>
<TABLE>
<S> <C>
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 (We will waive this
charge in certain cases).................................... $35.00
</TABLE>
- ------------------------
* Each Contract Year, you may withdraw up to the greater of 15% of your
aggregate purchase payments that have been held by us for less than seven
years or earnings not previously withdrawn, without incurring a withdrawal
charge.
VARIABLE ACCOUNT EXPENSES
(as a percentage of average daily net assets in the Variable Sub-Accounts of the
Variable Account)
<TABLE>
<S> <C> <C>
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%
</TABLE>
- ------------------------
* The Enhanced Death and Income Benefit Rider is available only to Contract
owners who selected this option prior to May 1, 2000.
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<PAGE>
PORTFOLIO COMPANY ANNUAL EXPENSES
(After any Fee Waivers or Reductions) (As a Percentage of Portfolio Average
Daily Net Assets) (1)
<TABLE>
<S> <C> <C> <C>
TOTAL ANNUAL
PORTFOLIO MANAGEMENT FEE OTHER EXPENSES EXPENSES
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Capital Appreciation 0.62% 0.11% 0.73%
AIM V.I. Diversified Income 0.60% 0.23% 0.83%
AIM V.I. Growth and Income 0.61% 0.16% 0.77%
AIM V.I. International Equity 0.75% 0.22% 0.97%
AIM V.I. Value 0.61% 0.15% 0.76%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP)
Fidelity VIP
CONTRAFUND-REGISTERED TRADEMARK-
(2) (Initial Class) 0.58% 0.09% 0.67%
Fidelity VIP Growth (2) (Initial Class) 0.58% 0.08% 0.66%
Fidelity VIP High Income (Initial
Class) 0.58% 0.11% 0.69%
Fidelity VIP Index 500 (3) (Initial
Class) 0.24% 0.04% 0.28%
Fidelity VIP Investment Grade Bond
(Initial Class) 0.43% 0.11% 0.54%
Fidelity VIP Overseas (2) (Initial
Class) 0.73% 0.18% 0.91%
MFS-REGISTERED TRADEMARK- VARIABLE
INSURANCE TRUST-SM-
MFS Bond (4)(5)(6) 0.60% 0.16% 0.76%
MFS Growth with Income (4) 0.75% 0.13% 0.88%
MFS High Income (4)(5)(6) 0.75% 0.16% 0.91%
MFS New Discovery (4)(5)(6) 0.90% 0.17% 1.07%
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Bond/VA 0.72% 0.01% 0.73%
Oppenheimer Capital Appreciation/VA 0.68% 0.02% 0.70%
Oppenheimer Global Securities/VA 0.67% 0.02% 0.69%
Oppenheimer High Income/VA 0.74% 0.01% 0.75%
Oppenheimer Small Cap Growth/VA (7) 0.75% 0.00% 0.75%
VAN KAMPEN LIFE INVESTMENT TRUST
Van Kampen LIT Comstock (8)(9) 0.00% 0.95% 0.95%
Van Kampen LIT Domestic Income (9)(10) 0.01% 0.60% 0.61%
Van Kampen LIT Emerging Growth (9) 0.47% 0.18% 0.65%
Van Kampen LIT Money Market (9)(10) 0.29% 0.43% 0.62%
</TABLE>
FOOTNOTES
(1) Figures shown in the table are for the period ended December 31, 1999 unless
otherwise indicated.
(2) A portion of the brokerage commissions that these Portfolios paid was used
to reduce the Portfolios' expenses. In addition, certain Portfolios, or
Fidelity Management & Research Company on behalf of certain 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 annual expenses would have been: 0.65%
for the Fidelity VIP
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<PAGE>
CONTRAFUND-REGISTERED TRADEMARK- Portfolio; 0.65% for the Fidelity VIP
Growth Portfolio; and 0.87% for Fidelity VIP Overseas.
(3) Fidelity Management & Research Company agreed to reimburse a portion of the
Fidelity VIP Index 500 Portfolio's expenses during the period. Without this
reimbursement, the Portfolio's management fee, other expenses and total
expenses would have been 0.24%, 0.10% and 0.34%, respectively.
(4) Each Portfolio of the MFS-Registered Trademark- Variable Insurance Trust-SM-
has an expense offset arrangement which reduces the Portfolio's custodian
fee based upon the amount of cash maintained by the Portfolio with its
custodian and dividend disbursing agent. Each Portfolio may enter into other
such arrangements and directed brokerage arrangements, which would also have
the effect of reducing the Portfolio's expenses. Expenses do not take into
account these expense reductions, and are therefore higher than the actual
expenses of the Portfolios.
(5) 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: 0.15% for the
Bond Portfolio and 0.15% 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, 2001, unless terminated
with the consent of the board of trustees which oversees the Portfolios.
(6) The figures shown in the Expense Table have been reduced to reflect certain
expense reimbursements from MFS, the investment adviser to the
MFS-Registered Trademark- Variable Insurance Trust-SM-. If MFS had not
reimbursed these expenses, then the management fees, other expenses and
total annual expenses for the fiscal year ended December 31, 1999 would have
been: for the MFS Bond Portfolio, 0.60%, 0.46% and 1.06%, respectively; for
the MFS High Income Portfolio, 0.75%, 0.22% and 0.97%, respectively; and for
the MFS New Discovery Portfolio, 0.90%, 1.59% and 2.49%, respectively.
(7) The figures shown in the Expense Table have been reduced to reflect certain
voluntary fee waivers and expense reimbursements from OppenheimerFunds,
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, 1999 for the
Oppenheimer Small Cap Growth Portfolio would have been 0.75%, 0.59% and
1.34%, respectively.
(8) Because the Van Kampen LIT Comstock Portfolio did not commence operations
until April 30, 1999, the percentages for fees and expenses in the Expense
Table are estimated for the Portfolio's last fiscal year ending
December 31, 1999.
(9) The figures shown in the Expense 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, total annual expenses for the fiscal
year ended December 31, 1999 would have been: 1.10% for the Van Kampen LIT
Domestic Income Portfolio, 0.88% for the Van Kampen LIT Emerging Growth
Portfolio, 0.93% for the Van Kampen LIT Money Market Portfolio, and 1.36%
for the Van Kampen LIT Comstock Portfolio.
(10) The ratio of expenses to average net assets do not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratios for the year ended December 31, 1999 would decrease
by 0.01% for the Van Kampen LIT Domestic Income Portfolio, and 0.02% for the
Van Kampen LIT Money Market Portfolio.
16
<PAGE>
EXAMPLES
EXAMPLE 1
Example 1 below shows the dollar amount of expenses that you would bear directly
or indirectly if you:
- invested $1,000 in a Variable Sub-Account;
- earned a 5% annual return on your investment;
- 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
- elected the Enhanced Death Benefit Rider (with total Variable Account
expenses of 1.45%).
This example assumes the election of the Enhanced Death Benefit Rider with total
Variable Account expenses of 1.45%. If the Enhanced Death and Income Benefit
Rider has been elected, the expense figures shown below would be slightly
higher.
EXAMPLE 2
Same assumptions as Example 1, except that you elected the Standard Death
Benefit (with total Variable Account expenses of 1.25%).
<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 1 EXAMPLE 2
VARIABLE SUB-ACCOUNT 1 YEAR 3 YEARS 1 YEAR 3 YEARS
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Capital Appreciation $87 $135 $85 $129
AIM V.I. Diversified Income $88 $138 $86 $132
AIM V.I. Growth and Income $87 $136 $85 $130
AIM V.I. International Equity $89 $142 $87 $136
AIM V.I. Value $87 $136 $85 $130
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
(VIP)
Fidelity VIP
CONTRAFUND-REGISTERED TRADEMARK- $86 $133 $84 $127
Fidelity VIP Growth $86 $133 $84 $127
Fidelity VIP High Income $86 $134 $84 $128
Fidelity VIP Index 500 $82 $121 $80 $115
Fidelity VIP Investment Grade Bond $85 $129 $83 $123
Fidelity VIP Overseas $89 $140 $87 $134
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE
TRUST-SM-
MFS Bond $87 $136 $85 $130
MFS Growth with Income $87 $136 $85 $129
MFS High Income $87 $136 $85 $129
MFS New Discovery $88 $140 $86 $133
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Bond/VA $89 $140 $87 $134
Oppenheimer Capital Appreciation/VA $86 $134 $84 $128
Oppenheimer Global Securities/VA $90 $145 $88 $139
Oppenheimer High Income/VA $87 $135 $85 $129
Oppenheimer Small Cap Growth/VA $86 $134 $84 $128
VAN KAMPEN LIFE INVESTMENT TRUST
Van Kampen LIT Comstock $89 $142 $87 $136
Van Kampen LIT Domestic Income $86 $131 $83 $125
Van Kampen LIT Emerging Growth $86 $132 $84 $126
Van Kampen LIT Money Market $86 $132 $84 $125
</TABLE>
17
<PAGE>
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 Benefit Rider (with total Variable
Account expenses of 1.45%).
This example assumes the election of the Enhanced Death Benefit Rider with total
Variable Account expenses of 1.45%. If the Enhanced Death and Income Benefit
Rider has been elected, the expense figures shown below would be slightly
higher.
EXAMPLE 4
Same assumptions as Example 3, except that you elected the Standard Death
Benefit (with total Variable Account expenses of 1.25%).
<TABLE>
<S> <C> <C> <C> <C>
EXAMPLE 3 EXAMPLE 4
VARIABLE SUB-ACCOUNT 1 YEAR 3 YEARS 1 YEAR 3 YEARS
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Capital Appreciation $27 $84 $25 $78
AIM V.I. Diversified Income $28 $87 $26 $81
AIM V.I. Growth and Income $28 $85 $26 $79
AIM V.I. International Equity $30 $91 $28 $85
AIM V.I. Value $28 $85 $26 $79
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
(VIP)
Fidelity VIP
CONTRAFUND-REGISTERED TRADEMARK- $27 $82 $25 $76
Fidelity VIP Growth $27 $82 $25 $76
Fidelity VIP High Income $27 $83 $25 $77
Fidelity VIP Index 500 $23 $70 $21 $64
Fidelity VIP Investment Grade Bond $25 $78 $23 $72
Fidelity VIP Overseas $29 $89 $27 $83
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE
TRUST-SM-
MFS Bond $28 $85 $26 $79
MFS Growth with Income $27 $85 $25 $78
MFS High Income $27 $85 $25 $78
MFS New Discovery $29 $89 $27 $82
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Bond/VA $29 $89 $27 $83
Oppenheimer Capital Appreciation/VA $27 $83 $25 $77
Oppenheimer Global Securities/VA $31 $94 $29 $88
Oppenheimer High Income/VA $27 $84 $25 $78
Oppenheimer Small Cap Growth/VA $27 $83 $25 $77
VAN KAMPEN LIFE INVESTMENT TRUST
Van Kampen LIT Comstock $30 $91 $27 $85
Van Kampen LIT Domestic Income $26 $80 $24 $74
Van Kampen LIT Emerging Growth $26 $81 $24 $75
Van Kampen LIT Money Market $26 $81 $24 $74
</TABLE>
18
<PAGE>
EXPLANATION OF EXPENSE TABLE AND EXAMPLES
1. We have included the Expense 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 Expense Table reflects
expenses of the Variable Account as well as the Portfolios. For additional
information, you should read "Expenses," page 39; 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, payment of death
benefit proceeds, 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 Sub-Accounts.
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.
FINANCIAL INFORMATION
To measure the value of your investment in the Variable Sub-Accounts during the
Accumulation Phase, we use a unit of measure we call the accumulation unit
("Accumulation Unit"). Each Variable Sub-Account has a separate value for its
Accumulation Units we call accumulation unit value ("Accumulation Unit Value").
Accumulation Unit Value is analogous to, but not the same as, the share price of
a mutual fund.
Attached as Appendix A to this prospectus are tables showing the Accumulation
Unit Values of each Variable Sub-Account since its inception. To obtain a fuller
picture of each Variable Sub-Account's finances, please refer to the Variable
Account's financial statements contained in the Statement of Additional
Information. The financial statements of Allstate also appear in the Statement
of Additional Information.
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 Sub-
Accounts to which you allocate or transfer your purchase payments, as well as to
reflect interest credited to amounts allocated to the Fixed Account Options.
During the Accumulation Phase, 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
19
<PAGE>
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 reached his or her
91st birthday, or where the Annuitant has reached his or her 91st birthday.
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 (e.g.,
your Personal Financial Representative) 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 Personal Financial Representative 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 Personal Financial
Representative) receive the Contract from you. The Contract Value at that time
may be more or less than your purchase payments. If this Contract is qualified
under Section 408 of the Tax Code, we will refund the greater of any purchase
payments or the Contract Value.
In certain 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 Sub-Accounts and the Fixed Account Options as you
20
<PAGE>
specified in your application. However, we reserve the right in the future to
delay allocating your purchase payments to the Variable Sub-Accounts you have
selected or to the Fixed Account Options 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 LIT Money Market Variable Sub-Account. 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 an initial purchase payment of $1,200 or
more. We will issue the Contract if the Annuitant and Contract owner are age 90
or younger. The initial purchase payment is the only payment we require you to
make under the Contract. There are no requirements on how many payments to make.
After the initial purchase payment, you decide the amount of each subsequent
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 additional purchase payments of $25 or more per month
($100 or more per month for purchase payments allocated to the DCA Account) 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 Sub-Account(s) and the
Fixed Account Options in the proportions that you select, provided they meet the
minimum allocation amounts described in this prospectus. 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 a Fixed Account Option 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
Sub-Accounts and the Fixed Account Options, as you have instructed us, on the
issue date. We will allocate your subsequent purchase payments on the date that
we receive them at the next computed Accumulation Unit Value.
We determine the number of Accumulation Units in each Variable Sub-Account to
allocate to your Contract by dividing that portion of your purchase payment
allocated to a Variable Sub-Account by that Variable Sub-Account's Accumulation
Unit Value on the Valuation Date when the allocation occurs.
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<PAGE>
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 Sub-Accounts you
have selected, plus the value of your interest in the Fixed Account Options.
VARIABLE ACCOUNT ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account
will rise or fall to reflect changes in the share price of the Portfolio in
which the Variable Sub-Account 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 Sub-Account.
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 Sub-Account. We determine the Accumulation
Unit Value for each Variable Sub-Account 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 Sub-Account and, therefore, your Contract Value.
TRANSFERS
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer Contract Value among the
Standard Fixed Account Option and the Variable Sub-Accounts in writing or by
telephone/fax. The minimum amount that may be transferred from the Standard
Fixed Account Option or the Variable Sub-Accounts is $100. If the total amount
remaining in the Standard Fixed Account Option or the Variable Sub-Accounts
after a transfer would be less than $100, the entire amount will be transferred.
As a general rule, we only accept and process transfers on days when we and the
New York Stock Exchange ("NYSE") are open for business (a Valuation Date). If we
receive your request on one of those days, we will process the transfer that
day. We will process transfer requests that we receive before 3:00 p.m. Central
Time on any Valuation Date using the Accumulation Unit Value at the end of that
date. We will process requests completed after 3:00 p.m. Central Time using the
Accumulation Unit Value for the next Valuation Date.
The Contract permits us to defer transfers from the fixed account for up to six
months from the date you ask us.
You may not transfer Contract Value into the Dollar Cost Averaging Fixed Account
Option. You may not transfer Contract Value out of the Dollar Cost Averaging
Fixed Account Option except as part of a Dollar Cost Averaging program.
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TRANSFERS AUTHORIZED BY TELEPHONE
You may make transfers by telephone by calling 1-800-632-3492. The cut off time
for telephone transfer requests is 3:00 p.m. Central Time. Calls completed
before 3:00 p.m. Central Time will be effected on that day at that day's closing
price. We will not process telephone requests received after 3:00 p.m. Central
Time on any Valuation Date.
In the event that the NYSE closes early, i.e., before 3:00 p.m. Central Time, or
if the NYSE closes early for a period of time but then reopens for trading on
the same day, we will process telephone transfer requests as of the close of the
NYSE on that particular day. We will not access telephone transfer requests
received from you at any telephone number other than 1-800-632-3492, or received
after the close of trading on the NYSE. If you own the Contract with a joint
Contract owner, unless we receive contrary instructions, we will accept
instructions from either you or the other Contract owner. 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 "DCA Account" or a
Variable Sub-Account of your choosing to up to 8 options, including other
Variable Sub-Accounts or the Standard Fixed Account Option. The interval between
transfers from the DCA Account may be monthly only. The interval between
transfers from Variable Sub-Accounts 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 Automatic 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 address 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 the
Automatic 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 the Automatic Dollar Cost
Averaging and Portfolio Rebalancing Programs at the same time.
AUTOMATIC PORTFOLIO REBALANCING PROGRAM
Portfolio rebalancing allows you to maintain the percentage of your Contract
Value allocated to each Variable Sub-Account at a pre-set level. For example,
you could specify that 30% of your Contract
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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 Sub-Account's investment results will shift the balance of your
Contract Value allocations. Under the Automatic Portfolio Rebalancing Program,
each period, if the allocations change from your desired percentages, we will
automatically transfer your Contract Value, including new purchase payments
(unless you specify otherwise), back to the percentages you specify. Portfolio
rebalancing is consistent with maintaining your allocation of investments among
market segments, although it is accomplished by reducing your Contract Value
allocated to the better performing segments.
You may choose to have a rebalance made monthly, quarterly, semi-annually, or
annually until your Payout Start Date. The Automatic Portfolio Rebalancing
Program is not available after the Payout Start Date. We will not charge a
transfer fee for portfolio rebalancing. No more than eight Variable Sub-
Accounts can be included in the Automatic Portfolio Rebalancing Program at one
time. You may not include the Standard Fixed Account Option in the Automatic
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 address 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 Sub-Accounts 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 the Automatic Dollar
Cost Averaging and Portfolio Rebalancing Programs at the same time. We may
change, terminate, limit, or suspend portfolio rebalancing at any time.
THE INVESTMENT ALTERNATIVES
VARIABLE SUB-ACCOUNT INVESTMENTS
THE PORTFOLIOS
Each of the Variable Sub-Accounts 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 Sub-Accounts 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 Sub-Accounts
invest. You bear the investment risk that those Portfolios possibly will not
meet their investment objectives.
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INVESTMENT OBJECTIVES OF THE PORTFOLIOS
CERTAIN PORTFOLIOS HAVE SIMILAR INVESTMENT OBJECTIVES. YOU SHOULD CAREFULLY
REVIEW THE PROSPECTUSES FOR THE PORTFOLIOS BEFORE INVESTING.
<TABLE>
PORTFOLIO EACH PORTFOLIO SEEKS:
<S> <C>
AIM V.I. Capital Appreciation* Growth of capital. Investment adviser is AIM
Advisors, Inc.
AIM V.I. Diversified Income* High level of current income. Investment adviser is AIM
Advisors, Inc.
AIM V.I. Growth and Income* Growth of capital with a secondary objective of current
income. Investment adviser is AIM Advisors, Inc.
AIM V.I. International Equity* Long-term growth of capital. Investment adviser is AIM
Advisors, Inc.
AIM V.I. Value* Long-term growth of capital. Income is a secondary
objective. Investment adviser is AIM Advisors, Inc.
Fidelity VIP Long-term capital appreciation. Investment adviser is
CONTRAFUND-REGISTERED TRADEMARK- Fidelity Management & Research Company.
Fidelity VIP Growth Capital appreciation. Investment adviser is Fidelity
Management & Research Company.
Fidelity VIP High Income High level of current income while also considering growth
of capital. Investment adviser is Fidelity Management &
Research Company.
Fidelity VIP Index 500 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 VIP Investment Grade Bond High level of current income. Investment adviser is
Fidelity Management & Research Company.
Fidelity VIP Overseas Long-term growth of capital. Investment adviser is
Fidelity Management & Research Company.
MFS Bond 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 Reasonable current income and long-term growth of capital
and income. Investment adviser is MFS.
MFS High Income High current income. Investment adviser is MFS.
MFS New Discovery Capital appreciation. Investment adviser is MFS.
Oppenheimer Bond/VA 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 Capital appreciation. Investment adviser is
OppenheimerFunds, Inc.
Oppenheimer Global Securities/VA Long-term capital appreciation. Investment adviser is
OppenheimerFunds, Inc.
Oppenheimer High Income/VA High level of current income. Investment adviser is
OppenheimerFunds, Inc.
Oppenheimer Small Cap Growth/ VA Capital appreciation. Investment adviser is
OppenheimerFunds, Inc.
</TABLE>
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<TABLE>
PORTFOLIO EACH PORTFOLIO SEEKS:
<S> <C>
Van Kampen LIT Comstock Capital growth and income. Investment adviser is Van
Kampen Asset Management Inc.
Van Kampen LIT Domestic Income Primarily 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 LIT Emerging Growth Capital appreciation. Investment adviser is Van Kampen
Asset Management Inc.
Van Kampen LIT Money Market Protection of capital and high current income. Investment
adviser is Van Kampen Asset Management Inc.
</TABLE>
* The Portfolios' investment objectives may be changed by the Portfolios'
Board of Trustees without shareholder approval.
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 Sub-Account are separate and are credited to or charged against the
particular Variable Sub-Account without regard to income, gains or losses from
any other Variable Sub-Account or from any other part of our business. We will
use the net purchase payments you allocate to a Variable Sub-Account 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 (or Board
of Trustees) 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 (or Board of Trustees) 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 Sub-Accounts to which you have allocated your
Contract Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. 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
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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 Sub-Accounts:
- to operate the Variable Account in any form permitted by law;
- to take any action necessary to comply with applicable law or obtain and
continue any exemption from applicable laws;
- to transfer assets from one Variable Sub-Account to another, or from any
Variable Sub-Account to our general account;
- to add, combine, or remove Variable Sub-Accounts in the Variable Account;
and
- 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 money 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. Any money you allocate to the Fixed
Account Options does not entitle you to share in the investment experience of
the Fixed Account Options. 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.
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STANDARD FIXED ACCOUNT OPTION
Money in the Standard Fixed Account Option 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 Option. 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 "DCA Account". The minimum amount
that may be allocated to the DCA Account is $100. 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
Sub-Accounts or the Standard Fixed Account Option, in the percentages you
designate. You may not transfer funds to this option from the Variable
Sub-Accounts or the Standard Fixed Account Option.
INCOME PAYMENTS
PAYOUT START DATE
The Payout Start Date is the day that we will apply the value of your Contract,
less applicable taxes, to the Income Plan you select. 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:
- Income Plan 1 with 10 years (120 months) guaranteed, if you have
designated only one Annuitant; and
- Income Plan 2 with 10 years (120 months) guaranteed, if you have
designated joint Annuitants.
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<PAGE>
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:
- fixed income payments;
- variable income payments; or
- 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. We will deduct the mortality and expense risk
charge from the assets of the Variable Sub-Accounts that support this
plan even though we may not bear any mortality risk.
If you purchased your Contract under a retirement plan, you may have a more
limited selection of Income Plans to choose from. You should consult your Plan
documents to see what is available.
Once income payments have begun, you cannot surrender your Contract for a lump
sum payment unless you choose to receive variable income payments under Income
Plan 3, as described above. Instead, before the Payout Start Date you may fully
withdraw your Contract Value for a lump sum, as described on page 28. 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 variable 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.
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We will determine the amount of your income payments as described in "Variable
Income Payments" on page 30 and "Fixed Income Payments" on page 31.
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
OPTIONS ON THE PAYOUT START DATE TO FIXED INCOME PAYMENTS. IF YOU WISH TO APPLY
ANY PORTION OF YOUR MONEY IN THE FIXED ACCOUNT OPTIONS TO YOUR VARIABLE INCOME
PAYMENTS, THEN YOU SHOULD PLAN AHEAD AND TRANSFER THAT AMOUNT TO THE VARIABLE
SUB-ACCOUNTS PRIOR TO THE PAYOUT START DATE. If you do not tell us how to
allocate your Contract Value among fixed and variable income payments, we will
apply your Contract Value in the variable account to variable income payments
and your Contract Value in the fixed account to fixed income payments.
Income payments begin on the Payout Start Date.
We will make income payments in monthly, quarterly, semi-annual or annual
installments, as you select. As of the Payout Start Date, if no purchase
payments have been received for two years and the Contract Value is less than
$2,000, or not enough to provide an initial payment of $20, and state law
permits, then we may pay you the Contract Value, less applicable taxes, in a
lump sum instead of the periodic payments you have chosen. Or we may reduce the
frequency of payments so that the initial payment will be at least $20.
We may defer for up to 15 days the payment of any amount attributable to a
purchase payment made by check to allow the check reasonable time to clear.
Generally you may not make withdrawals after the Payout Start Date. One
exception to this rule applies if you are receiving variable income payments
that do not depend on the life of the Annuitant (such as Income Plan 3). In that
case, you can terminate all or part 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 associated with
the amount withdrawn. To determine the present value of any remaining variable
income payments being withdrawn, we use a discount rate equal to the assumed
annual investment rate that we use to compute such variable income payments. The
minimum amount you may withdraw at a time is $1,000. 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 Sub-Accounts 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.
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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 Sub-Accounts 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 Statement of Additional Information 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
Sub-Accounts.
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 Sub-Accounts so as to change the relative weighting of the Variable
Sub-Accounts on which your variable income payments will be based. In addition,
you will have a limited ability to make transfers from the Variable Sub-Accounts
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 Sub-Accounts, but
these transfers must be at least six months apart. You can make transfers from
the Variable Sub-Account 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
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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 an attorney 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;
3. and the greatest Contract Value calculated on each seventh Contract
Anniversary, increased by the total purchase payments since that
anniversary and reduced by a withdrawal adjustment for any partial
withdrawals since that anniversary.
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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:
- a certified copy of the Death Certificate;
- a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
- a written statement of a medical doctor who attended the deceased at the
time of death.
- any other proof acceptable to us.
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:
- the Beneficiary may receive the distribution as a lump sum payment;
- 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
- 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 Sub-Accounts, interest credited to the fixed
account, and charges and expenses under the Contract, as described in
this prospectus.
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(2) Within one year of the date of death, your spouse may make a single
withdrawal of any amount.
(3) If the Contract is continued by a surviving spouse, 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 distribution upon death in a lump sum within 5 years of the date of
death, 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 :
- Enhanced Death Benefit A, or
- Enhanced Death Benefit B.
As shown in the Expense 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
make a purchase payment or a withdrawal and on each Contract Anniversary as
follows:
- When you make a purchase payment, we will increase Enhanced Death Benefit
A by the amount of the purchase payment;
- When you make a withdrawal, we will decrease Enhanced Death Benefit A by
a withdrawal adjustment, as described below; and
- 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 Enhanced Death Benefit A.
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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 purchased the Contract, you may have chosen 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 Expense Table,
we will charge a higher mortality and expense risk charge during the
Accumulation Phase and the Payout Phase, if you have selected 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.
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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:
- your spouse if he or she is still alive; or, if he or she is no longer
alive,
- your surviving children equally; or if you have no surviving children,
- your estate.
If more than one Beneficiary survives you, we will divide the death benefit
among your Beneficiaries according to your most recent written instructions. If
you have not given us written instructions, we will pay the death benefit in
equal 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
Sub-Account. 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 Personal Financial Representative, 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 Sub-Accounts 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 Sub-Accounts 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
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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 and applicable
taxes. 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 45, 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.
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To qualify for this exception, the payments must meet the following
requirements:
(1) The payments must continue to the later of age 59 1/2 or for five years;
(2) Payments must be established under one of the approved methods detailed
by the IRS in IRS Notice 89-25; and
(3) You must have separated from service, if you purchased your Contract
under a qualified retirement plan or tax sheltered annuity.
If you modify the payment stream in any way, except for reason of death or
disability, you will lose the exception. Modification includes changing the
amount or timing of the payments, or making additional purchase payments. Any
subsequent periodic payment will be subject to the penalty tax, unless it
qualifies for a different exception. In addition, in the year of the
modification, you will be required to pay the penalty tax (plus interest) that
you would have been required to pay on the earlier payments if this exception
had not applied.
SYSTEMATIC WITHDRAWAL PROGRAM
If your Contract was issued in connection with a non-qualified plan or IRA, you
may participate in our Systematic Withdrawal Program. You must complete an
enrollment form and send it to us. You must complete the withholding election
section of the enrollment form before the systematic withdrawals will begin. If
you do not complete the withdrawal election section, we will deduct the standard
10% withholding from your payment. You may choose withdrawal payments of a flat
dollar amount, or a percentage of purchase payments. You may choose to receive
systematic withdrawal payments on a monthly, quarterly, semi-annual, or annual
basis. Systematic withdrawals will be deducted from your Variable Sub-Account
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 Sub-Accounts
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 seek tax advice regarding this issue.
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.
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EXPENSES
We assess charges and expenses 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 Expense Table on pages 14-15, and described more fully in the
prospectuses and Statements of Additional Information for the Portfolios.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge from your Contract's value in each
Variable Sub-Account 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
Sub-Accounts.
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 Sub-Accounts. If you have selected
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 Sub-Accounts.
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 Sub-Account during
each Valuation Period. This charge is equal, on an annual basis, to 0.10% of
your average daily net assets in the Variable Sub-Accounts. 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.
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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 LIT Money Market Variable Sub-Account on each
Contract Anniversary. If the Van Kampen LIT Money Market Variable Sub-Account
has insufficient funds, then we will subtract the contract maintenance charge in
equal parts from the other Variable Sub-Accounts in the proportion that your
value in each bears to your total value in all Variable Sub-Accounts, excluding
the Van Kampen LIT Money Market Variable Sub-Account.
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 Sub-Account(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:
- on the Payout Start Date (a withdrawal charge may apply if you elect to
receive income payments for a specified period of less than 120 months);
- the payment of a death benefit (unless the Settlement Value is used);
- a free withdrawal amount, as described below;
- withdrawals taken to satisfy IRS minimum distribution rules for the
Contract.
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 adviser regarding any withdrawals.
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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:
<TABLE>
<CAPTION>
WITHDRAWAL CHARGE
PAYMENT YEAR PERCENTAGE
- ------------ -----------------
<S> <C>
First............................................... 7%
Second.............................................. 7%
Third............................................... 6%
Fourth.............................................. 6%
Fifth............................................... 5%
Sixth............................................... 4%
Seventh............................................. 3%
Eighth and later.................................... 0%
</TABLE>
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:
<TABLE>
<S> <C>
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.
</TABLE>
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:
- the free withdrawal amount; and
- 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.
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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. You (or the Annuitant)
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
your (or the Annuitant'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, as defined in the Contract.
You may not claim this benefit if the physician prescribing your (or the
Annuitant's) stay in a long term care facility is the Contract owner or the
Annuitant or a member of the Contract owner or the Annuitant'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, as defined in the Contract. 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:
- You (or the Annuitant, if the Contract owner is not a living individual)
become unemployed at least one year after the issue date;
- You (or the Annuitant, if the Contract owner is not a living individual)
receive unemployment compensation for at least 30 days as a result of
that unemployment; and
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- You (or the Annuitant, if the Contract owner is not a living individual)
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 Statement of Additional Information.
OTHER EXPENSES
You indirectly bear the charges and expenses of the Portfolios whose shares are
held by the Variable Sub-Accounts 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.
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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 Contract 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 Statement of Additional Information for a discussion of
several exceptions to the general rule for contracts owned by non-natural
persons.
DIVERSIFICATION REQUIREMENTS
For a Contract to be treated as an annuity for federal income tax purposes, the
investments in the Variable Account must be "adequately diversified" consistent
with standards under Treasury Department regulations. If the investments in the
Variable Account are not adequately diversified, the Contract will not be
treated as an annuity contract for federal income tax purposes. As a result, the
income on the Contract will be taxed as ordinary income received or accrued by
the owner during the taxable year. Although Allstate does not have control over
the 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 Sub-Account 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 includible in your gross income. Allstate does not know what standards will
be set forth in any regulations or rulings which the Treasury Department may
issue. It is possible that future standards announced by the Treasury Department
could adversely affect the tax treatment of your Contract. We reserve the right
to modify the Contract as necessary to attempt to prevent you from being
considered the federal tax owner of the assets of the variable account. However,
we make no guarantee that such modification to the Contract will be successful.
44
<PAGE>
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.
"Non-qualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions. "Qualified distributions" from Roth IRAs are
not included in gross income. "Qualified distributions" are any distributions
made more than five taxable years after the taxable year of the first
contribution to any Roth IRA and which are:
- made on or after the date the individual attains age 59 1/2;
- made to a Beneficiary after the owner's death;
- attributable to the owner being disabled; or
- for a first time home purchase (first time home purchases are subject to
a lifetime limit of $10,000).
If you transfer a non-qualified Contract without full and adequate consideration
to a person other than your spouse (or to a former spouse incident to a
divorce), you will be taxed on the difference between the Contract Value and the
investment in the Contract at the time of transfer. Except for certain qualified
Contracts, any amount you receive as a loan under a Contract, and any assignment
or pledge (or agreement to assign or pledge) of the Contract Value is treated as
a withdrawal of such amount or portion.
TAXATION OF 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 a Contract owner, or death of the Annuitant if the Contract is owned by
a non-natural person, will cause a distribution of death benefits from a
Contract. Generally, such amounts are included in income as follows:
(1) if distributed in a lump sum, the amounts are taxed in the same manner
as a full withdrawal; or
45
<PAGE>
(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
Statement of Additional Information for more detail on distribution at
death requirements.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
A 10% penalty tax applies to the taxable amount of any premature distribution
from a 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 adviser 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 nonqualified 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:
- Individual Retirement Annuities or Accounts (IRAs) under Section 408 of
the Tax Code;
- Roth IRAs under Section 408A of the Tax Code;
- Tax sheltered annuities under Section 403(b) of the Tax Code;
- Simplified Employee Pension Plans under Section 408(k) of the Tax Code;
- Savings Incentive Match Plans for Employees (SIMPLE) Plans under
Section 408(p) of the Tax Code;
- Corporate and Self Employed Pension and Profit Sharing Plans; and
- State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans.
The income on qualified plan and IRA investments is tax deferred and variable
annuities held by such plans do not receive any additional tax deferral. You
should review the annuity features, including all benefits and expenses, prior
to purchasing a variable annuity in a qualified plan or IRA. Allstate reserves
the right to limit the availability of the Contract for use with any of the
qualified plans listed above. 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
December 31,
46
<PAGE>
1988, and all earnings on salary reduction contributions, may be made only on or
after the date the employee:
- attains age 59 1/2;
- separates from service;
- dies;
- becomes disabled; or
- on 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 Sub-Accounts. 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 Contracts 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 LIT Money Market Variable Sub-Account refers to the
annualized investment income that an investment in the Sub-Account generates
over a specified seven-day period. The effective yield of the Van Kampen LIT
Money Market Variable Sub-Account 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
Sub-Account (except the Van Kampen LIT Money Market Variable Sub-Account) refers
to the annualized income that an investment in the Variable Sub-Account
generates over a specified thirty-day period.
47
<PAGE>
The average annual total return of a Variable Sub-Account assumes that an
investment has been held in the Variable Sub-Account for certain periods of time
including the period measured from the date the Variable Sub-Account began
operations. We will provide the average annual total return for each Variable
Sub-Account that has been in operation for 1, 5, and 10 years, or since
inception if for a shorter period. 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, or the
period since inception.
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 Statement of Additional Information.
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 Contracts with the Enhanced Death and Income Benefit), an administrative
expense charge of 0.10%, an annual contract maintenance charge of $35, and
applicable withdrawal charges.
Such adjusted performance includes data that precedes the inception dates of the
Variable Sub-Accounts, 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 Statement of Additional
Information.
Advertising, sales literature, and other communications may compare the expense
and performance data for the Contract and each Variable Sub-Account 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 Sub-Account'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 Company's, Standard &
Poor's Insurance Rating Services' and Moody's rating of Allstate as an insurance
company.
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<PAGE>
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 the State 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.
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 multiple Variable Sub-Accounts. We may add
new Variable Sub-Accounts or eliminate one or more of them, if we believe
marketing, tax, or investment conditions so warrant. The assets of each Variable
Sub-Account are invested in the shares of one of the Portfolios. We do not
guarantee the investment performance of the Variable Account, its Variable
Sub-Accounts 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
Statement of Additional Information. You may obtain a copy of the Statement of
Additional Information by writing to us or calling us at 1-800-632-3492 or go to
the SEC's Web site at (http://www.sec.gov). We have reproduced the Table of
Contents of the Statement of Additional Information on the last page of this
prospectus.
49
<PAGE>
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 (overnight
mail: Allstate Life Insurance Company, Nebraska Service Center, 2940 S.
84th Street, Lincoln, Nebraska 68506).
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 policy 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
have failed to operate properly in or after the year 1999, if the software was
not reprogrammed or replaced ("Year 2000 Issue"). Allstate believes that many of
its counterparties and suppliers also had potential Year 2000 Issues that could
affect Allstate. In 1995, Allstate Insurance Company commenced a four-phase plan
intended to mitigate and/or prevent the adverse effects of Year 2000 Issues.
These strategies included 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 included Allstate actively working with its major
external counterparties and suppliers to assess their compliance efforts and
Allstate's exposure to them. Because of the accuracy of this plan, and its
timely completion, Allstate has experienced no material impacts on its results
of operations, liquidity or financial position due to the Year 2000 issue. Year
2000 costs are 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.
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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.
ALFS, Inc.* ("ALFS") located at 3100 Sanders Road, Northbrook, IL 60062 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
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised Allstate on
certain federal securities law 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,
Senior Vice President, Secretary and General Counsel.
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.
- ------------------------
*Effective May 1, 2000, Allstate Life Financial Services, Inc. was renamed ALFS,
Inc.
51
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APPENDIX A
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS
OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE INCEPTION*
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 20* THROUGH DECEMBER 31, 1999
<S> <C>
AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $13.962
Number of Units Outstanding, End of Period................. 10,875
AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.005
Number of Units Outstanding, End of Period................. 8,850
AIM V.I. GROWTH AND INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $12.377
Number of Units Outstanding, End of Period................. 5,473
AIM V.I. INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $14.851
Number of Units Outstanding, End of Period................. 4,301
AIM V.I. VALUE SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $11.941
Number of Units Outstanding, End of Period................. 4,798
FIDELITY VIP CONTRAFUND-REGISTERED TRADEMARK- SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $11.527
Number of Units Outstanding, End of Period................. 13,193
FIDELITY VIP GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $12.415
Number of Units Outstanding, End of Period................. 10,589
FIDELITY VIP HIGH INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.156
Number of Units Outstanding, End of Period................. 2,272
FIDELITY VIP INDEX 500 SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $11.171
Number of Units Outstanding, End of Period................. 10,365
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
FIDELITY VIP INVESTMENT GRADE BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.065
Number of Units Outstanding, End of Period................. 3,082
FIDELITY VIP OVERSEAS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $13.019
Number of Units Outstanding, End of Period................. 11,627
MFS BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $ 9.949
Number of Units Outstanding, End of Period................. 10,317
MFS GROWTH WITH INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.481
Number of Units Outstanding, End of Period................. 10,973
MFS HIGH INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.144
Number of Units Outstanding, End of Period................. 3,925
MFS NEW DISCOVERY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $15.524
Number of Units Outstanding, End of Period................. 5,188
OPPENHEIMER BOND/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.019
Number of Units Outstanding, End of Period................. 10,996
OPPENHEIMER CAPITAL APPRECIATION/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $12.887
Number of Units Outstanding, End of Period................. 13,148
OPPENHEIMER GLOBAL SECURITIES/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $14.151
Number of Units Outstanding, End of Period................. 3,793
OPPENHEIMER HIGH INCOME/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.062
Number of Units Outstanding, End of Period................. 898
OPPENHEIMER SMALL CAP GROWTH/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $14.151
Accumulation Unit Value, End of Period..................... $15.818
Number of Units Outstanding, End of Period................. 4,350
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
VAN KAMPEN LIT COMSTOCK SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $ 9.720
Number of Units Outstanding, End of Period................. 6,078
VAN KAMPEN LIT DOMESTIC INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $15.818
Accumulation Unit Value, End of Period..................... $15.818
Number of Units Outstanding, End of Period................. 2,103
VAN KAMPEN LIT EMERGING GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $17.543
Number of Units Outstanding, End of Period................. 7,205
VAN KAMPEN LIT MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.146
Number of Units Outstanding, End of Period................. 7,302
</TABLE>
- ------------------------
*All Variable Sub-Accounts commenced operations on July 20, 1999. The
Accumulation Unit Values in this table reflect a mortality and expense risk
charge of 1.15% and an administrative expense charge of 0.10%.
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS
OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE INCEPTION*
(WITH ENHANCED DEATH BENEFIT RIDER)
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 20* THROUGH DECEMBER 31, 1999
<S> <C>
AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $13.951
Number of Units Outstanding, End of Period................. 214
AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $ 9.997
Number of Units Outstanding, End of Period................. 0
AIM V.I. GROWTH AND INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $12.367
Number of Units Outstanding, End of Period................. 233
AIM V.I. INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $14.839
Number of Units Outstanding, End of Period................. 0
AIM V.I. VALUE SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $11.932
Number of Units Outstanding, End of Period................. 231
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
FIDELITY VIP CONTRAFUND-REGISTERED TRADEMARK- SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $11.518
Number of Units Outstanding, End of Period................. 238
FIDELITY VIP GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $12.405
Number of Units Outstanding, End of Period................. 337
FIDELITY VIP HIGH INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.148
Number of Units Outstanding, End of Period................. 237
FIDELITY VIP INDEX 500 SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $11.162
Number of Units Outstanding, End of Period................. 354
FIDELITY VIP INVESTMENT GRADE BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.057
Number of Units Outstanding, End of Period................. 0
FIDELITY VIP OVERSEAS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $13.009
Number of Units Outstanding, End of Period................. 0
MFS BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $ 9.941
Number of Units Outstanding, End of Period................. 0
MFS GROWTH WITH INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.472
Number of Units Outstanding, End of Period................. 246
MFS HIGH INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.135
Number of Units Outstanding, End of Period................. 234
MFS NEW DISCOVERY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $15.512
Number of Units Outstanding, End of Period................. 115
OPPENHEIMER BOND/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.011
Number of Units Outstanding, End of Period................. 0
</TABLE>
A-4
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<TABLE>
<S> <C>
OPPENHEIMER CAPITAL APPRECIATION/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $12.876
Number of Units Outstanding, End of Period................. 0
OPPENHEIMER GLOBAL SECURITIES/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $14.140
Number of Units Outstanding, End of Period................. 0
OPPENHEIMER HIGH INCOME/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.054
Number of Units Outstanding, End of Period................. 0
OPPENHEIMER SMALL CAP GROWTH/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $15.805
Number of Units Outstanding, End of Period................. 107
VAN KAMPEN LIT COMSTOCK SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $ 9.712
Number of Units Outstanding, End of Period................. 0
VAN KAMPEN LIT DOMESTIC INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.067
Number of Units Outstanding, End of Period................. 0
VAN KAMPEN LIT EMERGING GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $17.529
Number of Units Outstanding, End of Period................. 189
VAN KAMPEN LIT MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.137
Number of Units Outstanding, End of Period................. 0
</TABLE>
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*All Variable Sub-Accounts commenced operations on July 20, 1999. The
Accumulation Unit Values in this table reflect a mortality and expense risk
charge of 1.35% and an administrative expense charge of 0.10%.
A-5
<PAGE>
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS
OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE INCEPTION*
(WITH ENHANCED DEATH AND INCOME BENEFIT RIDER)
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 20* THROUGH DECEMBER 31, 1999
<S> <C>
AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $13.939
Number of Units Outstanding, End of Period................. 0
AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $ 9.989
Number of Units Outstanding, End of Period................. 0
AIM V.I. GROWTH AND INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $12.357
Number of Units Outstanding, End of Period................. 0
AIM V.I. INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $14.827
Number of Units Outstanding, End of Period................. 0
AIM V.I. VALUE SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $11.922
Number of Units Outstanding, End of Period................. 0
FIDELITY VIP CONTRAFUND-REGISTERED TRADEMARK- SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $11.509
Number of Units Outstanding, End of Period................. 0
FIDELITY VIP GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $12.395
Number of Units Outstanding, End of Period................. 0
FIDELITY VIP HIGH INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.139
Number of Units Outstanding, End of Period................. 0
FIDELITY VIP INDEX 500 SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $11.153
Number of Units Outstanding, End of Period................. 474
</TABLE>
A-6
<PAGE>
<TABLE>
<S> <C>
FIDELITY VIP INVESTMENT GRADE BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.049
Number of Units Outstanding, End of Period................. 0
FIDELITY VIP OVERSEAS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $12.998
Number of Units Outstanding, End of Period................. 0
MFS BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $ 9.933
Number of Units Outstanding, End of Period................. 0
MFS GROWTH WITH INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.464
Number of Units Outstanding, End of Period................. 0
MFS HIGH INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.127
Number of Units Outstanding, End of Period................. 0
MFS NEW DISCOVERY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $15.499
Number of Units Outstanding, End of Period................. 0
OPPENHEIMER BOND/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.003
Number of Units Outstanding, End of Period................. 0
OPPENHEIMER CAPITAL APPRECIATION/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $12.866
Number of Units Outstanding, End of Period................. 0
OPPENHEIMER GLOBAL SECURITIES/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $14.128
Number of Units Outstanding, End of Period................. 0
OPPENHEIMER HIGH INCOME/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.046
Number of Units Outstanding, End of Period................. 0
OPPENHEIMER SMALL CAP GROWTH/VA SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $15.793
Number of Units Outstanding, End of Period................. 0
</TABLE>
A-7
<PAGE>
<TABLE>
<S> <C>
VAN KAMPEN LIT COMSTOCK SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $ 9.704
Number of Units Outstanding, End of Period................. 0
VAN KAMPEN LIT DOMESTIC INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.058
Number of Units Outstanding, End of Period................. 0
VAN KAMPEN LIT EMERGING GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $17.514
Number of Units Outstanding, End of Period................. 0
VAN KAMPEN LIT MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000
Accumulation Unit Value, End of Period..................... $10.129
Number of Units Outstanding, End of Period................. 0
</TABLE>
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*All Variable Sub-Accounts commenced operations on July 20, 1999. The
Accumulation Unit Values in this table reflect a mortality and expense risk
charge of 1.55% and an administrative expense charge of 0.10%.
A-8
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
The Contract................................................ 3
Income Payments........................................... 3
Initial Monthly Income Payment............................ 3
Subsequent Monthly Payments............................... 3
Annuity Unit Value........................................ 4
Illustrative Example of Annuity Unit Value Calculation.... 5
Illustrative Example of Variable Income Payments.......... 5
Additional Federal Income Tax Information................... 6
Introduction.............................................. 6
Taxation of Allstate Life Insurance Company............... 6
Exceptions to the Non-Natural Owner Rule.................. 6
IRS Required Distribution at Death Rules.................. 6
Qualified Plans........................................... 7
Types of Qualified Plans.................................. 7
IRAs.................................................... 7
Roth IRAs............................................... 7
Simplified Employee Pension Plans....................... 7
Savings Incentive Match Plans For Employees (SIMPLE
Plans)................................................. 8
Tax Sheltered Annuities................................. 8
Corporate and Self-Employed Pension and Profit Sharing
Plans.................................................. 8
State and Local Government and Tax-Exempt Organization
Deferred Compensation Plans............................ 8
Variable Account Performance................................ 8
Standardized Total Returns................................ 8
Non-Standardized Total Returns............................ 11
Adjusted Historical Total Returns........................... 13
Experts..................................................... 15
Financial Statements........................................ 15
</TABLE>
B-1
<PAGE>
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<PAGE>
Statement of Additional Information
Flexible Premium Individual and Group 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: May 1, 2000.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
The Contract.......................................................................................... 3
Income Payments..................................................................................... 3
Initial Monthly Income Payment...................................................................... 3
Subsequent Monthly Payments......................................................................... 3
Annuity Unit Value.................................................................................. 4
Illustrative Example of Annuity Unit Value Calculation.............................................. 5
Illustrative Example of Variable Income Payments.................................................... 5
Additional Federal Income Tax Information............................................................. 6
Introduction........................................................................................ 6
Taxation of Allstate Life Insurance Company......................................................... 6
Exceptions to the Non-Natural Owner Rule............................................................ 6
IRS Required Distribution at Death Rules............................................................ 6
Qualified Plans..................................................................................... 7
Types of Qualified Plans............................................................................ 7
IRAs............................................................................................. 7
Roth IRAs........................................................................................ 7
Simplified Employee Pension Plans................................................................ 7
Savings Incentive Match Plans For Employees (SIMPLE Plans)....................................... 8
Tax Sheltered Annuities.......................................................................... 8
Corporate and Self-Employed Pension and Profit Sharing Plans..................................... 8
State and Local Government and Tax-Exempt Organization Deferred Compensation Plans............... 8
Variable Account Performance.......................................................................... 8
Standardized Total Returns.......................................................................... 8
Non-Standardized Total Returns......................................................................11
Tables of Adjusted Historical Total Returns ..........................................................13
Experts...............................................................................................15
Financial Statements..................................................................................15
</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 Sub-Accounts 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 Sub-Accounts. 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 variable income payments, the amount of the second and each subsequent
monthly payment will vary depending on the investment performance of the
Variable Sub-Accounts 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 Sub-Account you have selected as follows.
When we calculate your initial income payment, we also will determine the number
of annuity units in each Variable Sub-Account to allocate to your Contract for
the remainder of the Payout Phase. For each Variable Sub-Account, we divide the
portion of the initial income payment attributable to that Variable Sub-Account
by the annuity unit value for that Variable Sub-Account 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 Sub-Account by multiplying the number of annuity units allocated
to your Contract by the annuity unit value for that Variable Sub-Account 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 Sub-Accounts you elected.
ANNUITY UNIT VALUE
We determine the value of an annuity unit independently for each Variable
Sub-Account. Initially, the annuity unit value for each Variable Sub-Account was
set at $100.00.
The annuity unit value for each Variable Sub-Account will vary depending on how
much the actual net investment return of the Variable Sub-Account 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
Sub-Account exceeds 3.0%, the annuity unit value will increase and variable
<PAGE>
income payments derived from allocations to that Variable Sub-Account 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
Sub-Account 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 Sub-Account, 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 that 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
Sub-Account 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 Sub-Account 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
Sub-Account 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 Sub-Account. 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 Sub-Account'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 Sub-Account 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
Sub-Account was $101.03523 on Monday, the annuity unit value on Tuesday would
have been:
$101.03523 x 1.001714006 = $101.20840
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 Sub-Account. 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 Sub-Account 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
<PAGE>
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 Sub-Account on the Payout Start Date. Thus, it reflects
the investment performance of the Variable Sub-Account, 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 Sub-Account during the Payout Phase.
ADDITIONAL FEDERAL INCOME TAX INFORMATION
INTRODUCTION
The following discussion is general and is not intended as tax advice. Allstate
makes no guarantee regarding the tax treatment of any Contract or transaction
involving a Contract. Federal, state, local and other tax consequences of
ownership or receipt of distributions under an annuity contract depend on the
individual circumstances of each person. If you are concerned about any tax
consequences with regard to your individual circumstances, you should consult a
competent tax adviser.
TAXATION OF ALLSTATE LIFE INSURANCE COMPANY
Allstate is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code. The Variable Account is not an entity separate from
Allstate, and its operations form a part of the Company. As a consequence, the
Variable Account will not be taxed separately as a "Regulated Investment
Company" under Subchapter M of the Code. Investment income and realized capital
gains of the Variable Account are automatically applied to increase reserves
under the contract. Under current federal tax law, Allstate believes that the
Variable Account investment income and capital gains will not be taxed to the
extent that such income and gains are applied to increase the reserves under the
Contract. Generally, reserves are amounts that Allstate is legally required to
accumulate and maintain in order to meet future obligations under the Contracts.
Allstate does not anticipate that it will incur any federal income tax liability
attributable to the Variable Account. Therefore, we do not intend to make
provisions for any such taxes. If we are taxed on investment income or capital
gains of the Variable Account, then we may impose a charge against the Variable
Account in order to make provision for such taxes.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE
Generally, Contracts held by a non-natural owner are not treated as annuity
contracts for federal income tax purposes, unless one of several exceptions
applies. Contracts will generally be treated as held by a natural person if the
nominal owner is a trust or other entity that holds the Contract for the benefit
of a natural person. However, this special exception will not apply in the case
of an employer who is the nominal owner of a Contract under a non-qualified
deferred compensation arrangement for employees. Other exceptions to the
non-natural owner rule are:
(1) Contracts acquired by an estate of a decedent by reason of the death
of the decedent;
(2) certain qualified Contracts;
(3) Contracts purchased by employers upon the termination of certain
qualified plans;
(4) certain Contracts used in connection with structured settlement
agreements, and
(5) Contracts purchased with a single premium when the annuity starting
date is no later than a year from date of purchase of the annuity and
substantially equal periodic payments are made, not less frequently
than annually, during the Payout Phase.
<PAGE>
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 income on
qualified plan and IRA investments is tax deferred and variable annuities held
by such plans do not receive any additional tax deferral. You should review the
annuity features, including all benefits and expenses, prior to purchasing a
variable annuity in a qualified plan or IRA. Allstate reserves the right to
limit the availability of the Contract for use with any of the qualified plans
listed below. The tax rules applicable to participants in 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
<PAGE>
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
From time to time we may advertise the "standardized," "non-standardized," and
"adjusted historical" total returns of the Variable Sub-Accounts, as described
below. Please remember that past performance is not an estimate or guarantee of
future performance and does not necessarily represent the actual experience of
amounts invested by a particular Contract owner. The performance figures shown
do not reflect any applicable taxes.
STANDARDIZED TOTAL RETURNS
A Variable Sub-Account's standardized total return represents the average annual
total return of that Sub-Account over a particular period. We compute
standardized total return by finding the annual percentage rate that, when
compounded annually, will accumulate a hypothetical $1,000 purchase payment to
the redeemable value at the end of the one, five or ten year period, or for a
period from the date of commencement of the Variable Sub-Account's operations,
if shorter than any of the foregoing. We use the following formula prescribed by
the SEC for computing standardized total return:
1000(1 + T)n = ERV
where:
T = average annual total return
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of 1, 5, or 10 year
periods or shorter period
n = number of years in the period
1000 = hypothetical $1,000 investment
When factoring in the withdrawal charge assessed upon redemption, we exclude the
Free Withdrawal Amount, which is the amount you can withdraw from the Contract
without paying a withdrawal charge. We also use the withdrawal charge that would
apply upon redemption at the end of each period. Thus, for example, when
factoring in the withdrawal charge for a one year standardized total return
calculation, we would use the withdrawal charge that applies to a withdrawal of
a purchase payment made one year prior.
When factoring in the contract maintenance charge, we pro rate the charge by
dividing (i) the contract maintenance charges by (ii) an assumed Contract size
of $20,000. We then multiply the resulting percentage by a hypothetical $1,000
investment.
<PAGE>
The Variable Sub-Accounts commenced operations on July 20, 1999. The table below
sets out the standardized total returns for the Variable Sub-Accounts as of
December 31, 1999 since the inception date of the Sub-Accounts. The standardized
total returns for the Variable Sub-Accounts shown below are not annualized.
Standardized total returns are not shown for the Van Kampen LIT Money Market
Variable Sub-Account.
<TABLE>
<CAPTION>
Standardized Total Returns Since Inception
As of December 31, 1999
Average Annual Total Return(1)
Variable Sub-Account With Standard Death Benefit With Enhanced Death Benefit Rider
- -------------------- --------------------------- ---------------------------------
<S> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation 33.49% 33.38%
AIM V.I. Diversified Income -6.07% -6.15%
AIM V.I. Growth and Income 17.65% 17.55%
AIM V.I. International Equity 42.39% 42.27%
AIM V.I. Value 13.29% 13.19%
Fidelity VIP (VIP)
Fidelity VIP Contrafund(R) 9.15% 9.05%
Fidelity VIP Growth 18.03% 17.93%
Fidelity VIP High Income -4.57% -4.65%
Fidelity VIP Index 500 5.59% 5.50%
Fidelity VIP Investment Grade Bond -5.47% -5.55%
Fidelity VIP Overseas 24.07% 23.69%
MFS(R) Variable Insurance Trust(sm)
MFS Bond -6.63% -6.71%
MFS Growth with Income -1.32% -1.40%
MFS High Income -4.69% -4.77%
MFS New Discovery 49.12% 48.99%
Oppenheimer Variable Account Funds
Oppenheimer Bond/VA -5.94% -6.02%
Oppenheimer Capital Appreciation/VA 22.74% 22.64%
Oppenheimer Global Securities/VA 35.39% 35.27%
Oppenheimer High Income/VA -5.50% -5.59%
Oppenheimer Small Cap Growth/VA 52.06% 51.93%
Van Kampen Life Investment Trust
Van Kampen LIT Comstock -8.93% -9.01%
Van Kampen LIT Domestic Income -5.38% -5.46%
Van Kampen LIT Emerging Growth 69.30% 69.16%
</TABLE>
(1) 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.
<PAGE>
NON-STANDARDIZED TOTAL RETURNS
From time to time, we also may quote rates of return that reflect changes in the
values of each Variable Sub-Account's Accumulation Units. We may quote these
"non-standardized total returns" on an annualized, cumulative, year-by-year, or
other basis. These rates of return take into account asset-based charges, such
as the mortality and expense risk charge and administration charge, However,
these rates of return do not reflect withdrawal charges, contract maintenance
charges, or any taxes. Such charges, if reflected, would reduce the performance
shown.
Annualized returns reflect the rate of return that, when compounded annually,
would equal the cumulative rate of return for the period shown. We compute
annualized returns according to the following formula:
Annualized Return = (1 + r)1/n - 1
where r = cumulative rate of return for the period shown, and
n = number of years in the period.
The method of computing annualized rates of return is similar to that for
computing standardized performance, described above, except that rather than
using a hypothetical $1,000 investment and the ending redeemable value thereof,
we use the changes in value of an Accumulation Unit.
Cumulative rates of return reflect the cumulative change in value of an
Accumulation Unit over the period shown. Year -by-year rates of return reflect
the change in value of an Accumulation Unit during the course of each year
shown. We compute these returns by dividing the Accumulation Unit Value at the
end of each period shown, by the Accumulation Unit Value at the beginning of
that period, and subtracting one. We compute other total returns on a similar
basis.
We may quote non-standardized total returns for 1, 3, 5 and 10 year periods, or
period since inception of the Variable Sub-Account's operations, as well as
other periods, such as year-to-date (prior calendar year end to the day stated
in the advertisement); "year to most recent quarter" (prior calendar year end to
the end of the most recent quarter); "the prior calendar year"; and the "n" most
recent calendar years.
The Variable Sub-Accounts commenced operations on July 20, 1999. The table below
sets out the non-standardized total returns for the Variable Sub-Accounts as of
December 31, 1999 since the inception date of the Sub-Accounts. The
non-standardized total returns for the Variable Sub-Accounts shown below are not
annualized. Non-standardized total returns are not shown for the Van Kampen LIT
Money Market Variable Sub-Account.
<TABLE>
<CAPTION>
Non-Standardized Total Returns Since Inception
As of December 31, 1999
Average Annual Total Return(1)
Variable Sub-Account With Standard Death Benefit With Enhanced Death Benefit Rider
- -------------------- --------------------------- ---------------------------------
<S> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation 39.62% 39.51%
AIM V.I. Diversified Income 0.05% -0.03%
AIM V.I. Growth and Income 23.77% 23.67%
AIM V.I. International Equity 48.51% 48.39%
AIM V.I. Value 19.41% 19.32%
Fidelity VIP (VIP)
Fidelity VIP Contrafund(R) 15.27% 15.18%
Fidelity VIP Growth 24.15% 24.05%
Fidelity VIP High Income 1.56% 1.48%
Fidelity VIP Index 500 11.71% 11.62%
Fidelity VIP Investment Grade Bond 0.65% 0.57%
Fidelity VIP Overseas 30.19% 30.09%
MFS(R) Variable Insurance Trust(sm)
<PAGE>
MFS Bond -0.51% -0.59%
MFS Growth with Income 4.81% 4.72%
MFS High Income 1.44% 1.35%
MFS New Discovery 55.24% 55.12%
Oppenheimer Variable Account Funds
Oppenheimer Bond/VA 0.19% 0.11%
Oppenheimer Capital Appreciation/VA 28.87% 28.76%
Oppenheimer Global Securities/VA 41.51% 41.40%
Oppenheimer High Income/VA 0.62% 0.54%
Oppenheimer Small Cap Growth/VA 58.18% 58.05%
Van Kampen Life Investment Trust
Van Kampen LIT Comstock -2.80% -2.88%
Van Kampen LIT Domestic Income 0.75% 0.67%
Van Kampen LIT Emerging Growth 75.43% 75.29%
</TABLE>
(1) 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.
<PAGE>
ADJUSTED HISTORICAL TOTAL RETURNS
We may advertise the total return for periods prior to the date that the
Variable Sub-Accounts commenced operations. We will calculate such "adjusted
historical total returns" using the historical performance of the underlying
Portfolios and adjusting such performance to reflect the current level of
charges that apply to the Variable Sub-Accounts under the Contract, the contract
maintenance charge and the appropriate withdrawal charge.
The adjusted historical total returns for the Variable Sub-Accounts for the
periods ended December 31, 1999 are set out below. No adjusted historical total
returns are shown for the Van Kampen LIT Money Market Variable Sub-Account.
<TABLE>
<CAPTION>
Adjusted Historical Total Returns as of December 31, 1999
Average Annual Total Return(1)
With Standard Death Benefit
(Total Variable Account Annual Expenses: 1.25%)
10 Year or
Since Inception
Variable Sub-Account Inception Date 1 Year (%) 5 Year (%) (if less) (%)
- -------------------- -------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation 5/5/93 42.64% 23.90% 20.69%
AIM V.I. Diversified Income 5/5/93 -3.33% 6.33% 4.44%
AIM V.I. Growth and Income 5/5/93 32.39% 26.46% 22.82%
AIM V.I. International Equity 5/5/93 52.94% 20.27% 17.21%
AIM V.I. Value 5/5/93 28.12% 25.52% 21.42%
Fidelity VIP (VIP)
Fidelity VIP Contrafund(R) 1/3/95 22.53% N/A 26.05%
Fidelity VIP Growth 10/9/86 35.55% 28.00% 18.32%
Fidelity VIP High Income 9/19/85 6.35% 9.30% 9.62%
Fidelity VIP Index 500 8/27/92 17.03% 23.46% 17.23%
Fidelity VIP Investment Grade Bond 12/5/88 -2.30% 5.84% 4.90%
Fidelity VIP Overseas 1/28/87 39.13% 15.51% 9.77%
MFS(R) Variable Insurance Trustsm
MFS Bond 10/24/95 -5.59% N/A 2.64%
MFS Growth with Income 10/9/95 4.47% N/A 19.27%
MFS High Income 7/26/95 -1.59% N/A 5.19%
MFS New Discovery 4/29/98 69.74% N/A 38.16%
Oppenheimer Variable Account Funds
Oppenheimer Bond/VA 4/3/85 -2.35% 5.74% 6.30%
Oppenheimer Capital Appreciation/VA 4/3/85 39.82% 28.93% 16.52%
Oppenheimer Global Securities/VA 11/12/90 54.81% 19.76% 15.07%
Oppenheimer High Income/VA 4/30/86 3.42% 8.86% 11.10%
Oppenheimer Small Cap Growth/VA 5/1/98 45.41% N/A 21.38%
Van Kampen Life Investment Trust
Van Kampen LIT Comstock 4/30/99 N/A N/A -2.32%(2)
Van Kampen LIT Domestic Income 11/4/87 -2.96% 3.47% -1.49%
Van Kampen LIT Emerging Growth 7/3/95 101.65% N/A 38.68%
With Enhanced Death Benefit Rider
(Total Variable Account Annual Expenses: 1.45%)
<PAGE>
10 Years or
Since Inception
Variable Sub-Account Inception Date 1 Year (%) 5 Year (%) (if less) (%)
- -------------------- -------------- ---------- ---------- -------------
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation 5/5/93 42.35% 23.65% 20.44%
AIM V.I. Diversified Income 5/5/93 -3.52% 6.11% 4.23%
AIM V.I. Growth and Income 5/5/93 32.13% 26.21% 22.57%
AIM V.I. International Equity 5/5/93 46.82% 19.09% 16.29%
AIM V.I. Value 5/5/93 27.86% 25.27% 21.17%
Fidelity VIP (VIP)
Fidelity VIP Contrafund(R) 1/3/95 22.28% N/A 25.79%
Fidelity VIP Growth 10/9/86 35.27% 27.74% 18.08%
Fidelity VIP High Income 9/19/85 6.13% 9.08% 9.39%
Fidelity VIP Index 500 8/27/92 16.80% 23.21% 16.99%
Fidelity VIP Investment Grade Bond 12/5/88 -2.50% 5.63% 4.69%
Fidelity VIP Overseas 1/28/87 38.24% 15.18% 9.50%
MFS(R) Variable Insurance Trustsm
MFS Bond 10/24/95 -5.52% N/A 2.49%
MFS Growth with Income 10/9/95 4.26% N/A 19.03%
MFS High Income 7/26/95 -1.79% N/A 4.97%
MFS New Discovery 4/29/98 69.39% N/A 37.88%
Oppenheimer Variable Account Funds
Oppenheimer Bond/VA 4/3/85 -2.45% 5.54% 6.09%
Oppenheimer Capital Appreciation/VA 4/3/85 39.43% 28.65% 16.27%
Oppenheimer Global Securities/VA 11/12/90 54.79% 19.57% 14.86%
Oppenheimer High Income/VA 4/30/86 3.31% 8.66% 10.88%
Oppenheimer Small Cap Growth/VA 5/1/98 45.25% N/A 21.20%
Van Kampen Life Investment Trust
Van Kampen LIT Comstock 4/30/99 N/A N/A -2.38%(2)
Van Kampen LIT Domestic Income 11/4/87 -3.15% 3.26 -1.70%
Van Kampen LIT Emerging Growth 7/3/95 101.24% N/A 38.39%
</TABLE>
(1) 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.
(2) Adjusted historical total returns for the Van Kampen LIT Comstock Variable
Sub-Account are not annualized.
EXPERTS
The consolidated financial statements of Allstate as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999 and
the related financial statement schedules that appear in this Statement of
Additional Information have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of the Variable Account as of December 31, 1999 and for
each of the periods in the two years then ended that appear in this Statement of
Additional Information have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Variable Account as of December 31, 1999 and for
each of the periods in the two years then ended, the financial statements of
Allstate as of December 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999 and the related financial statement schedules and
the accompanying Independent Auditors' Reports appear in the pages that follow.
The financial statements and schedules of Allstate included herein should be
considered only as bearing upon the ability of Allstate to meet its obligations
under the Contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
ALLSTATE LIFE INSURANCE COMPANY:
We have audited the accompanying Consolidated Statements of Financial Position
of Allstate Life Insurance Company and subsidiaries (the "Company", an affiliate
of The Allstate Corporation) as of December 31, 1999 and 1998, and the related
Consolidated Statements of Operations, Comprehensive Income, Shareholder's
Equity and Cash Flows for each of the three years in the period ended
December 31, 1999. Our audits also included Schedule I - Summary of Investments
other than Investments in Related Parties, Schedule III - Supplementary
Insurance Information, Schedule IV - Reinsurance, and Schedule V - Valuation
Allowance and Qualifying Accounts. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Allstate Life Insurance Company and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion, Schedule I - Summary of Investments other than Investments
in Related Parties, Schedule III - Supplementary Insurance Information, Schedule
IV - Reinsurance, and Schedule V - Valuation Allowance and Qualifying Accounts,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 25, 2000
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
($ in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Life and annuity premiums (net of reinsurance ceded of $241,
$178 and $194) $ 838 $ 889 $ 955
Life and annuity contract charges 723 630 547
Property-liability insurance premiums (net of reinsurance
ceded of $3, $1 and $3) 289 268 275
Net investment income 2,265 2,139 2,118
Realized capital gains and losses 195 332 192
------ ------ -------
4,310 4,258 4,087
------ ------ -------
COSTS AND EXPENSES
Life and annuity contract benefits (net of reinsurance
recoveries of $161, $52 and $75) 1,251 1,225 1,239
Interest credited to contractholders' funds 1,260 1,190 1,167
Property-liability insurance claims and claims expense (net
of reinsurance recoveries of $36, $14 and $4) 222 195 179
Amortization of deferred policy acquisition costs 409 412 333
Operating costs and expenses 387 370 368
------ ------ -------
3,529 3,392 3,286
------ ------ -------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 781 866 801
Income tax expense 270 310 284
------ ------ -------
NET INCOME $ 511 $ 556 $ 517
====== ====== =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
($ IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET INCOME $ 511 $556 $517
OTHER COMPREHENSIVE (LOSS) INCOME, AFTER-TAX
Changes in:
Unrealized net capital gains and losses (644) 73 250
Unrealized foreign currency translation adjustments 7 1 (8)
----- ---- ----
OTHER COMPREHENSIVE (LOSS) INCOME, AFTER-TAX (637) 74 242
----- ---- ----
Comprehensive (loss) income $(126) $630 $759
===== ==== ====
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
- --------------------------------------------------------------------------------
($ IN MILLIONS EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value (amortized
cost $27,354 and $24,630) $ 27,523 $ 26,858
Mortgage loans 3,801 3,285
Equity securities, at fair value (cost $503 and
$446) 743 748
Short-term 711 742
Policy loans 606 569
Other 25 26
------------ ------------
Total investments 33,409 32,228
Cash 71 109
Deferred policy acquisition costs 2,695 2,195
Reinsurance recoverables 495 254
Accrued investment income 394 360
Other assets 252 296
Separate Accounts 13,857 10,098
------------ ------------
TOTAL ASSETS $ 51,173 $ 45,540
============ ============
LIABILITIES
Contractholder funds $ 23,995 $ 21,133
Reserve for life-contingent contract benefits 7,148 7,601
Reserve for property-liability insurance claims and
claims expense 368 313
Unearned premiums 155 152
Payable to affiliates, net 51 59
Other liabilities and accrued expenses 854 940
Deferred income taxes 171 452
Separate Accounts 13,857 10,098
------------ ------------
TOTAL LIABILITIES 46,599 40,748
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES
(NOTE 10)
SHAREHOLDER'S EQUITY
Redeemable preferred stock - series A, $100 par
value, 1,500,000 shares authorized, 663,650 and
579,990 shares issued and outstanding 66 58
Redeemable preferred stock - series B, $100 par
value, 1,500,000 shares authorized, 1,170,000
shares issued and outstanding 117 117
Common stock, $227 and $214 par value, 23,800 and
22,700 shares authorized, issued and outstanding 5 5
Additional capital paid-in 617 617
Retained income 3,565 3,154
Accumulated other comprehensive income:
Unrealized net capital gains 220 864
Unrealized foreign currency translation
adjustments (16) (23)
------------ ------------
TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME 204 841
------------ ------------
TOTAL SHAREHOLDER'S EQUITY 4,574 4,792
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 51,173 $ 45,540
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
- --------------------------------------------------------------------------------
($ in millions)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
REDEEMABLE PREFERRED STOCK - SERIES A
Balance, beginning of year $ 58 $ 45 $ 32
Issuance of shares 8 13 13
------ ------ ------
Balance, end of year 66 58 45
------ ------ ------
REDEEMABLE PREFERRED STOCK - SERIES B
Balance, beginning of year $ 117 $ 117 $ 117
Issuance of shares - - -
------ ------ ------
Balance, end of year 117 117 117
------ ------ ------
COMMON STOCK
Balance, beginning of year $ 5 $ 4 $ 2
Issuance of shares - - 1
Adjustment to par value - 1 1
------ ------ ------
Balance, end of year 5 5 4
------ ------ ------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year $ 617 $ 618 $ 619
Adjustment to par value - (1) (1)
------ ------ ------
Balance, end of year 617 617 618
------ ------ ------
RETAINED INCOME
Balance, beginning of year $3,154 $2,706 $2,322
Net income 511 556 517
Dividends (100) (108) (133)
------ ------ ------
Balance, end of year 3,565 3,154 2,706
------ ------ ------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year $ 841 $ 767 $ 525
Change in unrealized net capital gains and losses (644) 73 250
Change in unrealized foreign currency translation
adjustments 7 1 (8)
------ ------ ------
Balance, end of year 204 841 767
------ ------ ------
Total shareholder's equity $4,574 $4,792 $4,257
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
($ IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 511 $ 556 $ 517
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization and other non-cash items (145) (118) (105)
Realized capital gains and losses (195) (332) (192)
Interest credited to contractholder funds 1,260 1,190 1,167
Changes in:
Policy benefit and other insurance reserves (3) (55) (55)
Unearned premiums 3 (11) (45)
Deferred policy acquisition costs (267) (252) (236)
Reinsurance recoverables (78) (39) (16)
Income taxes payable 73 27 38
Other operating assets and liabilities (91) 117 (36)
-------- ------- -------
Net cash provided by operating activities 1,068 1,083 1,037
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales
Fixed income securities 4,832 2,495 2,293
Equity securities 1,070 765 697
Real estate - 309 -
Investment collections
Fixed income securities 2,928 2,984 3,056
Mortgage loans 392 432 598
Investment purchases
Fixed income securities (10,261) (6,216) (6,267)
Equity securities (953) (529) (607)
Mortgage loans (906) (780) (409)
Change in short-term investments, net 10 (330) 172
Change in other investments, net (36) (95) 35
-------- ------- -------
Net cash used in investing activities (2,924) (965) (432)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of redeemable preferred stock 8 13 13
Contractholder fund deposits 5,594 3,275 2,657
Contractholder fund withdrawals (3,684) (3,306) (3,076)
Dividends paid (100) (108) (133)
-------- ------- -------
Net cash provided by (used in) financing activities 1,818 (126) (539)
-------- ------- -------
NET (DECREASE) INCREASE IN CASH (38) (8) 66
CASH AT BEGINNING OF YEAR 109 117 51
-------- ------- -------
CASH AT END OF YEAR $ 71 $ 109 $ 117
======== ======= =======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. GENERAL
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Allstate Life Insurance Company ("ALIC") and its wholly owned subsidiaries
(collectively referred to as the "Company"). ALIC is wholly owned by
Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The
Allstate Corporation (the "Corporation"). These consolidated financial
statements have been prepared in conformity with generally accepted
accounting principles. All significant intercompany accounts and
transactions have been eliminated.
NATURE OF OPERATIONS
The Company is engaged principally in the life and savings business in the
United States. The Company owns a subsidiary, Allstate Insurance Company of
Canada ("AICC"), which operates in Canada and sells property-liability
insurance.
The Company's life and savings ("Life and Savings") segment markets a broad
line of life insurance and savings products countrywide, accounting for
approximately 97% of the Company's 1999 statutory premiums and deposits.
Statutory premiums and deposits are determined in accordance with accounting
principles prescribed or permitted by the insurance department of the
applicable domiciliary state and include premiums and deposits for all
products. Life insurance consists of traditional products, including term
and whole life, interest-sensitive life, immediate annuities with life
contingencies, variable life and indexed life insurance. Savings products
include deferred annuities and immediate annuities without life
contingencies. Deferred annuities include fixed rate, market value adjusted,
indexed and variable annuities. Group pension savings products include
contracts with fixed or indexed rates and fixed terms, such as guaranteed
investment contracts and funding agreements, and deferred and immediate
annuities also referred to as retirement annuities. In 1999, annuity
premiums and deposits represented approximately 79% of Life and Savings
total statutory premiums and deposits.
The Company is authorized to sell life and savings products in all 50
states, the District of Columbia and Puerto Rico. The Company is also
authorized to sell certain insurance products in various foreign countries.
The top geographic locations in the United States for statutory premiums and
deposits for the Life and Savings segment were California, Florida,
Illinois, and Pennsylvania for the year ended December 31, 1999. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits
for Life and Savings. The Company distributes its life and savings products
using Allstate agents, which include life specialists and financial
advisors, as well as banks, independent agents, securities firms and through
direct response methods. Although the Company currently benefits from
agreements with financial services entities who market and distribute its
products, change in control of these non-affiliated entities with which the
Company has alliances could negatively impact Life and Savings sales.
The Company's property-liability ("Property-Liability") segment is
principally engaged in private passenger auto and homeowners insurance in
Canada, writing approximately 3% of the Company's total 1999 statutory
premiums. Statutory premiums are determined in accordance with accounting
principles prescribed or permitted by the insurance department of the
applicable domiciliary province.
The Company distributes property-liability products in Canada. The top
provinces for statutory premiums earned by the Property-Liability segment
were Ontario, Quebec, Alberta, and New Brunswick for the year ended
December 31, 1999. No other province accounted for more than 5% of statutory
premiums earned for Property-Liability. The Company distributes
property-liability products through Allstate agents, primarily employee
agents, but also utilizes independent agents and specialized brokers to
expand market reach.
The Company monitors economic and regulatory developments which have the
potential to impact its business. Recently enacted federal legislation will
allow for banks and other financial organizations to have greater
participation in securities and insurance businesses. This legislation may
present an increased level of competition for sales of the Company's
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.
7
<PAGE>
Additionally, traditional demutualization 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
INVESTMENTS
Fixed income securities include bonds, mortgage-backed and asset-backed
securities, and redeemable preferred stocks. All fixed income securities are
carried at fair value and may be sold prior to their contractual maturity
("available for sale"). The difference between the amortized cost and fair
value, net of deferred income taxes, certain life and annuity deferred
policy acquisition costs, and certain reserves for life-contingent contract
benefits, is reflected as a component of shareholder's equity. Provisions
are recognized for declines in the value of fixed income securities that are
other than temporary. Such writedowns are included in realized capital gains
and losses.
Mortgage loans are carried at outstanding principal balance, net of
unamortized premium or discount and valuation allowances. Valuation
allowances are established for impaired loans when it is probable that
contractual principal and interest will not be collected. Valuation
allowances for impaired loans reduce the carrying value to the fair value of
the collateral or the present value of the loan's expected future repayment
cash flows, discounted at the loan's original effective interest rate.
Valuation allowances on loans not considered to be impaired are established
based on consideration of the underlying collateral, borrower financial
strength, current and expected market conditions, and other factors.
Equity securities include common and non-redeemable preferred stocks and
real estate investment trusts which are carried at fair value and limited
partnerships which are recorded based on the equity method. The difference
between cost and fair value of equity securities, less deferred income
taxes, is reflected as a component of shareholder's equity.
Short-term investments are carried at cost or amortized cost, which
approximates fair value, and includes collateral received in connection with
securities lending activities.
Policy loans are carried at unpaid principal balances. Other investments
consist primarily of real estate investments, which are accounted for by the
equity method if held for investment, or depreciated cost, net of valuation
allowances, if the Company has an active plan to sell.
Investment income consists primarily of interest, dividends, and gains and
losses for certain derivative transactions. 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 fixed income securities 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 item 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 deferred and amortized over the remaining life of either
the hedge or the hedged item, whichever is shorter.
FAIR VALUE ACCOUNTING Under fair value accounting, realized and unrealized
gains and losses on derivatives are recognized in either earnings or
shareholder's equity when they occur.
The Company accounts for certain of its interest rate swaps, equity-indexed
options, equity-indexed futures, and foreign currency swaps and forwards as
hedges on a fair value basis when specific criteria are met. For swaps or
options, the derivative must reduce the primary market risk exposure (e.g.,
interest rate risk, equity price risk or foreign currency risk) of the
hedged item in conjunction with the specific hedge strategy; be designated
as a hedge at the inception of the
8
<PAGE>
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 futures or forward 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 the fair value of, or interest
income or expense associated with, the hedged item at inception and
throughout the hedge period.
For such interest rate swaps, equity-indexed options, foreign currency
swaps, and forwards, changes in fair value are reported net of tax in
shareholder's equity, exclusive of interest accruals. Changes in fair value
of certain equity-indexed options are reflected as an adjustment of the
hedged item. Accrued interest receivable and payable on swaps are reported
in net investment income. Premiums paid for certain 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 which are used for risk management
purposes for which hedge accounting is not applied and are therefore
accounted for on a fair value basis. These derivatives primarily consist of
equity-indexed instruments and certain interest rate futures. Based upon
certain interest rate or equity price risk reduction strategies, gains and
losses on these derivatives are recognized in net investment income,
realized gains or losses or interest credited to contractholders' balances
during the period on a current basis.
DEFERRAL ACCOUNTING Under deferral accounting, gains and losses on
derivatives are deferred 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, sales and capital infusions, when the
criteria for futures and forwards (discussed above) are met. 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 and
reported 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 shareholder's equity 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
certain interest rate swaps, caps and floors, and certain foreign currency
swaps as hedges on an accrual basis when the criteria for swaps or options
(discussed above) are met.
Premiums paid for interest rate caps and floors are reported as investments
and amortized to net investment income over the lives of the agreements.
RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS, AND INTEREST CREDITED
Traditional life insurance products consist principally of products with
fixed and guaranteed premiums and benefits, primarily term and whole life
insurance products. Premiums from these products are recognized as revenue
when due. Benefits are recognized in relation to such revenue so as to
result in the recognition of profits over the life of the policy and are
reflected in contract benefits.
Interest-sensitive life contracts are insurance contracts whose terms are
not fixed and guaranteed. The terms that may be changed include premiums
paid by the contractholder, interest credited to the contractholder account
balance and one or more amounts assessed against the contractholder.
Premiums from these contracts are reported as deposits to contractholder
funds. Life and annuity contract charges consist of fees assessed against
the contractholder account balance for cost of insurance (mortality risk),
contract administration and surrender charges. Contract benefits include
interest credited to contracts and claims incurred in excess of the related
contractholder account balance.
Immediate annuities with life contingencies and single premium life
insurance products are limited payment contracts, as these contracts provide
insurance protection over a period that extends beyond the period during
which premiums are collected. Gross premiums in excess of the net premium on
limited payment contracts are deferred and recognized over the contract
period. Contract benefits are recognized in relation to such revenue so as
to result in the recognition of profits over the life of the policy.
Contracts that do not subject the Company to significant risk arising from
mortality or morbidity are referred to as investment contracts. Fixed rate
annuities, market value adjusted annuities, indexed annuities, immediate
annuities without life contingencies, certain guaranteed investment
contracts and funding agreements are considered investment
9
<PAGE>
contracts. Deposits received for such contracts are reported as deposits to
contractholder funds. Life and annuity contract charges for investment
contracts consist of charges assessed against the contractholder account
balance for contract administration and surrenders. Contract benefits
include interest credited and claims incurred in excess of the related
contractholder account balance.
Crediting rates for fixed rate annuities and interest sensitive life
contracts are adjusted periodically by the Company to reflect current market
conditions. Crediting rates for indexed annuities and indexed life products
are based on an interest rate index, such as LIBOR or an equity index, such
as the S&P 500.
Investment contracts also include variable annuity, variable life and
certain guaranteed investment contracts which are sold as Separate Accounts
products. The assets supporting these products are legally segregated and
available only to settle Separate Accounts contract obligations. Deposits
received are reported as Separate Accounts liabilities. Life and annuity
contract charges for these contracts consist of charges assessed against the
Separate Accounts fund balances for contract maintenance, administration,
mortality, expense and surrenders.
Property-liability premiums written are deferred and earned on a pro rata
basis over the terms of the policies. The portion of premiums written
applicable to the unexpired terms of the policies is recorded as unearned
premiums. Claims and claims expense for property-liability include paid
losses and changes in claim reserves.
DEFERRED POLICY ACQUISITION COSTS
Certain costs which vary with and are primarily related to acquiring life
and savings business, principally agents' and brokers' remuneration, premium
taxes, certain underwriting costs and direct mail solicitation expenses, are
deferred and amortized into income. Deferred policy acquisition costs are
periodically reviewed as to recoverability and written down where necessary.
For traditional life insurance and limited payment contracts, these costs
are amortized in proportion to the estimated revenue on such business.
Assumptions relating to estimated revenue, as well as to all other aspects
of the deferred acquisition costs and reserve calculations, are determined
based upon conditions as of the date of policy issue and are generally not
revised during the life of the policy. Any deviations from projected
business inforce, resulting from actual policy terminations differing from
expected levels, and any estimated premium deficiencies change the rate of
amortization in the period such events occur. Generally, the amortization
period for these contracts approximates the estimated lives of the policies.
For interest-sensitive life and investment contracts, these costs are
amortized in proportion to the estimated gross profits on such business over
the estimated lives of the contract periods. Gross profits are determined at
the date of policy issue and comprise estimated investment, mortality,
expense margins and surrender charges. Assumptions underlying the gross
profits are periodically updated to reflect actual experience, and changes
in the amount or timing of estimated gross profits will result in
adjustments to the cumulative amortization of these costs.
The present value of future profits inherent in acquired blocks of insurance
is classified as a component of deferred policy acquisition costs. The
present value of future profits is amortized over the life of the blocks of
insurance using current crediting rates.
To the extent unrealized gains or losses on fixed income securities carried
at fair value would result in an adjustment of estimated gross profits had
those gains or losses actually been realized, the related unamortized
deferred acquisition costs, including the present value of future profits,
are adjusted together with unrealized net capital gains included in
shareholder's equity.
Certain costs which vary with and are primarily related to acquiring
property-liability insurance business, principally agents' remuneration,
premium taxes and inspection costs, are deferred and amortized to income as
premiums are earned. Future investment income is considered in determining
the recoverability of deferred policy acquisition costs.
REINSURANCE RECOVERABLE
In the normal course of business, the Company seeks to limit aggregate and
single exposure to losses on large risks by purchasing reinsurance from
other insurers (see Note 8). The amounts reported in the consolidated
statements of financial position include amounts billed to reinsurers on
losses paid as well as estimates of amounts expected to be recovered from
reinsurers on incurred losses that have not yet been paid. Reinsurance
recoverables on unpaid losses are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the
underlying reinsured contracts. Insurance liabilities, including life
contingent policy reserves, are reported gross of reinsurance recoverables.
Prepaid reinsurance premiums are deferred and reflected in income in a
manner consistent with the recognition of premiums on the reinsured
contracts. Reinsurance does not extinguish the Company's primary liability
10
<PAGE>
under the policies written and therefore reinsurers and amounts recoverable
therefrom are regularly evaluated by the Company and allowances for
uncollectible reinsurance are established as appropriate.
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted
tax rates. The principal assets and liabilities giving rise to such
differences are insurance reserves and deferred policy acquisition costs.
Deferred income taxes also arise from unrealized capital gains and losses on
equity securities and fixed income securities carried at fair value, and
unrealized foreign currency translation adjustments.
SEPARATE ACCOUNTS
The Company issues deferred variable annuities, variable life contracts and
certain guaranteed investment contracts, the assets and liabilities of which
are legally segregated and recorded as assets and liabilities of the
Separate Accounts. Absent any guarantees wherein the Company contractually
guarantees either a minimum return or account value to the beneficiaries of
the contractholders in the form of a death benefit, variable annuity and
variable life contractholders bear the investment risk that the Separate
Accounts' funds may not meet their stated investment objectives.
The assets of the Separate Accounts are carried at fair value. Separate
Accounts liabilities represent the contractholders' claim to the related
assets and are carried at the fair value of the assets. In the event that
the asset value of certain contractholder accounts are projected to be below
the value guaranteed by the Company, a liability is established through a
charge to earnings. Investment income and realized capital gains and losses
of the Separate Accounts accrue directly to the contractholders and
therefore, are not included in the Company's consolidated statements of
operations. Revenues to the Company from the Separate Accounts consist of
contract maintenance and administration fees, and mortality, surrender and
expense risk charges.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group policies
and contracts that include an investment component, including most fixed
annuities, interest-sensitive life policies and certain other investment
contracts. Deposits received are recorded as interest-bearing liabilities.
Contractholder funds are equal to deposits received, net of commissions, and
interest credited to the benefit of the contractholder less withdrawals,
mortality charges and administrative expenses. Detailed information on
crediting rates and surrender and withdrawal protection on contractholder
funds are outlined in Note 7.
RESERVES FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to
traditional life insurance, group retirement annuities and immediate
annuities with life contingencies is computed on the basis of assumptions as
to mortality, future investment yields, terminations and expenses at the
time the policy is issued. These assumptions, which for traditional life
insurance are applied using the net level premium method, include provisions
for adverse deviation and generally vary by such characteristics as type of
coverage, year of issue and policy duration. Detailed reserve assumptions
and reserve interest rates are outlined in Note 7. To the extent that
unrealized gains on fixed income securities would result in a premium
deficiency had those gains actually been realized, the related increase in
reserves is recorded as a reduction of the unrealized net capital gains
included in shareholder's equity.
PROPERTY-LIABILITY CLAIMS AND CLAIMS EXPENSE
The property-liability reserve for claims and claims expense is the
estimated amount necessary to settle both reported and unreported claims of
insured property-liability losses, based upon the facts in each case and the
Company's experience with similar cases. Estimated amounts of salvage and
subrogation are deducted from the reserve for claims and claims expense. The
establishment of appropriate reserves, including reserves for catastrophes,
is an inherently uncertain process. Reserve estimates are regularly reviewed
and updated, using the most current information available. Any resulting
adjustments are reflected in current operations (see Note 7). These
adjustments may be material.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Commitments to invest, commitments to extend mortgage loans and credit
guarantees have only off-balance-sheet risk because their contractual
amounts are not recorded in the Company's consolidated statements of
financial position. The contractual amounts and fair values of these
instruments are outlined in Note 5.
11
<PAGE>
FOREIGN CURRENCY TRANSLATION
The Company has a foreign subsidiary, AICC, where the local currency is
deemed to be the functional currency in which AICC operates. The financial
statements of AICC are translated into U.S. dollars at the exchange rate in
effect at the end of a reporting period for assets and liabilities and at
the average exchange rates during the period for results of operations. The
unrealized gains or losses from the translation of the net assets are
recorded as unrealized foreign currency translation adjustments, and
included in accumulated other comprehensive income in the consolidated
statements of financial position. Changes in unrealized foreign currency
translation adjustments are included in other comprehensive income. Gains
and losses from foreign currency transactions are reported in operating
costs and expenses and have not been significant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
PENDING ACCOUNTING STANDARDS
In June, 1999, the Financial Accounting Standards Board ("FASB") delayed the
effective date of Statement of Financial Accounting Standard ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 replaces existing pronouncements and practices with a single, integrated
accounting framework for derivatives and hedging activities. This statement
requires that all derivatives be recognized on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. Additionally, the change in
fair value of a derivative which is not effective as a hedge will be
immediately recognized in earnings. The delay was effected through the
issuance of SFAS 137, which extends the SFAS No. 133 requirements to fiscal
years beginning after June 15, 2000. As such, the Company expects to adopt
the provisions of SFAS No. 133 as of January 1, 2001. The impact of this
statement is dependent upon the Company's derivative positions and market
conditions existing at the date of adoption. Based on existing
interpretations of the requirements of SFAS No. 133, the impact of adoption
of this statement is not expected to be material to financial position,
however, may be material to results of operations.
3. RELATED PARTY TRANSACTIONS
BUSINESS OPERATIONS
The Company utilizes services performed and business facilities owned or
leased and operated by AIC in conducting its business activities. In
addition, ALIC and its domestic subsidiaries share the services of employees
with AIC. The Company reimburses AIC for the operating expenses incurred on
behalf of the Company. The Company is charged for the cost of these
operating expenses based on the level of services provided. Operating
expenses, including compensation, retirement and other benefit programs
allocated to the Company were $199 million, $166 million, and $140 million
in 1999, 1998 and 1997, respectively. A portion of these expenses relate to
the acquisition of business which are deferred and amortized into income.
STRUCTURED SETTLEMENT ANNUITIES
The Company issued $61 million, $64 million and $52 million of structured
settlement annuities, a type of immediate annuity, in 1999, 1998 and 1997,
respectively, at prices determined based upon interest rates in effect at
the time of purchase, to fund structured settlements in matters involving
AIC. Of these amounts, $17 million, $23 million and $17 million relate to
structured settlement annuities with life contingencies and are included in
premium income for 1999, 1998, and 1997, respectively. In most cases, these
annuities were issued under a "qualified assignment," which means the
Company assumed AIC's obligation to make the future payments.
AIC has issued surety bonds, in return for premiums of $476 thousand, $469
thousand, $396 thousand in 1999, 1998 and 1997, respectively, to guarantee
the payment of structured settlement benefits assumed and funded by certain
annuity contracts issued by the Company (from both AIC and non-related
parties). The Company has entered into a General Indemnity Agreement
pursuant to which it has indemnified AIC for any losses associated with the
surety bonds and has granted AIC certain collateral security rights with
respect to the annuities and certain other rights in the event of any
defaults covered by the surety bonds.
12
<PAGE>
Reserves recorded by the Company for annuities related to the surety bonds
were $4.50 billion and $4.14 billion at December 31, 1999 and 1998,
respectively.
REINSURANCE TRANSACTIONS
The Company has entered into a modified coinsurance contract with Allstate
Reinsurance, Ltd. ("Allstate Re"), an affiliate of the Company, to cede 50%
of certain fixed annuity business issued under a distribution agreement with
PNC Bank NA. Under the terms of the contract, a trust has been established
to provide protection to the Company for ceded liabilities. This agreement
is continuous but may be terminated by either party with 60 days notice.
The Company has entered into a contract to reinsure 100% of all credit
insurance written by AIC. This agreement is continuous but may be terminated
by either party with 60 days notice.
The Company enters into certain intercompany reinsurance transactions with
its wholly owned subsidiaries within the Life and Savings segment. The
Company enters into these transactions in order to maintain underwriting
control and spread risk among various legal entities. These reinsurance
agreements have been approved by the appropriate regulatory authorities. All
significant intercompany transactions have been eliminated in consolidation.
At December 31, 1999, $1.98 billion of the Company's investments are held in
a trust for the benefit of Northbrook Life Insurance Company, a wholly owned
subsidiary, to permit it to meet policyholder obligations under its
reinsurance agreement with the Company.
AICC has entered into an excess of loss reinsurance agreement with AIC
covering certain property policies. Under the current contract, the
aggregate limit for which AIC would indemnify AICC for all loss occurrences
during the term of the current contract is $66 million. The amount has been
translated into U.S. dollars utilizing the exchange rate as of December 31,
1999.
Starting January 1, 1999, AICC has entered into a contract to reinsure
personal automobile business written by Pembridge Insurance Company
("Pembridge"), a subsidiary of the Corporation. Under the renewable excess
of loss contract, AICC reinsures Pembridge for personal auto business that
provides third party and accident coverages. For each loss occurrence, the
contract contains two layers of loss. In the first layer of loss protection,
losses in excess of $1 million up to $3 million will be covered by AICC. In
the second layer of loss protection, AICC covers losses in excess of the
first $3 million layer up to $7 million. For each loss occurrence, the
maximum amount AICC will indemnify Pembridge in both layers for third party
liability is $689 thousand. All amounts have been translated into U.S.
dollars utilizing the exchange rate as of December 31, 1999.
The impact to the Company's consolidated statement of operations from
related party reinsurance transactions are as follows:
($ in millions)
<TABLE>
<CAPTION>
ASSUMED: CEDED:
---------------------------- ----------------------------
CLAIMS AND CLAIMS CLAIMS AND CLAIMS
YEAR ENDED EXPENSE AND EXPENSE AND
DECEMBER 31, PREMIUMS CONTRACT BENEFITS PREMIUMS CONTRACT BENEFITS
- ------------------------ -------- ----------------- -------- -----------------
<S> <C> <C> <C> <C>
1999 $ 25 $23 $2 $ 1
1998 23 20 1 10
1997 117 15 2 -
</TABLE>
The reinsurance recoverable and reinsurance payable balances pertaining to
related party reinsurance agreements were not material at December 31, 1999
and 1998, respectively.
DEBT
The Company has entered into an intercompany loan agreement with the
Corporation. The amount of funds available to the Company at a given point
in time is dependent upon the debt position of the Corporation. There was no
outstanding balance at December 31, 1999 and 1998, respectively.
The Company has access to two credit facilities maintained by the
Corporation as a potential source of funds to manage short-term liquidity.
These include a $1.50 billion, five-year revolving line of credit, expiring
in 2001 and a $50 million, one-year revolving line of credit expiring in
2000. The ability of the Company to borrow from the five-year line of credit
is predicated upon AIC maintaining a specified statutory surplus level and
the Corporation's debt to equity ratio (as
13
<PAGE>
defined in the agreement) must not exceed a designated level. The Company
has not drawn upon either credit facility during 1999 or 1998.
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses, and fair value for
fixed income securities are as follows:
($ in millions)
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ----------------- FAIR
COST GAINS LOSSES VALUE
--------- ------- ------- -------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999
U.S. government and agencies $ 1,957 $ 225 $ (9) $ 2,173
Municipal 736 10 (15) 731
Corporate 16,059 430 (434) 16,055
Foreign government 536 15 (9) 542
Mortgage-backed securities 5,612 86 (110) 5,588
Asset-backed securities 2,389 6 (24) 2,371
Redeemable preferred stock 65 - (2) 63
------- ------ ----- -------
Total fixed income securities $27,354 $ 772 $(603) $27,523
======= ====== ===== =======
AT DECEMBER 31, 1998
U.S. government and agencies $ 2,022 $ 751 $ (1) $ 2,772
Municipal 552 47 - 599
Corporate 13,595 1,223 (76) 14,742
Foreign government 264 6 - 270
Mortgage-backed securities 5,773 237 (1) 6,009
Asset-backed securities 2,355 36 (6) 2,385
Redeemable preferred stock 69 12 - 81
------- ------ ----- -------
Total fixed income securities $24,630 $2,312 $ (84) $26,858
======= ====== ===== =======
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at
December 31, 1999:
($ in millions)
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -------
<S> <C> <C>
Due in one year or less $ 693 $ 694
Due after one year through five years 5,519 5,538
Due after five years through ten years 6,425 6,291
Due after ten years 6,716 7,041
------- -------
19,353 19,564
Mortgage- and asset-backed securities 8,001 7,959
------- -------
Total $27,354 $27,523
======= =======
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers.
14
<PAGE>
($ in millions)
<TABLE>
<CAPTION>
NET INVESTMENT INCOME 1999 1998 1997
YEAR ENDED DECEMBER 31, ------ ------ ------
<S> <C> <C> <C>
Fixed income securities $1,947 $1,860 $1,825
Mortgage loans 279 253 265
Equity securities 17 32 18
Other 67 40 46
------ ------ ------
Investment income, before expense 2,310 2,185 2,154
Investment expense 45 46 36
------ ------ ------
Net investment income $2,265 $2,139 $2,118
====== ====== ======
</TABLE>
($ in millions)
<TABLE>
<CAPTION>
REALIZED CAPITAL GAINS AND LOSSES 1999 1998 1997
YEAR ENDED DECEMBER 31, ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 11 $ 92 $ 43
Equity securities 94 59 123
Other investments 90 181 26
---- ---- ----
Realized capital gains and losses 195 332 192
Income taxes 69 121 67
---- ---- ----
Realized capital gains and losses, after-tax $126 $211 $125
==== ==== ====
</TABLE>
Excluding calls and prepayments, gross gains of $120 million, $68 million
and $41 million and gross losses of $109 million, $32 million and $44
million were realized on sales of fixed income securities during 1999, 1998
and 1997, respectively.
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income and equity securities included
in shareholder's equity at December 31, 1999, are as follows:
($ in millions)
<TABLE>
<CAPTION>
GROSS UNREALIZED
COST/ ----------------- UNREALIZED
AMORTIZED COST FAIR VALUE GAINS LOSSES NET GAINS
-------------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Fixed income securities $27,354 $27,523 $ 772 $(603) $ 169
Equity securities 503 743 264 (24) 240
------- ------- ------ ----- -----
Total $27,857 $28,266 $1,036 $(627) 409
======= ======= ====== =====
Deferred income taxes, deferred policy
acquisition costs and other (189)
-----
Unrealized net capital gains $ 220
=====
</TABLE>
At December 31, 1998, equity securities had gross unrealized gains of
$320 million and gross unrealized losses of $18 million.
($ in millions)
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES 1999 1998 1997
YEAR ENDED DECEMBER 31, ------- ----- -----
<S> <C> <C> <C>
Fixed income securities $(2,059) $ 317 $ 743
Equity securities (62) (30) 116
------- ----- -----
Total (2,121) 287 859
Deferred income taxes, deferred policy acquisition costs
and other 1,477 (214) (609)
------- ----- -----
(Decrease) increase in unrealized net capital gains $ (644) $ 73 $ 250
======= ===== =====
</TABLE>
15
<PAGE>
INVESTMENT LOSS PROVISIONS AND VALUATION ALLOWANCES
Pretax provisions for investment losses, principally relating to other than
temporary declines in value of fixed income securities and equity
securities, and valuation allowances on mortgage loans were $20 million, $17
million and $15 million in 1999, 1998 and 1997, respectively.
MORTGAGE LOAN IMPAIRMENT
A mortgage loan is impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement.
The components of impaired loans at December 31 are as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Impaired loans
With valuation allowances $25 $35
Less: valuation allowances (7) (9)
Without valuation allowances 11 36
--- ---
Net carrying value of impaired loans $29 $62
=== ===
</TABLE>
The net carrying value of impaired loans at December 31, 1999 and 1998
comprise $22 million and $60 million, respectively, measured at the fair
value of the collateral, and $7 million and $2 million, respectively,
measured at the present value of the loan's expected future cash flows
discounted at the loan's effective interest rate. Impaired loans without
valuation allowances include collateral dependent loans where the fair value
of the collateral is greater than the recorded investment in the loans.
Interest income is recognized on a cash basis for impaired loans carried at
the fair value of the collateral, beginning at the time of impairment. For
other impaired loans, interest is accrued based on the net carrying value.
The Company recognized interest income of $2 million, $5 million and $8
million on impaired loans during 1999, 1998 and 1997, respectively, of which
$2 million, $5 million and $7 million was received in cash during 1999, 1998
and 1997, respectively. The average balance of impaired loans was $43
million, $53 million and $103 million during 1999, 1998 and 1997,
respectively.
Valuation allowances for mortgage loans at December 31, 1999, 1998 and 1997,
were $13 million, $15 million and $32 million, respectively. For the years
ended December 31, 1998 and 1997, releases of mortgage loan valuation
allowances for dispositions of impaired mortgage loans were $1 million and
$8 million, respectively. No mortgage loans valuation allowances were
released due to dispositions of impaired mortgage loans during 1999. For the
years ended December 31, 1999, 1998 and 1997, net reductions to mortgage
loan valuation allowances were $2 million, $16 million, $25 million,
respectively.
INVESTMENT CONCENTRATION FOR COMMERCIAL MORTGAGE PORTFOLIOS AND OTHER
INVESTMENT INFORMATION
The Company's mortgage loans are collateralized by a variety of commercial
real estate property types located throughout the United States.
Substantially all of the commercial mortgage loans are non-recourse to the
borrower. The states with the largest portion of the commercial mortgage
loan portfolio are listed below. Except for the following, holdings in no
other state exceeded 5% of the portfolio at December 31, 1999:
(% OF COMMERCIAL MORTGAGE PORTFOLIO CARRYING VALUE)
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
California 20.6% 23.7%
Illinois 7.9 7.8
Florida 7.9 5.8
New York 7.4 9.2
Texas 5.8 4.9
New Jersey 5.7 4.1
Pennsylvania 5.1 4.9
</TABLE>
16
<PAGE>
The types of properties collateralizing the commercial mortgage loans at
December 31, are as follows:
(% OF COMMERCIAL MORTGAGE PORTFOLIO CARRYING VALUE)
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Office buildings 31.5% 26.5%
Retail 26.9 31.2
Apartment complex 17.2 17.1
Warehouse 16.8 17.0
Industrial 2.2 2.6
Other 5.4 5.6
------ ------
100.0% 100.0%
====== ======
</TABLE>
The contractual maturities of the commercial mortgage loan portfolio as of
December 31, 1999, for loans that were not in foreclosure are as follows:
($ in millions)
<TABLE>
<CAPTION>
NUMBER CARRYING
OF LOANS VALUE PERCENT
-------- -------- -------
<S> <C> <C> <C>
2000 40 $ 239 6.3%
2001 50 214 5.6
2002 63 273 7.2
2003 71 282 7.4
2004 55 280 7.4
Thereafter 515 2,513 66.1
--- ------ ------
Total 794 $3,801 100.0%
=== ====== ======
</TABLE>
In 1999, $190 million of commercial mortgage loans were contractually due.
Of these, 81.4% were paid as due, 15.9% were refinanced at prevailing market
terms, 0.3% were foreclosed or are in the process of foreclosure, and 2.4%
were in the process of refinancing or restructuring discussions.
At December 31, 1999, there were no investments, excluding equity
securities, that were non-income producing during 1999.
At December 31, 1999, fixed income securities with a carrying value of $61
million were on deposit with regulatory authorities as required by law.
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets, incurs various financial liabilities and enters into agreements
involving derivative financial instruments and other off-balance-sheet
financial instruments. The fair value estimates of financial instruments
presented below are not necessarily indicative of the amounts the Company
might pay or receive in actual market transactions. Potential taxes and
other transaction costs have not been considered in estimating fair value.
The disclosures that follow do not reflect the fair value of the Company as
a whole since a number of the Company's significant assets (including
deferred policy acquisition costs and reinsurance recoverables) and
liabilities (including traditional life, interest-sensitive life and
property-liability reserves and deferred income taxes) are not considered
financial instruments and are not carried at fair value. Other assets and
liabilities considered financial instruments such as accrued investment
income and cash are generally of a short-term nature. Their carrying values
are assumed to approximate fair value.
17
<PAGE>
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Fixed income securities $27,523 $27,523 $26,858 $26,858
Mortgage loans 3,801 3,704 3,285 3,483
Equity securities 743 743 748 748
Short-term investments 711 711 742 742
Policy loans 606 606 569 569
Separate Accounts 13,857 13,857 10,098 10,098
</TABLE>
CARRYING VALUE AND FAIR VALUE INCLUDE THE EFFECTS OF DERIVATIVE FINANCIAL
INSTRUMENTS WHERE APPLICABLE.
Fair values for fixed income securities are based on quoted market prices
where available. Non-quoted securities are valued based on discounted cash
flows using current interest rates for similar securities. Equity securities
are valued based principally on quoted market prices. Mortgage loans are
valued based on discounted contractual cash flows. Discount rates are
selected using current rates at which similar loans would be made to
borrowers with similar characteristics, using similar properties as
collateral. Loans that exceed 100% loan-to-value are valued at the estimated
fair value of the underlying collateral. Short-term investments are highly
liquid investments with maturities of less than one year whose carrying
value are deemed to approximate fair value.
The carrying value of policy loans are deemed to approximate fair value. The
Separate Accounts assets are carried in the consolidated statements of
financial position at fair value based on quoted market prices.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31,
are as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Contractholder funds on investment contracts $18,587 $17,918 $16,757 $16,509
Separate Accounts 13,857 13,857 10,098 10,098
</TABLE>
The fair value of contractholder funds on investment contracts is based on
the terms of the underlying contracts. Reserves on investment contracts with
no stated maturities (single and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed
terms is estimated using discounted cash flow calculations based on interest
rates currently offered for contracts with similar terms and durations.
Separate Accounts liabilities are carried at the fair value of the
underlying assets.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments include swaps, futures, forwards and
options, including caps and floors. The Company primarily uses derivative
financial instruments to reduce its exposure to market risk (principally
interest rate, equity price and foreign currency risk) and in conjunction
with asset/liability management, in the Life and Savings segment. The
Company does not hold or issue these instruments for trading purposes.
18
<PAGE>
The following table summarizes the contract or notional amount, credit
exposure, fair value and carrying value of the Company's derivative
financial instruments at December 31, as follows:
($ in millions)
<TABLE>
<CAPTION>
1999
--------------------------------------------
CARRYING
CONTRACT VALUE
/NOTIONAL CREDIT FAIR ASSETS/
AMOUNT EXPOSURE VALUE (LIABILITIES)
--------- -------- ----- -------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swap agreements
Pay floating rate, receive fixed rate $ 409 $ 9 $ 7 $ 3
Pay fixed rate, receive floating rate 1,170 37 37 19
Pay floating rate, receive floating rate 71 - - -
Financial futures and forward contracts 2,466 - (1) 4
Interest rate cap and floor agreements 1,861 4 4 2
------ ---- ---- ----
Total interest rate contracts 5,977 50 47 28
EQUITY AND OTHER CONTRACTS
Options, warrants and financial futures 1,120 116 99 99
FOREIGN CURRENCY CONTRACTS
Foreign currency swap agreements 535 - (1) -
------ ---- ---- ----
Total derivative financial instruments $7,632 $166 $145 $127
====== ==== ==== ====
</TABLE>
($ in millions)
<TABLE>
<CAPTION>
1998
--------------------------------------------
CARRYING
CONTRACT VALUE
/NOTIONAL CREDIT FAIR ASSETS/
AMOUNT EXPOSURE VALUE (LIABILITIES)
--------- -------- ----- -------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swap agreements
Pay floating rate, receive fixed rate $ 474 $ 14 $ 30 $ 24
Pay fixed rate, receive floating rate 965 - (32) (17)
Pay floating rate, receive floating rate 73 - (1) -
Financial futures and forward contracts 227 - - -
Interest rate cap and floor agreements 3,049 2 2 3
------ ---- ---- ----
Total interest rate contracts 4,788 16 (1) 10
EQUITY AND OTHER CONTRACTS
Options, warrants and financial futures 723 205 205 205
FOREIGN CURRENCY CONTRACTS
Foreign currency swap agreements 79 - (3) (3)
------ ---- ---- ----
Total derivative financial instruments $5,590 $221 $201 $212
====== ==== ==== ====
</TABLE>
CREDIT EXPOSURE INCLUDES THE EFFECTS OF LEGALLY ENFORCEABLE MASTER NETTING
AGREEMENTS.
CREDIT EXPOSURE AND FAIR VALUE INCLUDE ACCRUED INTEREST WHERE APPLICABLE.
CARRYING VALUE IS REPRESENTATIVE OF DEFERRED GAINS AND LOSSES, UNAMORTIZED
PREMIUM, ACCRUED INTEREST AND/OR UNREALIZED GAINS AND LOSSES DEPENDING ON
THE ACCOUNTING FOR THE DERIVATIVE FINANCIAL INSTRUMENT.
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.
19
<PAGE>
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 used 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 1999, 1998
or 1997.
The Company paid a weighted average floating interest rate of 5.3% and 5.6%
and received a weighted average fixed interest rate of 7.1% and 6.8% in 1999
and 1998, respectively. The Company paid a weighted average fixed interest
rate of 5.7% and 6.5% and received a weighted average floating interest rate
of 5.0% and 6.0% in 1999 and 1998, respectively.
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 fixed income
securities, equity securities, certain annuity contracts and anticipatory
investment purchases and sales. 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.
EQUITY-INDEXED OPTION CONTRACTS AND EQUITY-INDEXED FINANCIAL FUTURES provide
returns based on a specified equity index applied to the instrument's
notional amount. The Company utilizes these instruments to achieve equity
appreciation, to reduce the market risk associated with certain annuity
contracts and for other risk management purposes. Where required,
counterparties post collateral to minimize credit risk.
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 securities and issuing obligations which are
denominated in foreign currencies.
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 is generally
offset by the change 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:
($ in millions)
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CONTRACTUAL FAIR CONTRACTUAL FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
Commitments to invest $28 - $34 -
Commitments to extend mortgage loans 95 1 87 1
Credit guarantees 89 - 93 -
</TABLE>
20
<PAGE>
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
predetermined interest rates. 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.
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, which are reported in net investment income over the
lives of the commitments, for assuming the referenced credit risk. 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 becomes
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 $88 million at
December 31, 1999. The Company includes the impact of credit guarantees in
its analysis of credit risk, and the referenced credits were current with
respect to their contractual terms at December 31, 1999
6. DEFERRED POLICY ACQUISITION COSTS
Certain costs of acquiring business which were deferred and amortized for
the years ended December 31, 1999 and 1998 are as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998
YEAR ENDED DECEMBER 31: ------ ------
<S> <C> <C>
Balance, beginning of year $2,195 $1,992
Acquisition costs deferred 677 666
Amortization charged to income (366) (343)
Adjustment from unlocking (43) (69)
Effect on DPAC from unrealized gains/(losses) 231 (50)
Foreign currency translation 1 (1)
------ ------
Balance, end of year $2,695 $2,195
====== ======
</TABLE>
7. INSURANCE LIABILITIES
At December 31, the reserve for life-contingent contract benefits consists
of the following:
($ in millions)
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Immediate annuities:
Structured settlement annuities $4,254 $4,694
Other immediate annuities 1,513 1,669
Traditional life 1,267 1,125
Other 114 113
------ ------
Total reserve for life-contingent contract benefits $7,148 $7,601
====== ======
</TABLE>
The assumptions for mortality generally utilized in calculating reserves
include, the U.S. population with projected calendar year improvements and
age setbacks for impaired lives for structured settlement annuities; the
1983 group
21
<PAGE>
annuity mortality table for other immediate annuities; and actual Company
experience plus a provision for adverse deviation for traditional life.
Interest rate assumptions vary from 3.5% to 11.7% for immediate annuities
and 4.0% to 11.3% for traditional life. Other estimation methods used
include the present value of contractually fixed future benefits for
structured settlement annuities, the present value of expected future
benefits based on historical experience for other immediate annuities and
the net level premium reserve method using the Company's withdrawal
experience rates for traditional life.
Premium deficiency reserves are established, if necessary, and have been
recorded for certain immediate annuities with life contingencies, to the
extent the unrealized gains on fixed income securities would result in a
premium deficiency had those gains actually been realized. A liability of
$65 million and $933 million is included in the reserves for life-contingent
contract benefits with respect to this deficiency for the years ended
December 31, 1999 and 1998, respectively. The decrease in this liability in
1999 reflects declines in unrealized capital gains on fixed income
securities.
At December 31, contractholder funds consists of the following:
($ in millions)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Interest-sensitive life $ 5,036 $ 4,395
Fixed annuities:
Immediate annuities 1,758 1,641
Deferred annuities 12,685 10,874
Guaranteed investment contracts 2,953 3,233
Other investment contracts 1,563 990
------- -------
Total contractholder funds $23,995 $21,133
======= =======
</TABLE>
Contractholder funds are equal to deposits received, net of commissions, and
interest credited to the benefit of the contractholder less withdrawals,
mortality charges and administrative expenses. Interest rates credited range
from 4.0% to 8.5% for interest-sensitive life contracts; 3.5% to 10.0% for
immediate annuities; 1.6% to 26.2% for deferred annuities (which include
equity-indexed annuities that are hedged, see Note 2 and Note 5); 4.9% to
9.9% for guaranteed investment contracts and 5.3% to 6.6% for other
investment contracts. Withdrawal and surrender charge protection includes i)
for interest-sensitive life, either a percentage of account balance or
dollar amount grading off generally over 20 years; and, ii) for deferred
annuities not subject to a market value adjustment, either a declining or a
level percentage charge generally over nine years or less. Approximately 10%
of deferred annuities are subject to a market value adjustment.
PROPERTY-LIABILITY CONTRACTS
For the Property-Liability segment, the Company establishes reserves for
claims and claims expense on reported and unreported claims of insured
losses. These reserve estimates are based on known facts and interpretation
of circumstances, including the Company's experience with similar cases and
historical trends involving claim payment patterns, loss payments, pending
levels of unpaid claims and product mix, as well as other factors including
court decisions, economic conditions and public attitudes. The effects of
inflation are implicitly considered in the reserving process.
The establishment of appropriate reserves, including reserves for
catastrophes, is an inherently uncertain process. The Company regularly
updates its reserve estimates as new facts become known and further events
occur which may impact the resolution of unsettled claims. Changes in prior
year reserve estimates, which may be material, are reflected in the results
of operations in the period such changes are determinable.
22
<PAGE>
Activity in the reserve for property-liability insurance claims and claims
expense is summarized as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $313 $348 $387
Less reinsurance recoverables 20 16 15
---- ---- ----
Net balance at January 1 293 332 372
Incurred claims and claims expense related to:
Current year 247 233 227
Prior years (25) (38) (48)
---- ---- ----
Total incurred 222 195 179
Claims and claims expense paid related to:
Current year 144 148 129
Prior years 73 64 73
---- ---- ----
Total paid 217 212 202
Foreign currency translation adjustment 17 (22) (17)
---- ---- ----
Net balance at December 31 315 293 332
Plus reinsurance recoverables 53 20 16
---- ---- ----
Balance at December 31 $368 $313 $348
==== ==== ====
</TABLE>
Incurred claims and claims expense represents the sum of paid losses and
reserve changes in the calendar year. This expense includes losses from
catastrophes of $6 million, $31 million and $6 million in 1999, 1998 and
1997, respectively. A "catastrophe" is defined by the Company as an event
that produces pretax losses before reinsurance in excess of $1 million, and
involves multiple first party policyholders. Catastrophes are an inherent
risk of the property-liability insurance business and could contribute to
material year-to-year fluctuations in the Company's results of operations
and financial position.
The level of catastrophe loss experienced in any year cannot be predicted
and could be material to results of operations and financial position.
Catastrophe exposures for AICC primarily comprise wind, hail, earthquakes,
and ice. The major areas in Canada with exposure to potential earthquake
losses include areas surrounding faults in British Columbia and Quebec. The
Company continues to evaluate alternative business strategies to more
effectively manage its exposure to catastrophe losses in these and other
areas.
Management believes that the reserve for claims and claims expense, net of
reinsurance recoverables, at December 31, 1999 and 1998 is appropriately
established in the aggregate and adequate to cover the ultimate net cost of
reported and unreported claims arising from losses which had occurred by
that date.
The Property-Liability segment has exposure to environmental, asbestos and
other mass tort claims that stem principally from commercial business
written from 1972 through 1985, including substantial general liabilities on
Canadian Fortune 500 equivalent companies. Reserves for environmental claims
were $4 million, net of reinsurance recoverables of $2 million, and $3
million at December 31, 1999 and 1998, respectively. Reserves for asbestos
claims were $2 million and $2 million at December 31, 1999 and 1998,
respectively.
Management believes its net loss reserves for environmental, asbestos and
other mass tort claims are appropriately established based on available
facts, technology, laws and regulations. However, due to the risks inherent
in major litigation and other uncertainties, the ultimate cost of these
claims may vary materially from the amounts currently recorded, resulting in
an increase in the loss reserves. In addition, while the Company believes
improved actuarial techniques and databases have assisted in its ability to
estimate environmental, asbestos and other mass tort net loss reserves,
these refinements may subsequently prove to be inadequate indicators of the
extent of probable loss. Due to the uncertainties and factors described
above, management believes it is not practicable to develop a meaningful
range for any such additional net loss reserves that may be required.
8. REINSURANCE
The Company purchases reinsurance to limit aggregate and single losses on
large risks. The Company continues to have primary liability as a direct
insurer for risks reinsured. Estimating amounts of reinsurance recoverable
is impacted by the
23
<PAGE>
uncertainties involved in the establishment of loss reserves. Failure of
reinsurers to honor their obligations could result in losses to the
Company.
The Company's Life and Savings' segment assumes risk from, and reinsures
certain of its risks to other reinsurers under yearly renewable term,
coinsurance, and modified coinsurance agreements. Yearly renewable term and
coinsurance agreements result in the passing of a portion of the risk to the
reinsurer. Generally, the reinsurer receives a proportionate amount of the
premiums less commissions and is liable for a corresponding proportionate
amount of all benefit payments. Modified coinsurance is similar to
coinsurance except that the cash and investments that support the liability
for contract benefits are not transferred to the assuming company, and
settlements are made on a net basis between the companies.
The Company cedes 90% of the mortality risk on certain term life policies to
a pool of ten reinsurers. Beginning in November, 1998, the Company cedes
mortality risk on new business in excess of $2 million per life for
individual coverage. For business sold prior to October, 1998, the Company
ceded mortality risk in excess of $1 million per life for individual life.
As of December 31, 1999 $102.15 billion of life insurance in force was ceded
to other companies.
During 1998, the Company entered into an administrative services agreement
with respect to a block of variable annuity contracts. Pursuant to the terms
of the agreement, the Company is to provide insurance contract
administration and financial services. As part of the agreement, the Company
assumed via coinsurance 100% of the general account portion of these
contracts (85% for business written in New York) with an aggregate account
value of $32 million as of December 31, 1999. The Company paid $65 million,
which was capitalized as present value of future profits and will be
subsequently amortized into income over 20 years, for the right to receive
future contract charges and fees on the block of variable annuity contracts,
which has an aggregate account value of $1.77 billion as of December 31,
1999. During 1999, the Company earned contract charges and fees assessed to
contractholders' fund balances of $15 million.
The Company's Property-Liability segment cedes certain of its risks to AIC
under excess of loss reinsurance agreements. These agreements provide that
for certain premiums, the Company will be reimbursed by AIC for losses in
excess of predetermined amounts. See Note 4 "Related Parties" for more
information on these agreements. The Property-Liability segment also ceded
certain commercial business risks under excess of loss agreements to third
party reinsurers. Although the Company stopped writing commercial business
in 1992, related claims continue to be submitted and settlements are
pending.
The Company has entered into reinsurance agreements in conjunction with the
disposition of certain blocks of business.
Amounts recoverable from reinsurers are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the
underlying reinsured contracts. Management believes the recoverables are
appropriately established. No single reinsurer has a material obligation to
the Company nor is the Company's business substantially dependent upon any
reinsurance contract.
24
<PAGE>
The effects of reinsurance on premiums written and earned for the years
ended December 31, are as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
LIFE AND ANNUITY PREMIUMS
Direct $1,042 $1,043 $1,032
Assumed 37 24 117
Ceded (241) (178) (194)
------ ------ ------
Life insurance premiums, net of reinsurance $ 838 $ 889 $ 955
====== ====== ======
LIFE AND ANNUITY CONTRACT CHARGES
Direct $ 706 $ 625 $ 547
Assumed 17 5 -
Ceded - - -
------ ------ ------
Life insurance contract charges, net of reinsurance $ 723 $ 630 $ 547
====== ====== ======
PROPERTY-LIABILITY PREMIUMS WRITTEN
Direct $ 317 $ 280 $ 276
Assumed 1 1 -
Ceded (3) (1) (3)
------ ------ ------
Property-Liability premiums written, net of reinsurance $ 315 $ 280 $ 273
====== ====== ======
PROPERTY-LIABILITY PREMIUMS EARNED
Direct $ 291 $ 268 $ 278
Assumed 1 1 -
Ceded (3) (1) (3)
------ ------ ------
Property-Liability premiums earned, net of reinsurance $ 289 $ 268 $ 275
====== ====== ======
</TABLE>
Reinsurance recoverables in the Company's consolidated statements of
financial position, at December 31, were as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Life and Savings $434 $230
Property-Liability 61 24
---- ----
Total $495 $254
==== ====
</TABLE>
9. CORPORATION RESTRUCTURING
On November 10, 1999 the Corporation announced a series of strategic
initiatives to aggressively expand its selling and service capabilities.
The Corporation also announced that it is implementing a program to reduce
expenses by approximately $600 million. The reduction will result in the
elimination of approximately 4,000 current non-agent positions, across all
employment grades and categories by the end of 2000, or approximately 10%
of the Corporation's non-agent work force. The impact of the reduction in
employee positions is not expected to materially impact the results of
operations of the Company.
These cost reductions are part of a larger initiative to redeploy the cost
savings to finance new initiatives including investments in direct access
and internet channels for new sales and service capabilities, new
competitive pricing and underwriting techniques, new agent and claim
technology and enhanced marketing and advertising. As a result of the cost
reduction program, the Corporation recorded restructuring and related
charges of $81 million pretax during the fourth quarter of 1999. The
Corporation anticipates that additional pretax restructuring related charges
of approximately $100 million will be expensed as incurred throughout 2000.
The Company's allocable share of these expenses were immaterial in 1999 and
are expected to be immaterial in 2000.
25
<PAGE>
10. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company leases certain office facilities and computer equipment. Total
rent expense for all leases was $16 million, $18 million and $13 million in
1999, 1998 and 1997, respectively.
Minimum rental commitments under noncancelable operating leases with an
initial or remaining term of more than one year as of December 31, are as
follows:
($ in millions)
<TABLE>
<CAPTION>
1999
----
<S> <C>
2000 $ 5
2001 4
2002 3
2003 2
2004 1
---
$15
===
</TABLE>
SHARED MARKETS
As a condition of its license to do business in various Canadian provinces,
AICC is required to participate in mandatory property-liability shared
market mechanisms or pooling arrangements, which provide various insurance
coverages to individuals or other entities that otherwise are unable to
purchase such coverage voluntarily from private insurers. Underwriting
results related to these organizations have been immaterial to the results
of operations.
GUARANTY FUNDS
Under state insurance guaranty fund laws, insurers doing business in a state
can be assessed, up to prescribed limits, for certain obligations of
insolvent insurance companies to policyholders and claimants. The Company's
expenses related to these funds have been immaterial.
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social,
economic and regulatory environment. Public and regulatory initiatives have
varied and have included employee benefit regulation, controls on medical
care costs, removal of barriers preventing banks from engaging in the
securities and insurance business, tax law changes affecting the taxation of
insurance companies, the tax treatment of insurance products and its impact
on the relative desirability of various personal investment vehicles, and
proposed legislation to prohibit the use of gender in determining insurance
rates and benefits. The ultimate changes and eventual effects, if any, of
these initiatives are uncertain.
From time to time the Company is involved in pending and threatened
litigation in the normal course of business in which claims for monetary
damages are asserted. In the opinion of management, the ultimate
responsibility, if any, arising from such pending or threatened litigation
is not expected to have a material effect on the results of operations,
liquidity or financial position of the Company.
MARKETING AND COMPLIANCE ISSUES
Companies operating in the insurance and financial services markets have
come under the scrutiny of regulators with respect to market conduct and
compliance issues. Under certain circumstances, companies have been held
responsible for providing incomplete or misleading sales materials and for
replacing existing policies with policies that were less advantageous to the
policyholder. The Company monitors its sales materials and enforces
compliance procedures to mitigate any exposure to potential litigation. The
Company's life insurance subsidiaries are members of the Insurance
Marketplace Standards Association, an organization which advocates ethical
market conduct.
11. INCOME TAXES
Eligible domestic subsidiaries of the Company (the "Allstate Life Group")
join with the Corporation (the "Allstate Group") in the filing of a
consolidated federal income tax return and are party to a federal income
tax allocation agreement (the "Allstate Tax Sharing Agreement"). Under the
Allstate Tax Sharing Agreement, the Allstate Life Group pays to or receives
from the Corporation the amount, if any, by which the Allstate Group's
federal income tax liability is affected by virtue of inclusion of the
Allstate Life Group in the consolidated federal income tax return.
Effectively, this
26
<PAGE>
results in the Allstate Life Group's annual income tax provision being
computed, with adjustments, as if the Allstate Life Group filed a separate
return. Foreign subsidiaries of the Company file a tax return in their
respective country.
Prior to June 30, 1995, the Corporation was a subsidiary of Sears Roebuck &
Co. ("Sears") and, with its eligible domestic subsidiaries, was included in
the Sears consolidated federal income tax return and federal income tax
allocation agreement. Effective June 30, 1995, the Corporation and Sears
entered into a new tax sharing agreement, which governs their respective
rights and obligations with respect to federal income taxes for all periods
during which the Corporation was a subsidiary of Sears, including the
treatment of audits of tax returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the
Corporation'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 components of the deferred income tax assets and liabilities at
December 31, are as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998
----- -------
<S> <C> <C>
DEFERRED ASSETS
Life and annuity reserves $ 606 $ 589
Other assets 86 115
----- -------
Total deferred assets 692 704
DEFERRED LIABILITIES
Deferred policy acquisition costs (722) (665)
Unrealized net capital gains (119) (463)
Other liabilities (22) (28)
----- -------
Total deferred liabilities (863) (1,156)
----- -------
Net deferred liability $(171) $ (452)
===== =======
</TABLE>
The components of income tax expense for the year ended December 31, are as
follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current $213 $282 $272
Deferred 57 28 12
---- ---- ----
Total income tax expense $270 $310 $284
==== ==== ====
</TABLE>
The Company paid income taxes of $198 million, $284 million, and $180
million in 1999, 1998 and 1997, respectively. The Company had a current
income tax liability of $36 million and $24 million at December 31, 1999 and
1998, respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is
as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Dividends received deduction (1.3) (1.0) (.4)
Other .9 1.8 .9
----- ----- -----
Effective income tax rate 34.6% 35.8% 35.5%
===== ===== =====
</TABLE>
Prior to January l, 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, 1999,
approximately $94 million, will result in federal income taxes payable of
$33 million if distributed by the Company. 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.
27
<PAGE>
12. PREFERRED STOCK
The Company has issued two series of non-voting, redeemable preferred
stock. Series A preferred stock was issued to a subsidiary of AIC, while
Series B preferred stock was issued directly to AIC. Both series of
preferred stock are redeemable at the option of the Company at any time
five years after the issuance date at a price of $100 per share plus
cumulative accrued and unpaid dividends. If the Company is liquidated or
dissolved, holders of the preferred stock will be entitled to payments of
$100 per share plus cumulative accrued and unpaid dividends.
For Series A preferred stock, the Company's Board of Directors declare and
pay a cash dividend from time to time, but not more frequently than
quarterly. The dividend is based on the three month LIBOR rate. Dividends of
$4 million, $3 million and $2 million were paid during 1999, 1998, and 1997,
respectively. Accrued and unpaid dividends were $349 thousand on Series A
preferred stock at December 31, 1999.
For Series B preferred stock, cash dividends of 6.9% per annum are payable
annually in arrears on the last business day of each year to the shareholder
of record on the immediately preceding business day. Dividends of
$8 million were paid in 1999, 1998 and 1997. There were no accrued and
unpaid dividends for Series B preferred stock at December 31, 1999.
13. STATUTORY FINANCIAL INFORMATION
The following table reconciles consolidated net income for the year ended
December 31, and shareholder's equity at December 31, as reported herein in
conformity with generally accepted accounting principles with combined
statutory net income and capital and surplus of ALIC and its domestic
subsidiaries, determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities:
($ in millions)
<TABLE>
<CAPTION>
SHAREHOLDER'S
NET INCOME EQUITY
--------------------- ---------------
1999 1998 1997 1999 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Balance per generally accepted accounting principles $ 511 $ 556 $ 517 $4,574 $4,792
Undistributed net income of certain subsidiaries (5) (8) (11) (196) (179)
Unrealized gain/loss on fixed income securities - - - (284) (2,336)
Deferred policy acquisition costs (262) (254) (218) (2,675) (2,181)
Deferred income taxes 104 35 51 192 469
Employee benefits 1 (6) (6) (11) (4)
Reserves and non-admitted assets (72) 60 70 1,441 1,972
Other 27 3 (33) (471) (108)
----- ----- ----- ------ ------
Balance per statutory accounting practices $ 304 $ 386 $ 370 $2,570 $2,425
===== ===== ===== ====== ======
</TABLE>
AICC is a foreign subsidiary of the Company; accordingly, its net income is
not included in the statutory basis net income of the Company. However, the
Company's investment in AICC is reflected in the statutory capital and
surplus of the Company.
PERMITTED STATUTORY ACCOUNTING PRACTICES
ALIC and each of its domestic subsidiaries prepare their statutory financial
statements 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 all accounting practices not so prescribed.
Certain domestic subsidiaries of the Company follow permitted statutory
accounting practices which differ from those prescribed by regulatory
authorities. The use of such permitted statutory accounting practices does
not have a significant impact on statutory surplus or statutory net income.
The NAIC's codification initiative has produced a comprehensive guide of
revised statutory accounting principles, which the Company will implement in
January 1, 2001. The requirements are not expected to have a material impact
on the statutory surplus of ALIC and its domestic subsidiaries.
28
<PAGE>
DIVIDENDS
The ability of ALIC to pay dividends is dependent on business conditions,
income, cash requirements of ALIC, receipt of dividends from its
subsidiaries and other relevant factors. The payment of shareholder
dividends by ALIC to AIC 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.
In the twelve month period beginning January 1, 1999, ALIC paid dividends of
$100 million. Based on 1999 ALIC statutory net income, the maximum amount of
dividends ALIC will be able to pay under Illinois insurance law without the
approval of Illinois Department of Insurance during 2000 is $267 million.
RISK-BASED CAPITAL
The NAIC has a standard for assessing the solvency of domestic insurance
companies, which is referred to as risk-based capital ("RBC"). The
requirement consists of a formula for determining each insurer's RBC and a
model law specifying regulatory actions if an insurer's RBC falls below
specified levels. The RBC formula for life insurance companies establishes
capital requirements relating to insurance, business, asset and interest
rate risks. At December, 31 1999, RBC for each of the Company's domestic
insurance subsidiaries was significantly above levels that would require
regulatory action.
14. BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT PLANS
Defined benefit pension plans, sponsored by AIC, cover domestic 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 (benefit) to the Company included
in net income was $(1) million, $9 million, and $8 million for the pension
plans in 1999, 1998, 1997, respectively.
AIC also 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 postretirement benefit plans currently are
not funded. AIC has the right to modify or terminate these plans. The cost
to the Company included in net income was $1 million, $3 million and $3
million for postretirement benefits other than pension plans in 1999, 1998,
and 1997 respectively.
AICC has its own defined benefit pension plans which cover its 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. AICC's funding policy for
the pension plans is to make annual contributions in accordance with
accepted actuarial cost methods. The net periodic benefit cost (benefit) for
AICC pension plans was $1 million, $(1) million and $(1) million for the
years ended December 31, 1999, 1998, and 1997, respectively. The projected
benefit obligation for the AICC pension plans was $108 million and $107
million at December 31, 1999 and 1998, respectively. The fair value of
pension plan assets supporting the projected benefit obligation was $130
million and $123 million at December 31, 1999 and 1998, respectively.
AICC also 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 AICC's established retirement
policy and are continuously insured under AICC's group plans or other
approved plans for ten or more years prior to retirement. AICC pays the cost
of the retiree medical benefits not provided by the government plans. AICC's
postretirement benefit plans are currently not funded. AICC has the right to
modify or terminate these plans. The net periodic benefit cost for AICC's
postretirement plans was $2 million for the years ended December 31, 1999,
1998, and 1997, respectively. The projected benefit obligation for the AICC
postretirement plans was $16 million and $17 million at December 31, 1999
and 1998, respectively.
PROFIT SHARING FUND
Employees of the Corporation and its domestic subsidiaries, including the
Company are also eligible to become members of The Savings and Profit
Sharing Fund of Allstate Employees ("Allstate Plan"). The Corporation's
contributions are based on the Corporation's matching obligation and
performance.
29
<PAGE>
The Company paid $4 million, $12 million and $3 million in 1999, 1998 and
1997, respectively for profit sharing.
Employees of AICC participate in the Allstate Canada Employees' Profit
Sharing Program ("Allstate Canada Plan"). The Allstate Canada Plan is a cash
plan based on AICC's performance as well as the employees' level of
performance and length of service.
Profit sharing expense under the Allstate Canada Plan was $1 million,
$2 million, and $3 million in 1999, 1998, and 1997, respectively.
15. BUSINESS SEGMENTS
The Company's management is organized around products and services, and
this structure was considered in identifying its two reportable segments.
These segments and their respective operations are as follows:
Life and Savings markets a broad line of life and savings products primarily
in the United States. Life insurance products primarily include traditional
life, including term and whole-life, and interest-sensitive life insurance.
Savings products consist of fixed annuity products, including indexed,
market value adjusted and immediate annuities, as well as variable
annuities. Revenues generated outside the United States were immaterial with
respect to Life and Savings' total revenue for the years ended December 31,
1999, 1998 and 1997, respectively. The Company evaluates the results of this
segment based upon invested asset growth, face amounts of policies in force
and net income.
Property-Liability sells primarily private passenger auto and homeowners
insurance to individuals in Canada. The Company evaluates the results of
this segment based upon premium growth and underwriting results.
Management reviews assets at the Life and Savings and Property-Liability
levels for decision making purposes.
The accounting policies of the business segments are the same as those
described in Note 2. The effects of certain intersegment transactions are
excluded from segment performance evaluation and therefore eliminated in the
segment results.
Summarized revenue data for each of the Company's business segments for the
year ended December 31, are as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998 1997
------ -------- ------
<S> <C> <C> <C>
REVENUES
LIFE AND SAVINGS
Premiums $ 838 $ 889 $ 955
Contract charges 723 630 547
Net investment income 2,239 2,113 2,074
Realized capital gains and losses 192 323 194
------ -------- ------
Total Life and Savings 3,992 3,955 3,770
PROPERTY-LIABILITY
Premiums earned 289 268 275
Net investment income 26 26 44
Realized capital gains and losses 3 9 (2)
------ -------- ------
Total Property-Liability 318 303 317
------ -------- ------
Consolidated $4,310 $ 4,258 $4,087
====== ======== ======
</TABLE>
30
<PAGE>
Summarized financial performance data for each of the Company's reportable
segments for the year ended December 31, are as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
NET INCOME FROM OPERATIONS
LIFE AND SAVINGS
Premiums $ 838 $ 889 $ 955
Contract charges 723 630 547
Net investment income 2,239 2,113 2,074
Realized capital gains and losses 192 323 194
Contract benefits 1,251 1,225 1,239
Interest credited 1,260 1,190 1,167
Operating costs and expenses 712 702 619
------ ------ ------
Life and Savings income from operations before income
taxes 769 838 745
PROPERTY-LIABILITY
Underwriting income (loss) (17) (7) 14
Net investment income 26 26 44
Realized capital gains and losses 3 9 (2)
------ ------ ------
Property-Liability income from operations before income
taxes 12 28 56
------ ------ ------
Consolidated $ 781 $ 866 $ 801
====== ====== ======
</TABLE>
Additional significant financial performance data for each of the Company's
reportable segments for the year ended December 31, are as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS
Life and Savings $367 $377 $298
Property-Liability 42 35 35
---- ---- ----
Consolidated $409 $412 $333
==== ==== ====
INCOME TAX EXPENSE
Life and Savings $265 $298 $257
Property-Liability 5 12 27
---- ---- ----
Consolidated $270 $310 $284
==== ==== ====
</TABLE>
Capital expenditures for long-lived assets are generally made by AIC. A
portion of the long-lived assets are leased by entities included in the Life
and Savings and Property-Liability segments.
31
<PAGE>
Summarized data for total assets and investments for each of the Company's
reportable segments as of December 31, are as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
AT DECEMBER 31,
ASSETS
Life and Savings $50,463 $44,926
Property-Liability 710 614
------- -------
Consolidated $51,173 $45,540
======= =======
INVESTMENTS
Life and Savings $32,879 $31,749
Property-Liability 530 479
------- -------
Consolidated $33,409 $32,228
======= =======
</TABLE>
16. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax
basis for the year ended December 31, are as follows:
($ in millions)
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------- ------------------------------- -------------------------------
PRETAX TAX AFTER-TAX PRETAX TAX AFTER-TAX PRETAX TAX AFTER-TAX
-------- -------- --------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNREALIZED CAPITAL
GAINS AND LOSSES:
Unrealized holding
gains (losses) arising
during the period $(808) $283 $(525) $349 $(122) $227 $513 $(180) $333
Less: reclassification
adjustments 183 (64) 119 237 (83) 154 128 (45) 83
----- ---- ----- ---- ----- ---- ---- ----- ----
Unrealized net capital
gains (losses) (991) 347 (644) 112 (39) 73 385 (135) 250
UNREALIZED FOREIGN
CURRENCY TRANSLATION
ADJUSTMENTS:
Unrealized foreign
currency translation
adjustments arising
during the period 11 (4) 7 2 (1) 1 (12) 4 (8)
----- ---- ----- ---- ----- ---- ---- ----- ----
Other comprehensive
income $(980) $343 $(637) $114 $ (40) $ 74 $373 $(131) $242
===== ==== ===== ==== ===== ==== ==== ===== ====
</TABLE>
32
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
($ in millions)
<TABLE>
<CAPTION>
FAIR CARRYING
TYPE OF INVESTMENT COST VALUE VALUE
- ------------------ ------- ------- --------
<S> <C> <C> <C>
Fixed Income Securities, Available for Sale:
Bonds:
United States government, government agencies and
authorities $ 1,957 $ 2,173 $ 2,173
States, municipalities and political subdivisions 736 731 731
Foreign governments 536 542 542
Public utilities 1,704 1,750 1,750
Convertibles and bonds with warrants attached 458 519 519
All other corporate bonds 13,897 13,786 13,786
Mortgage-backed securities 5,612 5,588 5,588
Asset-backed securities 2,389 2,371 2,371
Redeemable preferred stocks 65 63 63
------- ------- -------
Total fixed income securities 27,354 $27,523 27,523
------- ======= -------
Equity Securities:
Common Stocks:
Public utilities 7 $ 6 6
Banks, trusts and insurance companies 22 31 31
Industrial, miscellaneous and all other 412 654 654
Nonredeemable preferred stocks 62 52 52
------- ------- -------
Total equity securities 503 $ 743 743
------- ======= -------
Mortgage loans on real estate 3,801 3,801
Policy loans 606 606
Other long-term investments 25 25
Short-term investments 711 711
------- -------
Total investments $33,000 $33,409
======= =======
</TABLE>
33
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
- --------------------------------------------------------------------------------
($ IN MILLIONS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------
DEFERRED
POLICY RESERVES FOR CLAIMS,
ACQUISITION CLAIMS EXPENSE AND UNEARNED
SEGMENT COSTS CONTRACT BENEFITS PREMIUMS
- ------- ----------- -------------------- --------
<S> <C> <C> <C>
1999
Life and savings operations $2,675 $31,143 $ 18
Property-liability operations 20 368 137
------ ------- ----
Total $2,695 $31,511 $155
====== ======= ====
1998
Life and savings operations $2,181 $28,734 $ 47
Property-liability operations 14 313 105
------ ------- ----
Total $2,195 $29,047 $152
====== ======= ====
1997
Life and savings operations $1,982 $27,482 $ 64
Property-liability operations 10 349 100
------ ------- ----
Total $1,992 $27,831 $164
====== ======= ====
</TABLE>
34
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
- --------------------------------------------------------------------------------
($ IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
CLAIMS,
PREMIUM CLAIMS
REVENUE EXPENSE AMORTIZATION OTHER
AND NET AND OF POLICY OPERATING PREMIUMS
CONTRACT INVESTMENT CONTRACT ACQUISITION COSTS AND WRITTEN
SEGMENT CHARGES INCOME BENEFITS COSTS EXPENSES (EXCLUDING LIFE)
- ------- -------- ---------- ----------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1999
Life and savings operations $1,561 $2,239 $2,511 $367 $345 $ -
Property-liability operations 289 26 222 42 42 315
------ ------ ------ ---- ---- ----
Total $1,850 $2,265 $2,733 $409 $387 $315
====== ====== ====== ==== ==== ====
1998
Life and savings operations $1,519 $2,113 $2,415 $377 $325 $ -
Property-liability operations 268 26 195 35 45 280
------ ------ ------ ---- ---- ----
Total $1,787 $2,139 $2,610 $412 $370 $280
====== ====== ====== ==== ==== ====
1997
Life and savings operations $1,502 $2,074 $2,406 $298 $321 $ -
Property-liability operations 275 44 179 35 47 273
------ ------ ------ ---- ---- ----
Total $1,777 $2,118 $2,585 $333 $368 $273
====== ====== ====== ==== ==== ====
</TABLE>
35
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
- --------------------------------------------------------------------------------
($ in millions)
<TABLE>
<CAPTION>
PERCENT
OF
CEDED ASSUMED AMOUNT
GROSS TO OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------- --------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Life insurance in force $307,225 $102,153 $ 1 $205,073 0.0%
======== ======== ==== ========
Premiums and contract charges:
Life insurance $ 1,511 $ 221 $ 18 $ 1,308 1.4%
Accident-health insurance 237 20 36 253 14.2%
Property-liability insurance 291 3 1 289 0.3%
-------- -------- ---- --------
Total premiums and contract charges $ 2,039 $ 244 $ 55 $ 1,850 3.0%
======== ======== ==== ========
YEAR ENDED DECEMBER 31, 1998
Life insurance in force $276,029 $ 73,769 $ 7 $202,267 0.0%
======== ======== ==== ========
Premiums and contract charges:
Life insurance $ 1,433 $ 176 $ 5 $ 1,262 0.4%
Accident-health insurance 235 2 24 257 9.3%
Property-liability insurance 268 1 1 268 0.4%
-------- -------- ---- --------
Total premiums and contract charges. $ 1,936 $ 179 $ 30 $ 1,787 1.7%
======== ======== ==== ========
YEAR ENDED DECEMBER 31, 1997
Life insurance in force $247,048 $ 52,760 $144 $194,432 0.1%
======== ======== ==== ========
Premiums and contract charges:
Life insurance $ 1,427 $ 193 $ -- $ 1,234 --%
Accident-health insurance 152 1 117 268 43.7%
Property-liability insurance 278 3 -- 275 0.0%
-------- -------- ---- --------
Total premiums and contract charges $ 1,857 $ 197 $117 $ 1,777 6.6%
======== ======== ==== ========
</TABLE>
36
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE V - VALUATION ALLOWANCE AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------
($ IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ADDITIONS DEDUCTIONS (1) OF PERIOD
----------- ---------- ----------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Allowance for estimated losses on mortgage
loans and real estate $15 $ 2 $ 4 $13
Allowance for deferred tax assets -- 1 -- 1
YEAR ENDED DECEMBER 31, 1998
Allowance for estimated losses on mortgage
loans and real estate $37 $ (16) $ 6 $15
YEAR ENDED DECEMBER 31, 1997
Allowance for estimated losses on mortgage
loans and real estate $72 $ (22) $13 $37
</TABLE>
(1) Deductions in allowance for estimated losses on mortgage loans include
amounts transferred to real estate. Deductions in allowance for reinsurance
recovered represent write-offs, net of recoveries, of amounts determined to
be uncollectible.
37
<PAGE>
----------------------------------------------
ALLSTATE FINANCIAL ADVISORS
SEPARATE ACCOUNT I
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999
AND FOR THE PERIOD ENDED DECEMBER 31, 1999 AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Allstate Life Insurance Company:
We have audited the accompanying statement of net assets of Allstate Financial
Advisors Separate Account I as of December 31, 1999 (including the assets of
each of the individual sub-accounts which comprise the Account as disclosed in
Note 1), and the related statements of operations and changes in net assets for
the period from June 28, 1999 (date of inception) to December 31, 1999 for each
of the individual sub-accounts which comprise the Account. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audit.
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. Our procedures included
confirmation of securities owned at December 31, 1999 by correspondence with the
account custodians. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Allstate Financial Advisors Separate Account
I as of December 31, 1999 (including the assets of each of the individual
sub-accounts which comprise the Account), and the results of operations for each
of the individual sub-accounts and the changes in their net assets for the
period from June 28, 1999 (date of inception) to December 31, 1999 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 27, 2000
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Allocation to Sub-Accounts investing in the AIM Variable Insurance Funds:
Capital Appreciation, 4,352 shares (cost $137,627) $ 154,829
Diversified Income, 8,803 shares (cost $90,362) 88,557
Growth and Income, 2,236 shares (cost $60,545) 70,622
International Equity, 2,181 shares (cost $54,402) 63,880
Value, 1,792 shares (cost $57,144) 60,040
Allocation to Sub-Accounts investing in the Fidelity Variable Insurance Products Fund:
Growth, 2,470 shares (cost $120,953) 135,665
High Income, 2,253 shares (cost $24,687) 25,484
Overseas, 5,517 shares (cost $135,380) 151,392
Allocation to Sub-Accounts investing in the Fidelity Variable Insurance Products Fund II:
Contrafund, 5,311 shares (cost $142,679) 154,825
Index 500, 747 shares (cost $118,928) 125,040
Investment Grade Bond, 2,551 shares (cost $30,893) 31,017
Allocation to Sub-Accounts investing in the MFS Variable Insurance Trust:
Bond, 9,393 shares (cost $103,052) 102,660
Growth with Income, 5,518 shares (cost $109,782) 117,597
High Income, 3,673 shares (cost $41,736) 42,201
New Discovery, 4,767 shares (cost $71,135) 82,321
Allocation to Sub-Accounts investing in the Oppenheimer Variable Account Funds:
Bond, 9,564 shares (cost $110,729) 110,179
Capital Appreciation, 3,400 shares (cost $148,279) 169,447
Global Securities, 1,607 shares (cost $44,681) 53,682
High Income, 843 shares (cost $8,943) 9,036
Small Cap Growth, 5,011 shares (cost $58,092) 70,504
Allocation to Sub-Accounts investing in the Van Kampen Life Investment Trust:
Comstock, 6,345 shares (cost $59,274) 59,075
Domestic Income, 2,636 shares (cost $21,332) 21,190
Emerging Growth, 2,806 shares (cost $95,762) 129,732
Money Market, 74,091 shares (cost $74,091) 74,091
Allocation to Sub-Accounts investing in the LSA Variable Series Trust:
Focused Equity 500,000 shares (cost $5,000,000) 6,035,000
Growth Equity 500,394 shares (cost $5,004,723) 6,039,754
Disciplined Equity 1,003,882 shares (cost $10,043,127) 11,173,204
Value Equity 500,748 shares (cost $5,008,000) 5,378,030
Balanced 502,890 shares (cost $5,029,750) 5,169,808
Emerging Growth Domestic Equity 500,000 shares (cost $5,000,000) 8,745,000
--------------
Total Assets 44,643,862
LIABILITIES
Payable to Allstate Life Insurance Company
Accrued contract charges 181
--------------
Net Assets $44,643,681
==============
Components of net assets:
Net Assets of Contractholders $2,102,885
Net Assets of Allstate Life Insurance Company 42,540,796
--------------
Total components of net assets: $44,643,681
==============
</TABLE>
See notes to financial statements.
2
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
------------------------------------------------------------------------
For the Period Beginning June 28, 1999 and Ended December 31, 1999
------------------------------------------------------------------------
Capital Diversified Growth and International
Appreciation Income Income Equity Value
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1,932 $ 2,088 $ 519 $ 1,667 $ 716
Charges from Allstate Life Insurance Company:
Mortality and expense risk (148) (98) (111) (76) (95)
Administrative expense (13) (8) (10) (7) (8)
------------ ------------ ------------ ------------ ------------
Net investment income (loss) 1,771 1,982 398 1,584 613
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 1,261 659 2,448 263 99,847
Cost of investments sold 1,204 657 2,361 233 98,044
------------ ------------ ------------ ------------ ------------
Net realized gains (losses) 57 2 87 30 1,803
------------ ------------ ------------ ------------ ------------
Change in unrealized gains (losses) 17,202 (1,805) 10,076 9,477 2,895
------------ ------------ ------------ ------------ ------------
Net gains (losses) on investments 17,259 (1,803) 10,163 9,507 4,698
------------ ------------ ------------ ------------ ------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 19,030 $ 179 10,561 $ 11,091 $ 5,311
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
3
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Fidelity Variable Insurance
Products Fund Sub-Accounts Products Fund II Sub-Accounts
------------------------------------------ -----------------------------
For the Period Beginning June 28, 1999 and Ended December 31, 1999
--------------------------------------------------------------------------
Index
Growth High Income Overseas Contrafund 500
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ - $ - $ - $ -
Charges from Allstate Life Insurance Company:
Mortality and expense risk (176) (45) (125) (158) (158)
Administrative expense (15) (4) (11) (14) (12)
------------ ------------ ------------ ------------- -------------
Net investment income (loss) (191) (49) (136) (172) (170)
------------ ------------ ------------ ------------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 3,229 2,652 71 4,779 58,270
Cost of investments sold 3,118 2,643 68 4,626 56,209
------------ ------------ ------------ ------------- -------------
Net realized gains (losses) 111 9 3 153 2,061
------------ ------------ ------------ ------------- -------------
Change in unrealized gains (losses) 14,712 797 16,011 12,145 6,111
------------ ------------ ------------ ------------- -------------
Net gains (losses) on investments 14,823 806 16,014 12,298 8,172
------------ ------------ ------------ ------------- -------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 14,632 $ 757 $ 15,878 $ 12,126 $ 8,002
============ ============ ============ ============= =============
</TABLE>
See notes to financial statements.
4
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fidelity Variable
Insurance Products
Fund II Sub-Accounts MFS Variable Insurance Trust Sub-Accounts
-------------------- -------------------------------------------------------
For the Period Beginning June 28, 1999 and Ended December 31, 1999
--------------------------------------------------------------------------------
Investment Growth with High New
Grade Bond Bond Income Income Discovery
-------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ - $ - $ - $ 1,438
Charges from Allstate Life Insurance Company:
Mortality and expense risk (52) (91) (188) (52) (76)
Administrative expense (5) (8) (16) (5) (7)
-------------------- ------------ ------------ ------------ ------------
Net investment income (loss) (57) (99) (204) (57) 1,355
-------------------- ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 238 347 2,453 2,673 1,240
Cost of investments sold 235 345 2,387 2,668 1,180
-------------------- ------------ ------------ ------------ ------------
Net realized gains (losses) 3 2 66 5 60
-------------------- ------------ ------------ ------------ ------------
Change in unrealized gains (losses) 124 (391) 7,815 465 11,186
-------------------- ------------ ------------ ------------ ------------
Net gains (losses) on investments 127 (389) 7,881 470 11,246
-------------------- ------------ ------------ ------------ ------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 70 $ (488) $ 7,677 $ 413 $ 12,601
==================== ============ ============ ============ ============
</TABLE>
See notes to financial statements.
5
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds Sub-Accounts
------------------------------------------------------------------------
For the Period Beginning June 28, 1999 and Ended December 31, 1999
------------------------------------------------------------------------
Capital Global High Small Cap
Bond Appreciation Securities Income Growth
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ - $ - $ - $ -
Charges from Allstate Life Insurance Company:
Mortality and expense risk (197) (201) (74) (13) (87)
Administrative expense (17) (17) (6) (1) (7)
------------ ------------ ------------ ------------ ------------
Net investment income (loss) (214) (218) (80) (14) (94)
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 90,756 55,032 60 14 1,273
Cost of investments sold 90,957 51,365 55 14 1,185
------------ ------------ ------------ ------------ ------------
Net realized gains (losses) (201) 3,667 5 - 88
------------ ------------ ------------ ------------ ------------
Change in unrealized gains (losses) (549) 21,167 9,001 93 12,412
------------ ------------ ------------ ------------ ------------
Net gains (losses) on investments (750) 24,834 9,006 93 12,500
------------ ------------ ------------ ------------ ------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ (964) $ 24,616 $ 8,926 $ 79 $ 12,406
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
6
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Sub-Accounts
---------------------------------------------------------------------
For the Period Beginning June 28, 1999 and Ended December 31, 1999
---------------------------------------------------------------------
Domestic Emerging Money
Comstock Income Growth Market
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 715 $ - $ - $ 614
Charges from Allstate Life Insurance Company:
Mortality and expense risk (95) (63) (180) (142)
Administrative expense (8) (5) (15) (12)
------------ ------------ ------------ ------------
Net investment income (loss) 612 (68) (195) 460
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 352 99,874 1,488 994
Cost of investments sold 352 99,994 1,373 994
------------ ------------ ------------ ------------
Net realized gains (losses) - (120) 115 -
------------ ------------ ------------ ------------
Change in unrealized gains (losses) (198) (143) 33,971 -
------------ ------------ ------------ ------------
Net gains (losses) on investments (198) (263) 34,086 -
------------ ------------ ------------ ------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 414 $ (331) $ 33,891 $ 460
============ ============ ============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
LSA Variable Series Trust
---------------------------------------------------------------------------------
For the Period Beginning October 1, 1999 and Ended December 31, 1999
---------------------------------------------------------------------------------
Emerging
Focused Growth Disciplined Value Growth Domestic
Equity Equity Equity Equity Balanced Equity
------------ ------------ ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ 4,723 $ 43,127 $ 8,000 $ 29,750 $ -
Charges from Allstate Life Insurance Company:
Mortality and expense risk - - - - - -
Administrative expense - - - - - -
------------ ------------ ------------ ---------- ---------- ---------------
Net investment income (loss) - 4,723 43,127 8,000 29,750 -
------------ ------------ ------------ ---------- ---------- ---------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales - - - - - -
Cost of investments sold - - - - - -
------------ ------------ ------------ ---------- ---------- ---------------
Net realized gains (losses) - - - - - -
------------ ------------ ------------ ---------- ---------- ---------------
Change in unrealized gains (losses) 1,035,000 1,035,031 1,130,077 370,030 140,058 3,745,000
------------ ------------ ------------ ---------- ---------- ---------------
Net gains (losses) on investments 1,035,000 1,035,031 1,130,077 370,030 140,058 3,745,000
------------ ------------ ------------ ---------- ---------- ---------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,035,000 $ 1,039,754 $ 1,173,204 $ 378,030 $ 169,808 $ 3,745,000
============ ============ ============ ========== ========== ===============
</TABLE>
See notes to financial statements.
8
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
------------------------------------------------------------------------
For the Period Beginning June 28, 1999 and Ended December 31, 1999
------------------------------------------------------------------------
Capital Diversified Growth and International
Appreciation Income Income Equity Value
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 1,771 $ 1,982 $ 398 $ 1,584 $ 613
Net realized gains (losses) 57 2 87 30 1,803
Change in unrealized gains (losses) 17,202 (1,805) 10,076 9,477 2,895
------------ ------------ ------------ ------------ ------------
Change in net assets resulting from operations 19,030 179 10,561 11,091 5,311
------------ ------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS
Deposits 126,700 88,915 51,648 52,960 56,525
Benefit payments - - - - -
Payments on termination - (574) - (314) -
Contract maintenance charges (13) (7) (6) (5) (5)
Transfers among the sub-accounts
and with the Fixed Account - net 9,098 37 8,412 142 (1,796)
------------ ------------ ------------ ------------ ------------
Change in net assets resulting
from capital transactions 135,785 88,371 60,054 52,783 54,724
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS 154,815 88,550 70,615 63,874 60,035
NET ASSETS AT BEGINNING OF PERIOD - - - - -
------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 154,815 $ 88,550 $ 70,615 $ 63,874 $ 60,035
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
9
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Fidelity Variable Insurance
Products Fund Sub-Accounts Products Fund II Sub-Accounts
------------------------------------------ -----------------------------
For the Period Beginning June 28, 1999 and Ended December 31, 1999
--------------------------------------------------------------------------
High Index
Growth Income Overseas Contrafund 500
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (191) $ (49) $ (136) $ (172) $ (170)
Net realized gains (losses) 111 9 3 153 2,061
Change in unrealized gains (losses) 14,712 797 16,011 12,145 6,111
------------ ------------ ------------ ------------- -------------
Change in net assets resulting from operations 14,632 757 15,878 12,126 8,002
------------ ------------ ------------ ------------- -------------
FROM CAPITAL TRANSACTIONS
Deposits 104,563 25,023 123,159 134,513 110,543
Benefit payments - - - - -
Payments on termination - (304) - - -
Contract maintenance charges (11) (2) (13) (13) (11)
Transfers among the sub-accounts
and with the Fixed Account - net 16,469 8 12,354 8,185 6,495
------------ ------------ ------------ ------------- -------------
Change in net assets resulting
from capital transactions 121,021 24,725 135,500 142,685 117,027
------------ ------------ ------------ ------------- -------------
INCREASE (DECREASE) IN NET ASSETS 135,653 25,482 151,378 154,811 125,029
NET ASSETS AT BEGINNING OF PERIOD - - - - -
------------ ------------ ------------ ------------- -------------
NET ASSETS AT END OF PERIOD $ 135,653 $ 25,482 $ 151,378 $ 154,811 $ 125,029
============ ============ ============ ============= =============
</TABLE>
See notes to financial statements.
10
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Fidelty Variable
Insurance
Products Fund II
Sub-Accounts MFS Variable Insurance Trust Sub-Accounts
---------------- ----------------------------------------------------------
For the Period Beginning June 28, 1999 and Ended December 31, 1999
----------------------------------------------------------------------------
Investment Growth with High New
Grade Bond Bond Income Income Discovery
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (57) $ (99) $ (204) $ (57) $ 1,355
Net realized gains (losses) 3 2 66 5 60
Change in unrealized gains (losses) 124 (391) 7,815 465 11,186
---------------- ------------ ------------ ------------ ------------
Change in net assets resulting from operations 70 (488) 7,677 413 12,601
---------------- ------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS
Deposits 31,249 103,406 110,106 42,091 48,763
Benefit payments - - - - -
Payments on termination (305) (269) (307) (305) -
Contract maintenance charges (2) (9) (10) (3) (7)
Transfers among the sub-accounts
and with the Fixed Account - net 3 11 120 1 20,957
---------------- ------------ ------------ ------------ ------------
Change in net assets resulting
from capital transactions 30,945 103,139 109,909 41,784 69,713
---------------- ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS 31,015 102,651 117,586 42,197 82,314
NET ASSETS AT BEGINNING OF PERIOD - - - - -
---------------- ------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 31,015 $ 102,651 $ 117,586 $ 42,197 $ 82,314
================ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
11
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds Sub-Accounts
------------------------------------------------------------------------
For the Period Beginning June 28, 1999 and Ended December 31, 1999
------------------------------------------------------------------------
Capital Global High Small Cap
Bond Appreciation Securities Income Growth
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (214) $ (218) $ (80) $ (14) $ (94)
Net realized gains (losses) (201) 3,667 5 - 88
Change in unrealized gains (losses) (549) 21,167 9,001 93 12,412
------------ ------------ ------------ ------------ ------------
Change in net assets resulting from operations (964) 24,616 8,926 79 12,406
------------ ------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS
Deposits 111,231 148,999 44,717 8,957 57,979
Benefit payments - - - - -
Payments on termination (575) - - - -
Contract maintenance charges (10) (15) (5) (1) (6)
Transfers among the sub-accounts
and with the Fixed Account - net 487 (4,168) 39 - 119
------------ ------------ ------------ ------------ ------------
Change in net assets resulting
from capital transactions 111,133 144,816 44,751 8,956 58,092
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS 110,169 169,432 53,677 9,035 70,498
NET ASSETS AT BEGINNING OF PERIOD - - - - -
------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 110,169 $ 169,432 $ 53,677 $ 9,035 $ 70,498
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
12
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Sub-Accounts
---------------------------------------------------------------------
For the Period Beginning June 28, 1999 and Ended December 31, 1999
---------------------------------------------------------------------
Domestic Emerging Money
Comstock Income Growth Market
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 612 $ (68) $ (195) $ 460
Net realized gains (losses) - (120) 115 -
Change in unrealized gains (losses) (198) (143) 33,971 -
------------ ------------ ------------ ------------
Change in net assets resulting from operations 414 (331) 33,891 460
------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS
Deposits 58,604 21,336 95,652 74,500
Benefit payments - - - -
Payments on termination (271) (270) (284) (875)
Contract maintenance charges (5) (2) (11) (6)
Transfers among the sub-accounts
and with the Fixed Account - net 328 455 473 6
------------ ------------ ------------ ------------
Change in net assets resulting
from capital transactions 58,656 21,519 95,830 73,625
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS 59,070 21,188 129,721 74,085
NET ASSETS AT BEGINNING OF PERIOD - - - -
------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 59,070 $ 21,188 $ 129,721 $ 74,085
============ ============ ============ ============
</TABLE>
See notes to financial statements.
13
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
LSA Variable Series Trust
------------------------------------------------------------------------------------
For the Period Beginning October 1, 1999 and Ended December 31, 1999
------------------------------------------------------------------------------------
Emerging
Focused Growth Disciplined Value Growth Domestic
Equity Equity Equity Equity Balanced Equity
------------ ------------ ------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ - $ 4,723 $ 43,127 $ 8,000 $ 29,750 $ -
Net realized gains (losses) - - - - - -
Change in unrealized gains (losses) 1,035,000 1,035,031 1,130,077 370,030 140,058 3,745,000
------------ ------------ ------------- ----------- ----------- ---------------
Change in net assets resulting from operations 1,035,000 1,039,754 1,173,204 378,030 169,808 3,745,000
------------ ------------ ------------- ----------- ----------- ---------------
FROM CAPITAL TRANSACTIONS
Deposits 5,000,000 5,000,000 10,000,000 5,000,000 5,000,000 5,000,000
Benefit payments - - - - - -
Payments on termination - - - - - -
Contract maintenance charges - - - - - -
Transfers among the sub-accounts
and with the Fixed Account - net - - - - - -
------------ ------------ ------------- ----------- ----------- ---------------
Change in net assets resulting
from capital transactions 5,000,000 5,000,000 10,000,000 5,000,000 5,000,000 5,000,000
------------ ------------ ------------- ----------- ----------- ---------------
INCREASE (DECREASE) IN NET ASSETS 6,035,000 6,039,754 11,173,204 5,378,030 5,169,808 8,745,000
NET ASSETS AT BEGINNING OF PERIOD - - - - - -
------------ ------------ ------------- ----------- ----------- ---------------
NET ASSETS AT END OF PERIOD $ 6,035,000 $ 6,039,754 $ 11,173,204 $ 5,378,030 $ 5,169,808 $ 8,745,000
============ ============ ============= =========== =========== ===============
</TABLE>
See notes to financial statements.
14
<PAGE>
ALLSTATE FINANCIAL ADVISORS SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Allstate Financial Advisors Separate Account I (the "Account"), a unit
investment trust registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, is a Separate Account of
Allstate Life Insurance Company ("Allstate"). The assets of the Account
are legally segregated from those of Allstate. Allstate is wholly owned by
Allstate Insurance Company, which is wholly owned by The Allstate
Corporation.
Allstate issues SelectDirections variable annuity contracts, the deposits
of which are invested at the direction of the contractholders in the
sub-accounts that comprise the Account. Absent any contract provisions
wherein Allstate contractually guarantees either a minimum return or
account value to the beneficiaries of the contractholders in the form of a
death benefit, the contractholders bear the investment risk that the
sub-accounts may not meet their stated objectives. The sub-accounts invest
in the following underlying mutual fund portfolios (collectively the
"Funds"):
<TABLE>
<S><C>
AIM VARIABLE INSURANCE FUNDS MFS VARIABLE INSURANCE TRUST
Capital Appreciation Bond
Diversified Income Growth with Income
Growth and Income High Income
International Equity New Discovery
Value OPPENHEIMER VARIABLE ACCOUNT FUNDS
FIDELITY VARIABLE INSURANCE PRODUCTS FUND Bond
Growth Capital Appreciation
High Income Global Securities
Overseas High Income
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II Small Cap Growth
Contrafund VAN KAMPEN LIFE INVESTMENT TRUST
Index 500 Comstock
Investment Grade Bond Domestic Income
Emerging Growth
Money Market
</TABLE>
Allstate provides insurance and administrative services to the
contractholders for a fee. Allstate also maintains a fixed account ("Fixed
Account"), to which contractholders may direct their deposits and receive
a fixed rate of return. Allstate has sole discretion to invest the assets
of the Fixed Account, subject to applicable law.
On September 30, 1999, Allstate made an initial investment of $35 million
in the LSA Variable Series Trust ("Trust") to establish and enhance the
diversification of the funds within the Trust. The Trust is managed by LSA
Asset Management, LLC (the "Manager"), a wholly-owned subsidiary of
Allstate pursuant to an investment management agreement with the Trust.
The Manager is entitled to receive a management fee from each sub-account
investing in the Trust. Fees are payable monthly at an annual rate as a
percentage of average daily net assets ranging from 0.75% to 1.05%. Since
Allstate did not purchase a variable annuity contract, the expenses
described in Note 3 are not deducted from Allstate's investment in the
Trust.
15
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS - Investments consist of shares of the Funds and
are stated at fair value based on quoted market prices at December 31,
1999.
INVESTMENT INCOME - Investment income consists of dividends declared by
the Funds and is recognized on the ex-dividend date.
REALIZED GAINS AND LOSSES - Realized gains and losses represent the
difference between the proceeds from sales of portfolio shares by the
Account and the cost of such shares, which is determined on a weighted
average basis.
FEDERAL INCOME TAXES - The Account intends to qualify as a segregated
asset account as defined in the Internal Revenue Code ("Code"). As such,
the operations of the Account are included with and taxed as a part of
Allstate. Allstate is taxed as a life insurance company under the Code. No
federal income taxes are allocable to the Account as the Account did not
generate taxable income.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
3. EXPENSES
ADMINISTRATIVE EXPENSE CHARGE - Allstate deducts administrative expense
charges daily at a rate equal to .10% per annum of the average daily net
assets of the Account.
CONTRACT MAINTENANCE CHARGE - Allstate deducts an annual maintenance
charge of $35 on each contract anniversary and guarantees that this charge
will not increase over the life of the contract. This charge will be
waived if certain conditions are met.
MORTALITY AND EXPENSE RISK CHARGE - Allstate assumes mortality and expense
risks related to the operations of the Account and deducts charges daily
at a rate equal to 1.15% per annum of the daily net assets of the Account.
The mortality and expense risk charge covers insurance benefits available
with the contract and certain expenses of the contract. It also covers the
risk that the current charges will not be sufficient in the future to
cover the cost of administering the contract. Allstate guarantees that the
amount of this charge will not increase over the life of the contract. At
the contractholder's discretion, additional options, primarily death
benefits, may be purchased for an additional charge.
16
<PAGE>
4. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
<TABLE>
<CAPTION>
SelectDirections
Unit activity during 1999:
-------------------------------------------------------------------------------
Accumulation
Units Outstanding Units Units Units Outstanding Unit Value
December 31, 1998 Issued Redeemed December 31, 1999 December 31, 1999
------------------- ------ ---------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Investments in AIM Variable Insurance
Funds Sub-Accounts:
Capital Appreciation - 10,876 (1) 10,875 $ 13.96
Diversified Income - 8,908 (58) 8,850 10.01
Growth and Income - 5,473 - 5,473 12.38
International Equity - 4,325 (24) 4,301 14.85
Value - 4,798 - 4,798 11.94
Investment in the Fidelity Variable Insurance
Products Fund Sub-Accounts:
Growth - 10,590 (1) 10,589 12.42
High Income - 2,303 (31) 2,272 10.16
Overseas - 11,628 (1) 11,627 13.02
Investment in the Fidelity Variable Insurance
Products Fund II Sub-Accounts:
Contrafund - 13,194 (1) 13,193 11.53
Index 500 - 10,366 (1) 10,365 11.17
Investment Grade Bond - 3,112 (30) 3,082 10.07
Investments in MFS Variable Insurance
Trust Sub-Accounts:
Bond - 10,345 (28) 10,317 9.95
Growth with Income - 11,004 (31) 10,973 10.48
High Income - 3,956 (31) 3,925 10.14
New Discovery - 5,188 - 5,188 15.52
Investments in the Oppenheimer
Variable Account Sub-Accounts:
Bond - 11,054 (58) 10,996 10.02
Capital Appreciation - 13,149 (1) 13,148 12.89
Global Securities - 3,793 - 3,793 14.15
High Income - 898 - 898 10.06
Small Cap Growth - 4,350 - 4,350 15.82
Investments in Van Kampen Life Investment
Trust Sub-Accounts:
Comstock - 6,106 (28) 6,078 9.72
Domestic Income - 2,130 (27) 2,103 10.07
Emerging Growth - 7,225 (20) 7,205 17.54
Money Market - 7,389 (87) 7,302 10.15
Units relating to accrued contract maintenance charges are included in units redeemed.
</TABLE>
17
<PAGE>
4. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
<TABLE>
<CAPTION>
SelectDirections with Enhanced Death Benefit Rider
Unit activity during 1999:
------------------------------------------------------------------------------
Accumulation
Units Outstanding Units Units Units Outstanding Unit Value
December 31, 1998 Issued Redeemed December 31, 1999 December 31, 1999
------------------- ------ ---------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Investments in AIM Variable Insurance
Funds Sub-Accounts:
Capital Appreciation - 214 - 214 $ 13.95
Diversified Income - - - - -
Growth and Income - 233 - 233 12.37
International Equity - - - - -
Value - 231 - 231 11.93
Investment in the Fidelity Variable Insurance
Products Fund Sub-Accounts:
Growth - 337 - 337 12.41
High Income - 237 - 237 10.15
Overseas - - - - -
Investment in the Fidelity Variable Insurance
Products Fund II Sub-Accounts:
Contrafund - 238 - 238 11.52
Index 500 - 354 - 354 11.16
Investment Grade Bond - - - - -
Investments in MFS Variable Insurance Trust
Sub-Accounts:
Bond - - - - -
Growth with Income - 246 - 246 10.47
High Income - 234 - 234 10.14
New Discovery - 115 - 115 15.51
Investments in the Oppenheimer Variable Account
Sub-Accounts:
Bond - - - - -
Capital Appreciation - - - - -
Global Securities - - - - -
High Income - - - - -
Small Cap Growth - 107 - 107 15.81
Investments in Van Kampen Life Investment Trust
Sub-Accounts:
Comstock - - - - -
Domestic Income - - - - -
Emerging Growth - 189 - 189 17.53
Money Market - - - - -
Units relating to accrued contract maintenance charges are included in units redeemed.
</TABLE>
18
<PAGE>
4. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
<TABLE>
<CAPTION>
SelectDirections with Enhanced Death and Income Benefit Rider
Unit activity during 1999:
-----------------------------------------------------------------------------
Accumulation
Units Outstanding Units Units Units Outstanding Unit Value
December 31, 1998 Issued Redeemed December 31, 1999 December 31, 1999
------------------- ------ ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Investments in AIM Variable Insurance
Funds Sub-Accounts:
Capital Appreciation - - - - $ -
Diversified Income - - - - -
Growth and Income - - - - -
International Equity - - - - -
Value - - - - -
Investment in the Fidelity Variable Insurance
Products Fund Sub-Accounts:
Growth - - - - -
High Income - - - - -
Overseas - - - - -
Investment in the Fidelity Variable Insurance
Products Fund II Sub-Accounts:
Contrafund - - - - -
Index 500 - 474 - 474 11.15
Investment Grade Bond - - - - -
Investments in MFS Variable Insurance Trust
Sub-Accounts:
Bond - - - - -
Growth with Income - - - - -
High Income - - - - -
New Discovery - - - - -
Investments in the Oppenheimer Variable
Account Sub-Accounts:
Bond - - - - -
Capital Appreciation - - - - -
Global Securities - - - - -
High Income - - - - -
Small Cap Growth - - - - -
Investments in Van Kampen Life Investment
Trust Sub-Accounts:
Comstock - - - - -
Domestic Income - - - - -
Emerging Growth - - - - -
Money Market - - - - -
Units relating to accrued contract maintenance charges are included in units redeemed.
</TABLE>
19
