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File Number 33-39702
811-6293
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 9
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20
Separate Account VA-K of SMA Life Assurance Company
(Exact Name of Trust)
SMA Life Assurance Company
440 Lincoln Street
Worcester MA 01653
(508) 855-1000
(Registrant's telephone number including area code)
Abigail M. Armstrong Secretary and Counsel
SMA Life Assurance Company
440 Lincoln Street
Worcester MA 01653
(Name and complete address of agent for service)
It is proposed that this filing will become effective:
___on _______________ pursuant to paragraph (a) of Rule 485
___60 days after filing pursuant to paragraph (a) of Rule 485
___immediately after filing pursuant to paragraph (b) of Rule 485
_X_on October 1, 1995 pursuant to paragraph (b) of Rule 485
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is
being registered under the Securities Act of 1933. The Rule 24f-2 Notice
for the issuer's fiscal year ended December 31, 1994 was filed on February
23, 1995.
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Cross Reference Sheet Showing Location in Prospectus of
Items Called for by Form N-4
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
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1 . . . . . . . . . . . . . Cover Page
2 . . . . . . . . . . . . . "Special Terms"
3 . . . . . . . . . . . . . "Summary"; "Annual and Transaction Expenses"
4 . . . . . . . . . . . . . "Condensed Financial Information"
5 . . . . . . . . . . . . . "Description of the Company, the Separate
Account, the Trust, Variable Insurance
Products Fund, Variable Insurance Products
Fund II, T. Rowe Price International
Series, Inc. and Delaware Group
Premium Fund, Inc."
6 . . . . . . . . . . . . . "Charges and Deductions"
7 . . . . . . . . . . . . . "The Variable Annuity Policies"
8 . . . . . . . . . . . . . "The Variable Annuity Policies"
9 . . . . . . . . . . . . . "Death Benefit"
10 . . . . . . . . . . . . "Purchase Payments"; "Computation of Policy
Values and Annuity Payments"
11 . . . . . . . . . . . . "Surrender"; "Partial Redemption"
12 . . . . . . . . . . . . "Federal Tax Considerations"
13 . . . . . . . . . . . . "Legal Matters"
14 . . . . . . . . . . . . "Table of Contents of the Statement of
Additional Information"
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ---------------- ----------------------------------------------
15 . . . . . . . . . . . . "Cover Page"
16 . . . . . . . . . . . . "Table of Contents"
17 . . . . . . . . . . . . "General Information and History"
18 . . . . . . . . . . . . "Services"
19 . . . . . . . . . . . . "Underwriters"
20 . . . . . . . . . . . . "Underwriters"
21 . . . . . . . . . . . . "Performance Information"
22 . . . . . . . . . . . . "Annuity Payments"
23 . . . . . . . . . . . . "Financial Statements"
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PROSPECTUS SUPPLEMENT
Separate Account VA-K
(Supplement to prospectus dated May 1, 1995)
Effective October 1, 1995, the name of SMA Life Assurance Company has been
changed to ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY. The
attached prospectus is hereby amended throughout to delete the name "SMA Life
Assurance Company" and to substitute ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY.
* * *
Except in Texas and New York, the second paragraph under the caption
"B. Transfer Privilege" on page 30 is deleted and the following inserted:
Effective November 1, 1995, automatic transfers may also be made from policy
value allocated to the Company's General Account (a) to one or more of the
Subaccounts or (b) in order to reallocate policy value among the
Subaccounts. Automatic transfers from the General Account may be made on a
monthly, bimonthly, or quarterly basis, provided that: (i) the amount of each
monthly transfer cannot exceed 10% of policy value in the General Account as
of the date of the first transfer; (ii) each bimonthly transfer cannot
exceed 20% of policy value in the General Account as of the date of the
first transfer; (iii) Each quarterly transfer cannot exceed 25% of policy
value in the General Account as of the date of the first transfer. No other
transfers are permitted from the General Account except during the 30-day
period beginning on each policy anniversary. During that 30 day annual
"window" period, any amount (up to 100%) of policy value in the General
Account may be transferred.
In Texas and New York, the first sentence of the above paragraph is added as
the third paragraph under the caption.
* * *
Effective October 10, 1995, the material under the caption "RIGHT TO REVOKE
OR SURRENDER IN SOME STATES" on page 16 is amended to read in its entirety
as follows:
In Georgia, Indiana, Michigan, Missouri, New York, North Carolina, Oklahoma,
South Carolina, Texas, Utah, Washington and West Virginia any Policy Owner
may revoke the Policy at any time between the date of application and the
date 10 days (20 days in North Dakota) after receipt of the Policy and
receive a refund, as described under "RIGHT TO REVOKE INDIVIDUAL RETIREMENT
ANNUITY," above.
In all other states, a Policy Owner may surrender the Policy at any time
between the date of application and the date 10 days after receipt of the
Policy. The Company will pay to the Policy Owner an amount equal to the sum
of (i) the difference between the purchase payments paid, including fees, and
any amount allocated to a Separate Account and (ii) the Accumulated Value of
the Policy (on the date the surrender request is received by the Company)
attributable to any amount allocated to a Subaccount. This refund right
applies for 30 days to California residents age 60 years or older; provided,
however, that if the Policy is issued as an IRA, the refund right described
under the caption "RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY" is
applicable for the first 10 days. The refund of any purchase payments paid
by check may be delayed until the check has cleared the Policy Owner's bank.
exec.stk SUPPLEMENT DATED OCTOBER 1, 1995
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SMA LIFE ASSURANCE COMPANY
INDIVIDUAL VARIABLE ANNUITY POLICIES FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-K INVESTING IN SHARES OF
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND,
VARIABLE INSURANCE PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC.
AND DELAWARE GROUP PREMIUM FUND, INC.
This Prospectus describes individual variable annuity policies ("Policies")
offered by SMA Life Assurance Company ("Company") to individuals and businesses
in connection with retirement plans which may or may not qualify for special
federal income tax treatment. (For information about the tax status when used
with a particular type of plan, see "FEDERAL TAX CONSIDERATIONS.") The
following is a summary of information about these Policies. More detailed
information can be found under the referenced captions in this Prospectus.
This Prospectus generally describes only the variable accumulation and variable
annuity aspects of the Policies, except where fixed values or fixed annuity
payments are specifically mentioned. ALLOCATIONS TO AND TRANSFERS TO AND FROM
THE GENERAL ACCOUNT OF THE COMPANY ARE NOT PERMITTED IN CERTAIN STATES. Certain
additional information about the Policies is contained in a Statement of
Additional Information, dated May 1, 1995, as may be amended from time to time,
which has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Table of Contents for the Statement of
Additional Information is listed on page 3 of this Prospectus. The Statement of
Additional Information is available upon request and without charge. To obtain
the Statement of Additional Information, fill out and return the attached
request card or contact SMA Life Annuity Customer Services, SMA Life Assurance
Company, 440 Lincoln Street, Worcester, Massachusetts 01653.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE
PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC. AND DELAWARE GROUP
PREMIUM FUND, INC. THE HIGH INCOME PORTFOLIO OF VARIABLE INSURANCE PRODUCTS
FUND INVESTS IN HIGHER YIELDING, LOWER RATED DEBT SECURITIES (SEE "INVESTMENT
OBJECTIVES AND POLICIES" IN THIS PROSPECTUS).
INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
DATED MAY 1, 1995
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TABLE OF CONTENTS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . 3
SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ANNUAL AND TRANSACTION EXPENSES. . . . . . . . . . . . . . . . . . . . . . . 7
CONDENSED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 11
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
WHAT IS AN ANNUITY?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY . . . . . . . . . . . . . . . 16
RIGHT TO REVOKE OR SURRENDER IN SOME STATES . . . . . . . . . . . . . . . . 16
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, THE TRUST, VIPF,
VIPF II, T. ROWE AND DGPF. . . . . . . . . . . . . . . . . . . . . . . . . . 17
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
A. Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . . . 25
B. Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
C. Policy Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
D. Annual Charge Against Separate Account Assets. . . . . . . . . . . . 28
THE VARIABLE ANNUITY POLICIES. . . . . . . . . . . . . . . . . . . . . . . . 29
A. Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 29
B. Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . . 30
C. Surrender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
D. Partial Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 31
E. Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
F. The Spouse of the Policy Owner as Beneficiary. . . . . . . . . . . . 33
G. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
H. Electing the Form of Annuity and Annuity Date . . . . . . . . . . . 33
I. Description of Variable Annuity Options. . . . . . . . . . . . . . . 34
J. Norris Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
K. Computation of Policy Values and Annuity Payments. . . . . . . . . . 35
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TABLE OF CONTENTS (continued)
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 36
A. Qualified and Non-Qualified Policies . . . . . . . . . . . . . . . . 37
B. Taxation of the Policies in General. . . . . . . . . . . . . . . . . 37
C. Tax Withholding and Penalties. . . . . . . . . . . . . . . . . . . . 38
D. Provisions Applicable to Qualified Employee Benefit Plans. . . . . . 38
E. Qualified Employee Pension and Profit Sharing Trusts and Qualified
Annuity Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
F. Self-Employed Individuals. . . . . . . . . . . . . . . . . . . . . . 39
G. Individual Retirement Account Plans. . . . . . . . . . . . . . . . . 39
H. Simplified Employee Pensions . . . . . . . . . . . . . . . . . . . . 40
I. Public School Systems and Certain Tax-Exempt Organizations . . . . . 40
J. Texas Optional Retirement Program. . . . . . . . . . . . . . . . . . 40
K. Section 457 Plans for State Governments and Tax-Exempt Entities. . . 41
L. Non-individual Owners. . . . . . . . . . . . . . . . . . . . . . . . 41
REPORTS. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . 41
CHANGES IN OPERATION OF THE SEPARATE ACCOUNTS. . . . . . . . . . . . . . . . 41
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
FURTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 41
APPENDIX A - MORE INFORMATION ABOUT THE GENERAL ACCOUNT . . . . . . . . 42
APPENDIX B-INFORMATION APPLICABLE ONLY TO POLICY NO. A3018-91
(AND STATE VARIATIONS) . . . . . . . . . . . . . . . . . . . . . . . 42
APPENDIX C - EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . 43
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY . . . . . . . . . . . . . . 3
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the General Account of the
Company then credited to the Policy, on any date before the date annuity
payments are to begin.
ACCUMULATION UNIT: a measure of the Policy Owner's interest in a Subaccount
before annuity payments begin.
ANNUITANT: the person designated in the Policy to whom the Annuity is to be
paid.
ANNUITY DATE: the date on which annuity payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity payments under the
Policy.
FIXED AMOUNT ANNUITY: an Annuity providing for payments which remain fixed in
amount throughout the annuity payment period.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
Separate Account.
SEPARATE ACCOUNT: Separate Account VA-K of the Company. Separate Account VA-K
consists of assets segregated from other assets of the Company. The investment
performance of the assets of the Separate Account is determined separately from
the other assets of the Company. The assets of the Separate Account are not
chargeable with liabilities arising out of any other business which the Company
may conduct.
SUBACCOUNT: a subdivision of Separate Account VA-K. Each Subaccount available
under the Policies invests exclusively in the shares of a corresponding fund of
Allmerica Investment Trust, a corresponding portfolio of the Variable Insurance
Products Fund or Variable Insurance Products Fund II, a corresponding portfolio
of T. Rowe Price International Series, Inc. or a corresponding series of
Delaware Group Premium Fund, Inc.
SURRENDER VALUE: the Accumulated Value of the Policy minus any Policy fee and
contingent deferred sales charge applicable upon surrender.
UNDERLYING FUNDS: the Growth Fund, Investment Grade Income Fund, Money Market
Fund, Equity Index Fund, Government Bond Fund, Select International Equity Fund,
Select Aggressive Growth Fund, Select Growth Fund, Select Growth and Income Fund
and Small Cap Value Fund of Allmerica Investment Trust; High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio of Variable
Insurance Products Fund; the Asset Manager Portfolio of Variable Insurance
Products Fund II; the International Stock Portfolio of T. Rowe Price
International Series, Inc.; and the International Equity Series of Delaware
Group Premium Fund, Inc.
UNDERLYING INVESTMENT COMPANIES: Allmerica Investment Trust, Variable Insurance
Products Fund, Variable Insurance Products Fund II, T. Rowe Price International
Series, Inc. and Delaware Group Premium Fund, Inc.
VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Funds is determined and Unit values of the Subaccounts are
determined. Valuation dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Policy was
received) when there is a sufficient degree of trading in an Underlying Fund's
portfolio securities such that the current net asset value of the Subaccounts
may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
VARIABLE ANNUITY: an Annuity providing for payments varying in amount in
accordance with the investment experience of the Growth Fund, Money Market Fund,
Equity Index Fund or Select Growth and Income Fund of Allmerica Investment
Trust.
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SUMMARY
INVESTMENT OPTIONS. The Policies permit net purchase payments to be allocated
among the Subaccounts available under the Policies, which are subdivisions of
Separate Account VA-K ("Separate Account"), a separate account of the Company,
and, where available, a fixed interest account ("General Account") of the
Company (together "accounts"). The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act"), but such
registration does not involve the supervision of the management or investment
practices or policies of the Separate Account by the Securities and Exchange
Commission (the "SEC"). For information about the Separate Account and the
Company, see "DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, THE TRUST, VIPF,
VIPF II, T. ROWE AND DGPF." For more information about the General Account, see
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Each Subaccount available under the Policies invests its assets without sales
charge in a corresponding investment series of the Allmerica Investment Trust
(the "Trust"), Variable Insurance Products Fund ("VIPF"), Variable Insurance
Products Fund II ("VIPF II"), T. Rowe Price International Series, Inc. ("T.
Rowe") or Delaware Group Premium Fund, Inc. ("DGPF"). The Trust, VIPF, VIPF II,
T. Rowe and DGPF are open-end, diversified series investment companies. Eleven
different funds of the Trust are available under the Policies: the Growth Fund,
Investment Grade Income Fund, Money Market Fund, Equity Index Fund, Government
Bond Fund, Select International Equity Fund, Select Aggressive Growth Fund,
Select Capital Appreciation Fund, Select Growth Fund, Select Growth and Income
Fund and Small Cap Value Fund of Allmerica Investment Trust. Four of the
portfolios of VIPF are available under the Policies: the High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio. One of the
portfolios of VIPF II is available under the Policies: the Asset Manager
Portfolio. One of the portfolios of T. Rowe is available under the Policies:
the International Stock Portfolio. One of the series of DGPF is available under
the Policies: the International Equity Series. Each of the Funds, Portfolios
and Series available under the Policies (together, the "Underlying Funds")
operates pursuant to different investment objectives, discussed below.
INVESTMENT IN THE SUBACCOUNT. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Funds.
There can be no assurance that the investment objectives of the Underlying Funds
can be achieved or that the value of a Policy will equal or exceed the aggregate
amount of the purchase payments made under the Policy. For more information
about the investments of the Underlying Funds, see "DESCRIPTION OF THE COMPANY,
THE SEPARATE ACCOUNT, THE TRUST, VIPF, VIPF II, T. ROWE AND DGPF." The
accompanying prospectuses of the Trust, VIPF, VIPF II, T. Rowe and DGPF describe
the investment objectives and risks of each of the Underlying Funds.
Dividends or capital gains distributions received from an Underlying Fund are
reinvested in additional shares of that Underlying Fund, which are retained as
assets of the Subaccount.
TRANSFERS BETWEEN ACCOUNTS. Prior to the Annuity Date, the Policies permit
amounts to be transferred among the Subaccounts and between the Subaccounts and
the General Account, where available, subject to certain limitations described
under "Transfer Privilege."
ANNUITY PAYMENTS. The owner of a Policy ("Policy Owner") may select variable
annuity payments based on one or more of certain Subaccounts, fixed-amount
annuity payments, or a combination of fixed-amount and variable annuity
payments. Fixed-amount annuity payments are guaranteed by the Company.
See "THE VARIABLE ANNUITY POLICIES" for information about annuity payment
options, selecting the Annuity Date, and how annuity payments are calculated.
REVOCATION RIGHTS. An individual purchasing a Policy intended to qualify as an
Individual Retirement Annuity ("IRA") may revoke the Policy at any time between
the date of the application and the date 10 days after receipt of the Policy.
In certain states any Policy owner may have special revocation rights. For more
information about revocation rights, see "RIGHT TO REVOKE INDIVIDUAL RETIREMENT
ANNUITY" and "RIGHT TO REVOKE OR SURRENDER IN SOME STATES."
PAYMENT MINIMUMS AND MAXIMUMS. Under the Policies, purchase payments are not
limited as to frequency and number, but no payments may be submitted within one
month of the Annuity Date. Generally, the initial purchase payment must be at
least $600 and subsequent payments must be at least $50. Under a monthly
automatic payment plan or a payroll deduction plan, each purchase payment must
be at least $50. However,
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<PAGE>
in cases where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's average
annual contribution per eligible plan participant is at least $600.
The Company reserves the right to set maximum limits on the aggregate purchase
payments made under the Policy. In addition, the Internal Revenue Code imposes
maximum limits on contributions under qualified annuity plans.
CHARGES AND DEDUCTIONS. For a complete discussion of charges, see "CHARGES AND
DEDUCTIONS."
A. CONTINGENT DEFERRED SALES CHARGE. No sales charge is deducted from
purchase payments at the time the payments are made. However, depending on the
length of time that the payments to which the withdrawal is attributed have
remained credited under the Policy a contingent deferred sales charge of up to
8% may be assessed for a surrender, partial redemption, or election of an
annuity for a specified number of years.
B. ANNUAL POLICY FEE. A Policy Fee equal to the lesser of $30 or 3% of
Accumulated Value will be deducted from the Accumulated Value under the Policy
for administrative expense on the policy anniversary, or upon full surrender of
the Policy during the year, when the Accumulated Value is $50,000 or less. The
Policy Fee is waived for policies issued to and maintained by the trustee of a
401(k) plan.
C. PREMIUM TAXES. A deduction for State and local premium taxes, if any, may
be made as described under "Premium Taxes."
D. SEPARATE ACCOUNT ASSET CHARGES. A daily charge, equivalent to 1.25% per
annum, is made on the value of each Subaccount at each Valuation Date. The
charge is retained for the mortality and expense risks the Company assumes. In
addition, to cover administrative expenses, the Company deducts a daily charge
of 0.20% per annum of the value of the average net assets in the Subaccounts.
E. TRANSFER CHARGE. The Company currently makes no charge for transfers. The
Company guarantees that the first six transfers in a Policy year will be free of
charge. For the seventh and each subsequent transfer, the Company reserves the
right to assess a charge, guaranteed never to exceed $25, to reimburse the
Company for the costs of processing the transfer.
F. CHARGES OF THE UNDERLYING FUND. In addition to the charges described
above, certain fees and expenses are deducted from the assets of the Underlying
Funds. These charges vary among the Underlying Funds.
SURRENDER OR PARTIAL REDEMPTION. At any time before the Annuity Date, the
Policy Owner has the right either to surrender the Policy in full and receive
its current value, minus the Policy Fee and any applicable contingent deferred
sales charge, or to redeem a portion of the Policy's value subject to certain
limits and any applicable contingent deferred sales charge. There may be tax
consequences for surrender or redemptions. For further information, see
"Surrender" and "Partial Redemption," "Contingent Deferred Sales Charge," and
"FEDERAL TAX CONSIDERATIONS."
DEATH BENEFIT. If the Annuitant or Policy Owner should die before the Annuity
Date, a death benefit will be paid to the beneficiary. Upon death of the
Annuitant, the death benefit is equal to the greatest of (a) the Accumulated
Value under the Policy, or (b) the sum of the gross payment(s) made under the
Policy reduced proportionally to reflect the amount of all partial redemptions,
or (c) the death benefit that would have been payable on the most recent fifth
year Policy Anniversary, increased for subsequent purchase payments and reduced
proportionally to reflect withdrawals after that date. Upon death of a Policy
Owner, the death benefit will equal the Accumulated Value of the Policy next
determined following receipt of due proof of death at the Principal Office. See
"Death Benefit."
SALES OF POLICIES. The Policies are sold by agents of the Company who are
registered representatives of Allmerica Investments, Inc., a broker-dealer
affiliate of the Company. The Policies also may be purchased from certain other
broker-dealers which are members of the National Association of Securities
Dealers, Inc., and whose representatives are authorized by applicable law to
sell variable annuity policies. See "Sales Expense."
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ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Policy Owner in
understanding the various costs and expenses that a Policy Owner will bear
directly or indirectly under the Policies. The tables reflect charges under the
Policies, expenses of the Subaccounts, and expenses of the Underlying Funds. In
addition to the charges and expenses described below, in some states premium
taxes may be applicable.
<TABLE>
<S> <C> <C>
POLICY OWNER TRANSACTION EXPENSES
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Contingent Deferred Sales Charge Policy Year after date Charge
The charge (as a percentage of payments, applied to the of Purchase Payment
amount surrendered in excess of the amount, if any, 0-2 8%
which may be surrendered free of charge) will be 3 7%
assessed upon surrender, redemption, or annuitization 4 6%
under a period certain option, within the indicated time 5 5%
periods. 6 4%
7 3%
8 2%
9 1%
Transfer Charge None
ANNUAL POLICY FEE $30
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An annual Policy Fee, equal to the lesser of $30 or 3% of
Accumulated Value, is deducted when Accumulated Value
is $50,000 or less. The Policy Fee is waived for policies
issued to and maintained by the trustee of a 401(k) plan.
SEPARATE ACCOUNT ANNUAL EXPENSES
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(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Separate Account Administrative Charge 0.20%
---------
Total Annual Expenses 1.45%
</TABLE>
-7-
<PAGE>
ALLMERICA INVESTMENT TRUST
<TABLE>
<CAPTION>
Invest-
ment Govern- Select
Grade Money Equity ment Int'l
Growth Income Market Index Bond Equity
FUND ANNUAL EXPENSES Fund Fund Fund Fund Fund Fund
- -------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.48% 0.42% 0.31% 0.35% 0.50% 0.72%
Other Fund Expenses 0.08% 0.16% 0.14% 0.22% 0.20% 0.78%
Total Fund Annual Expenses 0.56% 0.58% 0.45% 0.57% 0.70% 1.50%
Select Select Select
Aggres- Capital Growth Small
sive Apprecia- Select and Cap
Growth tion Growth Income Value
FUND ANNUAL EXPENSES Fund Fund Fund Fund Fund
- -------------------- ---- ---- ---- ---- ----
Management Fees 1.00% 1.00% 0.85% 0.75% 0.84%
Other Fund Expenses 0.16% 0.35% 0.18% 0.16% 0.24%
Total Fund Annual Expenses 1.16% 1.35% 1.03% 0.91% 1.08%
</TABLE>
Under the Management Agreement with the Trust, Allmerica Investment Management
Company, Inc. ("Allmerica Investment") has declared a voluntary expense
limitation of 1.50% of average net assets for the Select International Equity
Fund, 1.35% for the Select Aggressive Growth Fund and Select Capital
Appreciation Fund, 1.25% for the Small Cap Value Fund, 1.20% for the Growth Fund
and Select Growth Fund, 1.10% for the Select Growth and Income Fund, 1.00% for
the Investment Grade Income Fund and Government Bond Fund, and 0.60% for the
Money Market Fund and Equity Index Fund. Without the effect of the expense
limitation, in 1994 the total operation expenses of the Select International
Equity Fund and the Small Cap Value Fund would have been 1.78% and 1.09%,
respectively, of average net assets. The total operating expenses of the Growth
Fund, Investment Grade Income Fund, Money Market Fund and Government Bond Fund
were less than their respective expense limitations throughout 1994. The
declaration of a voluntary expense limitation in any year does not bind
Allmerica Investment to declare future expense limitations with respect to any
Fund.
VARIABLE INSURANCE PRODUCTS FUND
<TABLE>
<CAPTION>
High Income Equity-Income Growth Portfolio Overseas Portfolio
PORTFOLIO ANNUAL EXPENSES Portfolio Portfolio
- -------------------------
<S> <C> <C> <C> <C>
Management Fees 0.61% 0.52% 0.62% 0.77%
Other Portfolio Expenses 0.10% 0.06% 0.07% 0.15%
----- ----- ----- -----
Total Portfolio Annual Expenses 0.71% 0.58%* 0.69%* 0.92%
<FN>
*A portion of the brokerage commissions the Portfolio paid was used to reduce
the expenses. Without this reduction, total operating expenses would have been
0.60% for the Equity-Income Portfolio and 0.70% for the Growth Portfolio.
</TABLE>
Fidelity Management has voluntarily agreed to temporarily limit total operating
expenses (excluding interest, taxes, brokerage commissions and extraordinary
expenses) of the Equity Income Portfolio, Growth Portfolio and Overseas
Portfolio to an annual rate of 1.50%, and the High Income Portfolio to an annual
rate of 1.00%, of each of the Portfolio's net assets. The total operating
expenses of the Portfolios were less than their respective caps in 1994.
-8-
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND II
<TABLE>
<CAPTION>
Asset
Manager
PORTFOLIO ANNUAL EXPENSES Portfolio
-------------------------
<S> <C>
Management Fees 0.72%
Other Portfolio Expenses 0.08%
-----
Total Portfolio Annual Expenses 0.80%*
<FN>
*A portion of the brokerage commissions the Portfolio paid was used to reduce
its expenses. Without this reduction, total operating expenses would have been
0.81% for the Asset Manager Portfolio.
</TABLE>
Fidelity Management has voluntarily agreed to temporarily limit total operating
expenses (excluding interest, taxes, brokerage commissions and extraordinary
expenses) of the Asset Manager Portfolio to an annual rate of 1.25% of the
Portfolio's net assets. The total operating expenses of the Asset Manager
Portfolio were less than its cap in 1994.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
<TABLE>
<CAPTION>
International
Stock
FUND ANNUAL EXPENSES Portfolio
-------------------- ---------
<S> <C>
Management Fees 1.05%
Other Portfolio Expenses 0.00%
Total Fund Annual Expenses 1.05%
</TABLE>
Price-Fleming has voluntarily agreed to limit the total operating expenses
(except interest, taxes, brokerage commissions, directors' fees and expenses and
extraordinary expenses) of the International Stock Portfolio to 1.05% of its
average daily net assets.
DELAWARE GROUP PREMIUM FUND
<TABLE>
<CAPTION>
International
Equity
FUND ANNUAL EXPENSES Series
--------------------
<S> <C>
Management Fees 0.53%
Other Series Expenses 0.27%
-----
Total Fund Annual Expenses 0.80%
</TABLE>
Delaware International Advisers Ltd., the investment adviser for the
International Equity Series, has agreed to waive its management fee and
reimburse the International Equity Series to limit certain expenses to 8/10 of
1% of the corresponding net assets. This waiver has been in effect from the
commencement of the Public offering for the Series and has been extended through
June 30, 1995. Without the expense limitation, in 1994 the total annual
expenses of the International Equity Series would have been 1.01%.
The following Examples demonstrate the cumulative expenses which would be paid
by the Policy Owner at 1-year, 3-year, 5-year, and 10-year intervals under
certain contingencies. Each Example assumes a $1,000 investment in a Subaccount
and a 5% annual return on assets. Because the expenses of the Underlying Funds
differ, separate Examples are used to illustrate the expenses incurred by a
Policy Owner on an investment in the various Subaccounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
-9-
<PAGE>
(a) If you surrender your policy or annuitize* under a period certain option at
the end of the applicable period, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Growth Fund $94 $129 $159 $246
Investment Grade Income Fund $94 $130 $160 $248
Money Market Fund $93 $126 $153 $235
Equity Index Fund $94 $130 $159 $247
Government Bond Fund $95 $134 $165 $261
Select International Equity Fund $103 $158 $206 $338
International Stock Portfolio $99 $144 $184 $295
Select Aggressive Growth Fund $100 $147 $189 $306
Select Capital Appreciation Fund $102 $153 $198 $324
Select Growth Fund $98 $144 $183 $293
Select Growth and Income Fund $97 $140 $177 $282
Small Cap Value Fund $99 $145 $185 $298
High Income Portfolio $95 $134 $166 $262
Equity-Income Portfolio $94 $130 $160 $248
Growth Portfolio $95 $133 $165 $260
Overseas Portfolio $97 $140 $177 $283
Asset Manager Portfolio $96 $137 $171 $271
International Equity Series $96 $137 $171 $271
</TABLE>
(b) If you annuitize* under a life option at the end of the applicable time
period or if you do NOT surrender or annuitize your policy, you would pay
the following expenses on a $1,000 investment, assuming 5% annual return on
assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Growth Fund $22 $67 $114 $246
Investment Grade Income Fund $22 $67 $115 $248
Money Market Fund $21 $63 $109 $235
Equity Index Fund $22 $67 $115 $247
Government Bond Fund $23 $71 $122 $261
Select International Equity Fund $31 $95 $161 $338
International Stock Portfolio $27 $81 $139 $295
Select Aggressive Growth Fund $28 $85 $144 $306
Select Capital Appreciation Fund $30 $90 $154 $324
Select Growth Fund $26 $81 $138 $293
Select Growth and Income Fund $25 $77 $132 $282
Small Cap Value Fund $27 $82 $141 $298
High Income Portfolio $23 $71 $122 $262
Equity-Income Portfolio $22 $67 $115 $248
Growth Portfolio $23 $71 $121 $260
Overseas Portfolio $25 $78 $133 $283
Asset Manager Portfolio $24 $74 $127 $271
International Equity Series $24 $74 $127 $271
- -------------------------
</TABLE>
Pursuant to requirements of the 1940 Act, the policy fee has been reflected in
the Examples by a method intended to show the "average" impact of the policy fee
on an investment in the Separate Account. The total policy fees collected under
the Policies by the Company are divided by the total average net assets
attributable to the Policies. The resulting percentage is 0.12%, and the amount
of the policy fee is assumed to be $1.20 in the Examples. The Policy Fee is
deducted only when the accumulated value is $50,000 or less. Lower costs apply
to policies originally issued as part of a 401(k) plan.
* The policy fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any policy year under
an option including a life contingency.
-10-
<PAGE>
CONDENSED FINANCIAL INFORMATION
SMA Life Assurance Company
Separate Account VA-K
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Subaccount 1
Net Asset Value:
Beginning of Period 1.236 1.175 1.111
End of Period 1.221 1.236 1.175
Number of Units Outstanding at End 102,399 72,609 34,373
of Period (in thousands)
Subaccount 2
Net Asset Value:
Beginning of Period 1.250 1.145 1.073
End of Period 1.196 1.250 1.145
Number of Units Outstanding at End 57,454 48,488 15,428
of Period (in thousands)
Subaccount 3
Net Asset Value:
Beginning of Period 1.051 1.035 1.013
End of Period 1.077 1.051 1.035
Number of Units Outstanding at End 37,668 30,815 30,778
of Period (in thousands)
Subaccount 4
Net Asset Value:
Beginning of Period 1.226 1.135 1.074
End of Period 1.221 1.226 1.135
Number of Units Outstanding at End 29,176 22,466 9,535
of Period (in thousands)
Subaccount 5
Net Asset Value:
Beginning of Period 1.179 1.112 1.075
End of Period 1.152 1.179 1.112
Number of Units Outstanding at End 32,519 60,265 29,844
of Period (in thousands)
Subaccount 6
Net Asset Value:
Beginning of Period 1.342 1.139 1.000
End of Period 1.292 1.342 1.139
Number of Units Outstanding at End 54,288 26,158 2,019
of Period (in thousands)
-11-
<PAGE>
<CAPTION>
1994 1993 1992
Subaccount 7 ---- ---- ----
Net Asset Value:
Beginning of Period 1.055 1.058 1.000
End of Period 1.024 1.055 1.058
Number of Units Outstanding at End 38,415 26,064 3,039
of Period (in thousands)
Subaccount 8
Net Asset Value:
Beginning of Period 1.074 0.987 1.000
End of Period 1.066 1.074 0.987
Number of Units Outstanding at End 51,098 31,846 4,711
of Period (in thousands)
Subaccount 9
Net Asset Value:
Beginning of Period 1.167 1.000 ---
End of Period 1.075 1.167 ---
Number of Units Outstanding at End 33,049 9,902 ---
of Period (in thousands)
Subaccount 11
Net Asset Value:
Beginning of Period 1.000 --- ---
End of Period 0.956 --- ---
Number of Units Outstanding at End 12,530 --- ---
of Period (in thousands)
Subaccount 20
Net Asset Value:
Beginning of Period 1.129 1.000 ---
End of Period 1.143 1.129 ---
Number of Units Outstanding at End 26,924 6,681 ---
of Period (in thousands)
Subaccount 102
Net Asset Value:
Beginning of Period 1.510 1.270 1.047
End of Period 1.465 1.510 1.270
Number of Units Outstanding at End 27,041 13,583 3,625
of Period (in thousands)
-12-
<PAGE>
<CAPTION>
Subaccount 103 1994 1993 1992
Net Asset Value: ---- ---- ----
Beginning of Period 1.412 1.211 1.051
End of Period 1.490 1.412 1.211
Number of Units Outstanding at End 104,356 61,264 17,855
of Period (in thousands)
Subaccount 104
Net Asset Value:
Beginning of Period 1.440 1.224 1.135
End of Period 1.419 1.440 1.224
Number of Units Outstanding at End 90,717 49,136 18,253
of Period (in thousands)
Subaccount 105
Net Asset Value:
Beginning of Period 1.226 0.906 1.030
End of Period 1.230 1.226 0.906
Number of Units Outstanding at End 59,774 25,395 6,728
of Period (in thousands)
Subaccount 106
Net Asset Value:
Beginning of Period 1.000 --- ---
End of Period 0.977 --- ---
Number of Units Outstanding at End 20,720 --- ---
of Period (in thousands)
<FN>
* The date of inception of Subaccounts 9 and 20 were 4/30/93 and 4/6/93,
respectively. Subaccounts 11 and 106 were 5/3/94, respectively.
</TABLE>
-13-
<PAGE>
PERFORMANCE INFORMATION
The Company from time to time may advertise the "total return" of the
Subaccounts and the "yield" and "effective yield" of the Subaccount investing in
the Money Market Fund of the Trust. Both the total return and yield figures are
based on historical earnings and are not intended to indicate future
performance.
The "total return" of a Subaccount refers to the total of the income generated
by an investment in the Subaccount and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Separate Account charges, and expressed as a
percentage of the investment.
The "yield" of the Subaccount investing in the Money Market Fund of the Trust
refers to the income generated by an investment in the Subaccount over a
seven-day period (which period will be specified in the advertisement). This
income is then "annualized" by assuming that the income generated in the
specific week is generated over a 52-week period. This annualized yield is
shown as a percentage of the investment. The "effective yield" calculation is
similar, but when annualized, the income earned by an investment in the
Subaccount is assumed to be reinvested. Thus the "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect the
Subaccount's asset charges. The total return figures also reflect the $30
annual Policy Fee and the contingent deferred sales load which would be assessed
if the investment were completely redeemed at the end of the specified period.
The Company may also advertise supplemental total return performance
information. Supplemental total return refers to the total of the income
generated by an investment in the Subaccount and of the changes of value of the
principal invested (due to realized and unrealized capital gains or losses),
adjusted by the Subaccount's annual asset charges, and expressed as a percentage
of the investment. Because it is assumed that the investment is NOT redeemed at
the end of the specified period, the contingent deferred sales load is NOT
included in the calculation of supplemental total return.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Subaccount
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Subaccount. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of a
hypothetical investment in the Subaccount during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the portfolio of the Underlying Fund in which the Subaccount invests and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future.
-14-
<PAGE>
TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1994
(Assuming COMPLETE redemption of the investment)
<TABLE>
<CAPTION>
Total Return for Average Annual
SUBACCOUNT NAME year ended Total Return
- ---------- ---- 12/31/94 since inception*
-------- ---------------
<S> <C> <C> <C>
Sub-Account 1 Growth -8.46% 4.79%
Sub-Account 2 Investment Grade -11.53% 4.12%
Sub-Account 3 Money Market -4.74% 0.71%
Sub-Account 4 Equity Index -7.58% 4.81%
Sub-Account 5 Government Bond -9.49% 2.90%
Sub-Account 6 Select Aggressive Growth -10.89% 9.54%
Sub-Account 7 Select Growth -10.09% -1.67%
Sub-Account 8 Select Growth and Income -7.90% 0.17%
Sub-Account 9 Small Cap Value -15.04% 0.32%
Sub-Account 11 Select Int'l Equity N/A -11.60%
Sub-Account 12 Select Capital Appreciation N/A N/A
Sub-Account 102 High Income -10.15% 10.99%
Sub-Account 103 Equity-Income -1.65% 11.56%
Sub-Account 104 Growth -8.63% 9.89%
Sub-Account 105 Overseas -6.92% 5.04%
Sub-Account 106 Asset Manager N/A -9.49%
Sub-Account 150 International Stock N/A N/A
Sub-Account 20 International Equity -6.00% 4.29%
</TABLE>
TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1994
(Assuming NO redemption of the investment)
<TABLE>
<CAPTION>
Total Return for Average Annual
SUBACCOUNT NAME year ended Total Return
---------- ---- 12/31/94 since inception*
-------- ----------------
<S> <C> <C> <C>
Sub-Account 1 Growth -1.26% 6.19%
Sub-Account 2 Investment Grade -4.33% 5.53%
Sub-Account 3 Money Market 2.46% 2.27%
Sub-Account 4 Equity Index -0.38% 6.20%
Sub-Account 5 Government Bond -2.29% 4.36%
Sub-Account 6 Select Aggressive Growth -3.69% 11.86%
Sub-Account 7 Select Growth -2.89% 1.07%
Sub-Account 8 Select Growth and Income -0.70% 2.85%
Sub-Account 9 Small Cap Value -7.84% 4.50%
Sub-Account 11 Select Int'l Equity N/A -4.40%
Sub-Account 12 Select Capital Appreciation N/A N/A
Sub-Account 102 High Income -2.95% 12.18%
Sub-Account 103 Equity-Income 5.55% 12.75%
Sub-Account 104 Growth -1.43% 11.12%
Sub-Account 105 Overseas 0.28% 6.43%
Sub-Account 106 Asset Manager N/A -2.29%
Sub-Account 150 International Stock N/A N/A
Sub-Account 20 International Equity 1.20% 8.39%
<FN>
* Inception Returns reflect the average annual total return. The date of
inception respecting Subaccounts 1-5 and 102-105 was 9/3/91. The date of
inception respecting Subaccounts 6-8 was 9/15/92. The date of inception
respecting Subaccount 9 was 5/3/93. The date of inception respecting
Subaccounts 11 and 106 was 5/1/94. The date of inception respecting Subaccount
20 was 5/3/93. Subaccounts 12 and 150 were not in existence in 1994.
</TABLE>
-15-
<PAGE>
WHAT IS AN ANNUITY?
In general, an annuity is a policy designed to provide a retirement income in
the form of monthly payments for the lifetime of the purchaser or an individual
chosen by the purchaser. The retirement income payments are called "annuity
payments" and the individual receiving the payments is called the "Annuitant."
Annuity payments may begin immediately after a lump sum purchase is made or may
begin after an investment period during which the amount necessary to provide
the desired amount of retirement income is accumulated.
Under an annuity policy, the insurance company assumes a mortality risk and an
expense risk. The mortality risk arises from the insurance company's guarantee
that annuity payments will continue for the life of the Annuitant, regardless of
how long the Annuitant lives or how long all Annuitants as a group live. The
expense risk arises from the insurance company's guarantee that charges will not
be increased beyond the limits specified in the policy, regardless of actual
costs of operations.
The Policy Owner's purchase payments, less any applicable deductions, are
invested by the insurance company. After retirement, annuity payments are paid
to the Annuitant for life or for such other period chosen by the Policy Owner.
In the case of a "fixed" annuity, the value of these annuity payments is
guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more information
about fixed annuities see APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL
ACCOUNT."
With a variable annuity, the value of the Policy and the annuity payments are
not guaranteed but will vary depending on the investment performance of a
portfolio of securities. Any investment gains or losses are reflected in the
value of the Policy and in the annuity payments. If the portfolio increases in
value, the value of the Policy increases. If the portfolio decreases in value,
the value of the Policy decreases.
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Policy intended to qualify as an Individual
Retirement Annuity ("IRA") may revoke the Policy at any time between the date of
the application and the date 10 days after receipt of the Policy and receive a
refund of the entire purchase payment. In order to revoke the Policy, the
Policy Owner must mail or deliver the Policy (if it has already been received),
to the agent through whom the Policy was purchased, to the principal office of
the Company at 440 Lincoln Street, Worcester, Massachusetts 01653, or to any
local agency of the Company. Mailing or delivery must occur on or before 10
days after receipt of the Policy for revocation to be effective.
Within seven days the Company will return the greater of (1) the entire purchase
payment, or (2) the Accumulated Value plus any amounts deducted under the Policy
or by the Underlying Investment Companies for taxes, charges or fees.
The liability of the Separate Accounts under this provision is limited to the
Policy Owner's Accumulated value in each Separate Account on the date of
cancellation. Any additional amounts refunded to the Policy Owner will be paid
by the Company.
RIGHT TO REVOKE OR SURRENDER IN SOME STATES
In Georgia, Indiana, Michigan, Missouri, New York, North Carolina, Oklahoma,
South Carolina, Texas, Utah, Washington and West Virginia, any Policy Owner may
revoke the Policy at any time between the date of application and the date 10
days after receipt of the Policy and receive a refund of the entire purchase
price, as described under "RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY,"
above. (There is a 20-day refund right in North Dakota and a 30-day refund
right applicable to California senior citizens age 60 years or older.)
In all other states, a Policy Owner may surrender the Policy at any time between
the date of application and the date 10 days after receipt of the Policy. The
Company will pay to the Policy Owner an amount equal to the sum of (i) the
difference between the premium paid, including fees, and any amount allocated to
a Separate Account and (ii) the Accumulated Value of the Policy (on the date the
surrender request is received by the Company) attributable to any amount
allocated to a Subaccount. If the Policy was purchased as an IRA, the IRA
revocation right described above may be utilized in lieu of the special
surrender right.
-16-
<PAGE>
The refund of any premium paid by check may be delayed until the check has
cleared the Policy Owner's bank.
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, THE TRUST,
VIPF, VIPF II, T. ROWE AND DGPF
THE COMPANY - The Company is a life insurance company organized under the laws
of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, Telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1994, the
Company had over $4 billion in assets and over $25 billion of life insurance in
force. The Company is an indirect wholly-owned subsidiary of State Mutual Life
Assurance Company of America ("State Mutual"), 440 Lincoln Street, Worcester,
Massachusetts. State Mutual, organized under the laws of Massachusetts in 1844,
is the fifth oldest life insurance company in America. As of December 31, 1994,
State Mutual and its subsidiaries (including the Company) had over $10 billion
in combined assets and over $42 billion of life insurance in force.
THE SEPARATE ACCOUNT - Separate Account VA-K (the "Separate Account") is a
separate investment account of the Company. The assets used to fund the
variable portions of the Policies are set aside in the Subaccounts of the
Separate Account, and are kept separate and apart from the general assets of the
Company. There are 18 Subaccounts available under the Policies. Each
Subaccount is administered and accounted for as part of the general business of
the Company, but the income, capital gains, or capital losses of each Subaccount
are allocated to such Subaccount, without regard to other income, capital gains,
or capital losses of the Company. Under Delaware law, the assets of the
Separate Account may not be charged with any liabilities arising out of any
other business of the Company.
The Separate Account was authorized by vote of the Board of Directors of the
Company on November 1, 1990. The Separate Account meets the definition of
"separate account" under federal securities law and is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). The registration of the
Separate Account and the Underlying Investment Companies does not involve the
supervision by the Commission of management or investment practices or policies
of the Separate Account, the Company, the Underlying Investment Companies or the
Underlying Funds.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account and the Subaccounts.
ALLMERICA INVESTMENT TRUST - Allmerica Investment Trust, formerly SMA Investment
Trust (the "Trust") is an open-end, diversified management investment company
registered with the Commission under the 1940 Act.
The Trust was established by State Mutual as a Massachusetts business trust on
October 11, 1984, for the purpose of providing a vehicle for the investment of
assets of various separate accounts established by State Mutual, the Company, or
other affiliated insurance companies. Eleven investment portfolios ("Funds")
are currently available under the Policies, each issuing a series of shares:
the Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity Index
Fund, Government Bond Fund, Select International Equity Fund, Select Aggressive
Growth Fund, Select Capital Appreciation Fund, Select Growth Fund, Select Growth
and Income Fund and Small Cap Value Fund of Allmerica Investment Trust. Certain
of the Funds may not be available in all states. The assets of each Fund are
held separate from the assets of the other Funds. Each Fund operates as a
separate investment vehicle and the income or losses of one Fund have no effect
on the investment performance of another Fund. Shares of the Trust are not
offered to the general public but solely to such separate accounts.
Allmerica Investment Management Company, Inc. ("Allmerica Investment") serves as
investment adviser of the Trust. Allmerica Investment has entered into
sub-advisory agreements with other investment managers ("Sub-Advisers") who
manage the investments of the Funds. See "INVESTMENT ADVISORY SERVICES TO THE
TRUST."
VARIABLE INSURANCE PRODUCTS FUND - Variable Insurance Products Fund ("VIPF"),
managed by Fidelity Management, is an open-end, diversified, management
investment company organized as a Massachusetts business trust on November 13,
1981 and registered with the Commission under the 1940
-17-
<PAGE>
Act. Four of its investment portfolios are available under the Policies: High
Income Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas
Portfolio.
Various Fidelity companies perform certain activities required to operate VIPF.
Fidelity Management, a registered investment adviser under the Investment
Advisers Act of 1940, is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire Street,
Boston MA. It is composed of a number of different companies, which provide a
variety of financial services and products. Fidelity Management is the original
Fidelity company, founded in 1946. It provides a number of mutual funds and
other clients with investment research and portfolio management services. The
Portfolios of VIPF as part of their operating expenses pay an investment
management fee to Fidelity Management. See "INVESTMENT ADVISORY SERVICES TO
VIPF and VIPF II."
VARIABLE INSURANCE PRODUCTS FUND II - Variable Insurance Products Fund II ("VIPF
II"), managed by Fidelity Management (see discussion under "VARIABLE INSURANCE
PRODUCTS FUND"), is an open-end, diversified, management investment company
organized as a Massachusetts business trust on March 21, 1988 and registered
with the Commission under the 1940 Act. One of its investment portfolios is
available under the Policies: the Asset Manager Portfolio.
T. ROWE PRICE INTERNATIONAL SERIES, INC. - T. Rowe Price International Series,
Inc. ("T. Rowe"), managed by Rowe Price-Fleming International, Inc. ("Price-
Fleming") (See "INVESTMENT ADVISORY SERVICES TO T. ROWE"), is an open-end,
diversified, management investment company organized as a Maryland corporation
in 1994 and registered with the Commission under the 1940 Act. One of its
investment portfolios is available under the Policies: the International Stock
Portfolio.
DELAWARE GROUP PREMIUM FUND, INC. - Delaware Group Premium Fund, Inc. ("DGPF")
is an open-end, diversified management investment company registered with the
Commission under the 1940 Act.
DGPF was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. One
investment portfolio ("Series") is available under the Policies, the
International Equity Series, which may not be available in all states.
The investment adviser for the International Equity Series is Delaware
International Advisers Ltd. ("Delaware International"). See "INVESTMENT
ADVISORY SERVICES TO DGPF."
INVESTMENT OBJECTIVES AND POLICIES - A summary of investment objectives of each
of the Underlying Funds is set forth below. MORE DETAILED INFORMATION REGARDING
THE INVESTMENT OBJECTIVES, RESTRICTIONS AND RISKS, EXPENSES PAID BY THE
UNDERLYING FUNDS, AND OTHER RELEVANT INFORMATION REGARDING THE UNDERLYING FUNDS
MAY BE FOUND IN THEIR RESPECTIVE PROSPECTUSES, WHICH SHOULD BE READ CAREFULLY
BEFORE INVESTING. The Statements of Additional Information of the Underlying
Funds are available upon request. There can be no assurance that the invested
objectives of the Underlying Funds can be achieved or that the value of a Policy
will equal or exceed the aggregate amount of the purchase payments made under
the Policy.
SUBACCOUNT 1 - invests solely in shares of the Growth Fund of the Trust. The
Growth Fund is invested in common stocks and securities convertible into common
stocks that are believed to represent significant underlying value in relation
to current market prices. The objective of the Growth Fund is to achieve
long-term growth of capital. Realization of current investment income, if any,
is incidental to this objective.
SUBACCOUNT 2 - invests solely in shares of the Investment Grade Income Fund of
the Trust. The Investment Grade Income Fund is invested in a diversified
portfolio of fixed income securities with the objective of seeking as high a
level of total return (including both income and realized and unrealized capital
gains) as is consistent with prudent investment management.
SUBACCOUNT 3 - invests solely in shares of the Money Market Fund of the Trust.
The Money Market Fund is invested in a diversified portfolio of high-quality,
short-term debt instruments with the objective of obtaining maximum current
income consistent with the preservation of capital and liquidity.
SUBACCOUNT 4 - invests solely in shares of the Equity Index Fund of the Trust.
The Equity Index Fund seeks to provide investment results that correspond
generally to the composite price and yield performance of United States publicly
traded common stocks. The Equity Index Fund seeks to achieve its objective by
attempting to replicate the composite price and yield performance of the
Standard & Poor's 500 Composite Stock Index.
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<PAGE>
SUBACCOUNT 5 - invests solely in shares of the Government Bond Fund of the
Trust. The Government Bond Fund has the investment objective of seeking high
income, preservation of capital and maintenance of liquidity, primarily through
investments in debt instruments issued or guaranteed by the U.S. Government or
its agencies or instrumentalities and in related options, futures and repurchase
agreements.
SUBACCOUNT 6 - invests solely in shares of the Select Aggressive Growth Fund of
the Trust. The Select Aggressive Growth Fund seeks above-average capital
appreciation by investing primarily in common stocks of companies which are
believed to have significant potential for capital appreciation.
SUBACCOUNT 7 - invests solely in shares of the Select Growth Fund of the Trust.
The Select Growth Fund seeks to achieve long-term growth of capital by investing
in a diversified portfolio consisting primarily of common stocks selected on the
basis of their long-term growth potential.
SUBACCOUNT 8 - invests solely in shares of the Select Growth and Income Fund of
the Trust. The select Growth and Income Fund seeks a combination of long-term
growth of capital and current income. The Fund will invest primarily in
dividend-paying common stocks and securities convertible into common stocks.
SUBACCOUNT 9 - invests solely in shares of the Small Cap Value Fund of the
Trust. The Small Cap Value Fund seeks long-term growth by investing principally
in a diversified portfolio of common stocks of smaller, faster-growing companies
considered to be attractively valued in the smaller company sector of the
market.
SUBACCOUNT 11 - invests solely in shares of the Select International Equity Fund
of the Trust. The Select International Equity Fund seeks maximum long-term
total return (capital appreciation and income) primarily by investing in common
stocks of established non-U.S. companies.
SUB-ACCOUNT 12- invests solely in shares of the Select Capital Appreciation Fund
of the Trust. The Select Capital Appreciation Fund seeks long-term growth of
capital in a manner consistent with the preservation of capital. Realization of
income is not a significant investment consideration and any income realized on
the Fund's investments will be incidental to its primary objective. The Fund
will invest primarily in common stock of industries and companies which are
experiencing favorable demand for their products and services, and which operate
in a favorable competitive environment and regulatory climate. The Sub-Adviser
for the Select Capital Appreciation Fund is Janus Capital Corporation.
SUBACCOUNT 102 - invests solely in shares of the High Income Portfolio of VIPF.
The High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated fixed-income securities
(commonly referred to as "junk bonds"), while also considering growth of
capital. These securities are often considered to be speculative and involve
greater risk of default or price changes than securities assigned a high quality
rating. For more information about these lower-rated securities, see "Risks of
Lower-Rated Debt Securities" in the VIPF prospectus.
SUBACCOUNT 103 - invests solely in shares of the Equity-Income Portfolio of
VIPF. The Equity-Income Portfolio seeks reasonable income by investing
primarily in income-producing equity securities. In choosing these securities,
the Portfolio will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield on the
securities comprising the Standard & Poor's 500 Composite Stock Price Index.
The Portfolio may invest in high yielding, lower-rated securities (commonly
referred to as "junk bonds") which are subject to greater risk than investments
in higher-rated securities. For a further discussion of lower-rated securities,
please see "Risks of Lower-Rated Debt Securities" in the VIPF prospectus.
SUBACCOUNT 104 - invests solely in shares of the Growth Portfolio of VIPF. The
Growth Portfolio seeks to achieve capital appreciation. The Portfolio normally
purchases common stocks, although its investments are not restricted to any one
type of security. Capital appreciation may also be found in other types of
securities, including bonds and preferred stocks.
SUBACCOUNT 105 - invests solely in shares of the Overseas Portfolio of VIPF.
The Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities and provides a means for aggressive investors
to diversify their own portfolios by participating in companies and economies
outside of the United States.
SUBACCOUNT 106 - invests solely in shares of the Asset Manager Portfolio of VIPF
II. The Asset Manager Portfolio seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed-income instruments.
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<PAGE>
SUB-ACCOUNT 150 - invests solely in shares of the International Stock Portfolio
of T. Rowe. The International Stock Portfolio seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies.
SUBACCOUNT 20 - invests solely in shares of the International Equity Series of
DGPF. The International Equity Series seeks long-term growth without undue risk
to principal by investing primarily in equity securities of foreign issuers
providing the potential for capital appreciation and income.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF CERTAIN OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUBACCOUNTS
WHICH WILL BEST MEET YOUR NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE TRUST, VIPF, VIPF II, T. ROWE AND DGPF ALONG WITH THIS PROSPECTUS. THE
MONEY MARKET PORTFOLIO OF VIPF AND CERTAIN OTHER PORTFOLIOS OFFERED BY THE
UNDERLYING INVESTMENT COMPANIES ARE NOT AVAILABLE UNDER THE POLICIES.
IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE AVAILABILITY OF
PARTICULAR SUBACCOUNTS.
In the event of a material change in the investment policy of a Subaccount or
the Underlying Fund in which it invests, you will be notified of the change. If
you have Policy Value in that Subaccount, the Company will transfer it without
charge on written request by you to another Subaccount or to the General
Account, where available. The Company must receive your written request within
sixty (60) days of the later of (1) the effective date of such change in the
investment policy or (2) the receipt of the notice of your right to transfer.
INVESTMENT ADVISORY SERVICES TO THE TRUST - The overall responsibility for the
supervision of the affairs of the Trust vests in the Trustees. The Trustees
have entered into a Management Agreement with Allmerica Investment Management
Company, Inc. ("Allmerica Investment"), an indirect wholly-owned subsidiary of
State Mutual, to handle the day-to-day affairs of the Trust. Allmerica
Investment, subject to review by the Trustees, is responsible for the general
management of the Funds. Allmerica Investment is also obligated to perform
certain administrative and management services for the Trust, furnishes to the
Trust all necessary office space, facilities, and equipment, and pays the
compensation, if any, of officers and Trustees who are affiliated with Allmerica
Investment.
Other than the expenses specifically assumed by Allmerica Investment under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by it, including fees and expenses associated with the registration and
qualification of the Trust's shares under the Securities Act of 1933, other fees
payable to the Commission, independent public accountant, legal and custodian
fees, association membership dues, taxes, interest, insurance premiums,
brokerage commission, fees and expenses of the Trustees who are not affiliated
with Allmerica Investment, expenses for proxies, prospectuses, and reports to
shareholders, and other expenses.
Pursuant to the Management Agreement with the Trust, Allmerica Investment has
entered into agreements ("Sub-Adviser Agreements") with other investment
advisers ("Sub-Advisers") under which each Sub-Adviser manages the investments
of one or more of the Funds. Under the Sub-Adviser Agreement, the Sub-Adviser
is authorized to engage in portfolio transactions on behalf of the applicable
Fund, subject to such general or specific instructions as may be given by the
Trustees. The terms of a Sub-Adviser Agreement cannot be materially changed
without the approval of a majority in interest of the shareholders of the
affected Fund.
The Sub-Advisers for each of the Funds are as follows:
Growth Fund Miller, Anderson & Sherrerd
Investment Grade Income Fund Allmerica Asset Management, Inc.
Money Market Fund Allmerica Asset Management, Inc
Equity Index Fund Allmerica Asset Management, Inc.
Government Bond Fund Allmerica Asset Management, Inc.
Select International Equity Fund Bank of Ireland Asset Management Limited
Select Aggressive Growth Fund Nicholas-Applegate Capital Management
Select Capital Appreciation Janus Capital Corporation
Select Growth Fund United Asset Management Corporation
Select Growth and Income Fund John A. Levin & Co., Inc.
Small Cap Value Fund David L. Babson & Co. Inc.
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<PAGE>
Allmerica Asset Management, Inc. is an indirect wholly owned subsidiary of the
Company.
For providing its services under the Management Agreement, Allmerica Investment
will receive a fee, computed daily at an annual rate based on the average daily
net asset value of each Fund as follows:
<TABLE>
<CAPTION>
Fund Net Asset Value Rate
---- --------------- ----
<S> <C> <C>
Growth First $50 million 0.60%
$50 - 250 million 0.50%
Over $250 million 0.35%
Investment Grade First $50 million 0.50%
Income $50 - 250 million 0.35%
Over $250 million 0.25%
Money Market First $50 million 0.35%
$50 - 250 million 0.25%
Over $250 million 0.20%
Equity Index First $50 million 0.35%
$50 - 250 million 0.30%
Over $250 million 0.25%
Government Bond * 0.50%
Select International * 1.00%
Equity
Select Aggressive * 1.00%
Growth
Select Capital Appreciation * 1.00%
Select Growth * 0.85%
Select Growth and Income * 0.75%
Small Cap Value * 0.85%
<FN>
* For the Government Bond Fund, Select International Equity Fund, Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Growth
Fund, Select Growth and Income Fund and Small Cap Value Fund, each rate
applicable to Allmerica Investment does not vary according to the level of
assets in the Fund.
</TABLE>
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<PAGE>
Allmerica Investment's fee computed for each Fund will be paid from the assets
of such Fund. Allmerica Investment is solely responsible for the payment of all
fees for investment management services to the Sub-Advisers, who will receive
from Allmerica Investment a fee, computed daily at an annual rate based on the
average daily net asset value of each Fund as follows:
<TABLE>
<CAPTION>
Sub-Adviser Fund Net Asset Value Rate
----------- ---- --------------- ----
<S> <C> <C> <C>
Miller, Anderson Growth * *
& Sherrerd
Allmerica Asset Investment Grade Income ** 0.20%
Management, Inc.
Allmerica Asset Money Market ** 0.10%
Management, Inc.
Allmerica Asset Equity Index ** 0.10%
Management, Inc.
Allmerica Asset Government Bond ** 0.20%
Management, Inc.
Bank of Ireland Asset Select Int'l Equity First $50 million 0.45%
Management Limited Next $50 million 0.40%
Over $100 million 0.30%
Nicholas-Applegate Capital Select Aggressive Growth ** 0.60%
Management
Janus Capital Corporation Select Capital Appreciation First $100 million 0.60%
Over $100 million 0.55%
United Asset Management Select Growth First $50 million 0.50%
Corporation $50 - 100 million 0.45%
$150 - 250 million 0.35%
$250 - 350 million 0.30%
Over $350 million 0.25%
John A. Levin & Co., Inc. Select Growth and Income First $100 million 0.40%
Next $200 million 0.25%
Over $300 million 0.30%
David L. Babson & Co. Small Cap Value ** 0.50%
<FN>
* Allmerica Investment will pay a fee to Miller, Anderson & Sherrerd based on
the aggregate assets of the Growth Fund and certain other accounts of State
Mutual and its affiliates (collectively, the "Affiliated Accounts") which
are managed by Miller, Anderson & Sherrerd, under the following schedule:
</TABLE>
<TABLE>
<CAPTION>
Aggregate Average Net Assets Rate
---------------------------- ----
<S> <C>
First $50 million 0.500%
$50 - 100 million 0.375%
$100 - 500 million 0.250%
$500 - 850 million 0.200%
Over $850 million 0.150%
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<PAGE>
<FN>
** For the Investment Grade Income Fund, Money Market Fund, Equity Index
Fund, Government Bond Fund, Select Aggressive Growth Fund and Small
Cap Value Fund, each rate applicable to the Sub-Advisers does not vary
according to the level of assets in the Fund.
</TABLE>
The Prospectus of the Trust contains additional information concerning the
Funds, including information concerning additional expenses paid by the Funds,
and should be read in conjunction with this Prospectus.
INVESTMENT ADVISORY SERVICES TO VIPF AND VIPF II - For managing investments and
business affairs, each Portfolio pays a monthly fee to Fidelity Management. The
Prospectuses of VIPF and VIPF II contain additional information concerning the
Portfolios, including information concerning additional expenses paid by the
Portfolios, and should be read in conjunction with this Prospectus.
VIPF AND VIPF II PORTFOLIOS
The High Income Portfolio pays a monthly fee to Fidelity Management at an annual
fee rate made up of the sum of two components:
1. A group fee rate based on the monthly average net assets of all the mutual
funds advised by Fidelity Management. On an annual basis this rate cannot
rise above 0.37%, and drops as total assets in all these funds rise.
2. An individual fund fee rate of 0.45% of the High Income Portfolio's average
net assets throughout the month. One-twelfth of the annual management fee
rate is applied to net assets averaged over the most recent month,
resulting in a dollar amount which is the management fee for that month.
The Equity-Income, Growth, Asset Manager and Overseas Portfolios' fee rates are
each made of two components:
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by Fidelity Management. On an annual basis, this rate
cannot rise above 0.52%, and drops as total assets in all these mutual
funds rise.
2. An individual Portfolio fee rate of 0.20% for the Equity-Income Portfolio,
0.30% for the Growth Portfolio, 0.40% for the Asset Manager Portfolio and
0.45% for the Overseas Portfolio.
One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
Thus, the High Income Portfolio may have a fee of as high as 0.82% of its
average net assets. The Equity-Income Portfolio may have a fee of as high as
0.72% of its average net assets. The Growth Portfolio may have a fee of as high
as 0.82% of its average net assets. The Asset Manager Portfolio may have a fee
of as high as 0.92% of its average net assets. The Overseas Portfolio may have
a fee of as high as 0.97% of its average net assets. The actual fee rate may be
less depending on the total assets in the funds advised by Fidelity Management.
INVESTMENT ADVISORY SERVICES TO T. ROWE - The Investment Adviser for the
International Stock Portfolio is Price-Fleming International, Inc. ("Price-
Fleming"). Price-Fleming, founded in 1979 as a joint venture between T. Rowe
Price Associates, Inc. and Robert Fleming Holdings, Limited, is one of America's
largest international mutual fund asset managers with approximately $9 billion
under management in its offices in Baltimore, London, Tokyo and Hong Kong. To
cover investment management and operating expenses, the International Stock
Portfolio pays Price-Fleming a single, all-inclusive fee of 1.05% of its average
daily net assets.
INVESTMENT ADVISORY SERVICES TO DGPF - Each Series of DGPF pays an investment
adviser an annual fee for managing the portfolios and making the investment
decisions for the Series. The investment adviser for the International Equity
Series is Delaware International Advisers Ltd. ("Delaware International"). The
annual fee paid by the International Equity Series is equal to 0.75% of the
average daily net assets of the Series.
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<PAGE>
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The Company reserves the
right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Fund are no longer
available for investment or if in the Company's judgment further investment in
any Underlying Fund should become inappropriate in view of the purposes of the
Separate Account or the affected Subaccount, the Company may redeem the shares
of that Underlying Fund and substitute shares of another registered open-end
management company. The Company will not substitute any shares attributable to
a Policy interest in a Subaccount without notice to the Policy Owner and prior
approval of the Commission and state insurance authorities, to the extent
required by the 1940 Act or other applicable law. The Separate Account may, to
the extent permitted by law, purchase other securities for other policies or
permit a conversion between policies upon request by a Policy Owner.
The Company also reserves the right to establish additional Subaccounts of the
Separate Account, each of which would invest in shares corresponding to a new
Underlying Fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required Commission
approval, the Company may, in its sole discretion, establish new Subaccounts or
eliminate one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant. Any new Subaccounts may be made available to
existing Policy Owners on a basis to be determined by the Company.
Shares of the Underlying Funds are also issued to separate accounts of the
Company and its affiliates which issue variable life policies ("mixed funding").
Shares of the Portfolios are also issued to other unaffiliated insurance
companies ("shared funding"). It is conceivable that in the future such mixed
funding or shared funding may be disadvantageous for variable life Policy Owners
or variable annuity Policy Owners. Although the Company and the Underlying
Investment Companies do not currently foresee any such disadvantages to either
variable life insurance Policy Owners or variable annuity Policy Owners, the
Company and the respective Trustees intend to monitor events in order to
identify any material conflicts between such Policy Owners and to determine what
action, if any, should be taken in response thereto. If the Trustees were to
conclude that separate funds should be established for variable life and
variable annuity Separate Accounts, the Company will bear the attendant
expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Policy to reflect the substitution or change
and will notify Policy Owners of all such changes. If the Company deems it to
be in the best interest of Policy Owners, and subject to any approvals that may
be required under applicable law, the Separate Account or any Subaccount(s) may
be operated as a management company under the 1940 Act, may be deregistered
under the 1940 Act if registration is no longer required, or may be combined
with other Subaccounts or other separate accounts of the Company.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Subaccount in
accordance with instructions received from Policy Owners and, after Annuity
Date, from the Annuitants. Each person having a voting interest in a Subaccount
will be provided with proxy materials of the Underlying Fund together with a
form with which to give voting instructions to the Company. Shares for which no
timely instructions are received will be voted in proportion to the instructions
which are received. The Company will also vote shares in a Subaccount that it
owns and which are not attributable to Policies in the same proportion. If the
1940 Act or any rules thereunder should be amended or if the present
interpretation of the 1940 Act or such rules should change, and as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Policies, the Company reserves the
right to do so.
The number of votes which a Policy Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Fund.
During the accumulation period, the number of Underlying Fund shares
attributable to each Policy Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Policy by the
net asset value of one Underlying Fund share.
During the annuity period, the number of Underlying Fund shares attributable to
each Annuitant will be determined by dividing the reserve held in each
Subaccount for the Annuitant's variable annuity by the net asset value of one
Underlying Fund share. Ordinarily, the Annuitant's voting interest in the
Underlying Fund will decrease as the reserve for the variable annuity is
depleted.
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<PAGE>
CHARGES AND DEDUCTIONS
Deductions under the Policies and charges against the assets of the Subaccounts
are described below. Other deductions and expenses paid out of the assets of
the Underlying Funds are described in the Prospectuses and Statements of
Additional Information of the Trust, VIPF, VIPF II, T. Rowe and DGPF.
A. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from purchase payments at the time the
payments are made. However, a contingent deferred sales charge is deducted from
the Accumulated Value of the Policy in the case of surrender and/or partial
redemption of the Policy or at the time annuity payments begin, within certain
time limits described below.
For purposes of determining the contingent deferred sales charge, the Policy
Value is divided into three categories: (1) New Payments - purchase payments
received by the Company during the nine years preceding the date of the
surrender; (2) Old Payments - purchase payments not defined as New Payments; and
(3) Earnings - the amount of Policy Value in excess of all purchase payments
that have not been previously surrendered. For purposes of determining the
amount of any contingent deferred sales charge, surrenders will be deemed to be
taken first from Old Payments, then from New Payments. Old Payments may be
withdrawn from the Policy at any time without the imposition of a contingent
deferred sales charge. If a withdrawal is attributable all or in part to New
Payments, a contingent deferred sales charge may apply.
No contingent deferred sales charge is imposed, and no commissions are paid, on
Policies issued after December 31, 1992 where the Policy Owner and Annuitant as
of the date of application are both within the following class of individuals:
All employees of State Mutual located at State Mutual's home office
(or at off-site locations if such employees are on State Mutual's home
office payroll); all directors of State Mutual; all retired employees;
all spouses and immediate family members of such employees, directors
and retirees, who reside in the same household; and beneficiaries who
receive a death benefit under a deceased employee's or retiree's
progress sharing plan.
For purposes of the above class of individuals, "State Mutual" includes its
affiliates and subsidiaries; "immediate family members" means children,
siblings, parents and grandparents; "retirement date" means an employee's early,
normal or late retirement date, as defined in State Mutual Companies' Pension
Plan or any successor plan; and "progress sharing plan" means the State Mutual
Life Assurance Company of America Employees' Incentive and Profit Sharing Plan
or any successor plan.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charge is modified to effect certain exchanges of annuity
contracts for the Policies. See APPENDIX C, "EXCHANGE OFFER."
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Policy is surrendered, or if
New Payments are redeemed, while the Policy is in force and before the Annuity
Date, a contingent deferred sales charge may be imposed. The amount of the
charge will depend upon the number of years that the New Payments, if any, to
which the withdrawal is attributed have remained credited under the Policy. Any
Free Withdrawal Amount is deducted first as described below. Additional amounts
withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for income
tax purposes.)
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<PAGE>
The Contingent Deferred Sales Charges are as follows:
<TABLE>
<CAPTION>
Years from date of Charge as Percentage
Payment to date of of New
Withdrawal Payments Withdrawn
---------- ------------------
<S> <C>
0-2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
</TABLE>
The amount redeemed equals the amount requested by the Policy Owner plus the
charge, if any. The charge is applied as a percentage of the New Payments
redeemed, but in no event will the total contingent deferred sales charge exceed
a maximum limit of 8% of total gross New Payments. Such total charge equals the
aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
FREE WITHDRAWAL AMOUNTS. In each calendar year, the Company will waive the
contingent deferred sales charge, if any, on an amount ("Free Withdrawal
Amount") equal to the greatest of (1), (2) or (3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by
total gross payments not previously redeemed ("Cumulative Earnings").
Where (2) is:
10% of the Accumulated Value as of the Valuation Date coincident with or
next following the date of receipt of the request for withdrawal, reduced
by the total amount of any prior partial redemptions made in the same
calendar year to which no contingent deferred sales charge was applied.
Where (3) is:
The amount calculated under the Company's life expectancy distribution
(see "LED Distributions," below), whether or not the withdrawal was part of
such distribution (applies only if the Policy Owner and Annuitant are the
same individual).
For example, an 81-year-old Policy Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
The Free Withdrawal Amount will first be deducted from Cumulative Earnings. If
the Free Withdrawal Amount exceeds Cumulative Earnings, the excess amount will
be deemed withdrawn from payments not previously redeemed on a last-in-first-out
("LIFO") basis. If more than one partial withdrawal is made during the year, on
each subsequent withdrawal the Company will waive the contingent deferred sales
load, if any, until the entire Free Withdrawal Amount has been redeemed. (For
Policies issued on Form No. A3018-91, and state variations thereof, see APPENDIX
B for special provisions.)
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<PAGE>
LED DISTRIBUTIONS. A Policy Owner who is also the Annuitant may elect to make a
series of systematic withdrawals from the Policy according to a life expectancy
distribution ("LED") option, by returning a properly signed LED request form to
the Company's Principal Office. The LED option permits the Policy Owner to make
systematic withdrawals from the Policy over his or her lifetime. The amount
withdrawn from the Policy changes each year, because life expectancy changes
each year that a person lives. For example, actuarial tables indicate that a
person age 70 has a life expectancy of 16 years, but a person who attains age 86
has a life expectancy of another 6.5 years.
If a Policy Owner elects the LED option, in each policy year a fraction of the
Accumulated Value is withdrawn from the Policy based on the Policy Owner's then
life expectancy. The numerator of the fraction is 1 (one) and the denominator
of the fraction is the remaining life expectancy of the Policy Owner, as
determined annually by the Company. The resulting fraction, expressed as a
percentage, is applied to the Accumulated Value of the Policy at the beginning
of the year to determine the amount to be distributed during the year. The
Policy Owner may elect monthly, bimonthly, quarterly, semiannual, or annual
distributions, and may terminate the LED option at any time. The Policy Owner
may also elect to receive distributions under an LED option which is determined
on the joint life expectancy of the Policy Owner and a beneficiary. The Company
may also offer other systematic withdrawal options.
If a Policy Owner makes withdrawals under the LED distribution prior to age
59 1/2, the withdrawals may be treated by the IRS as premature distributions
from the Policy. The payments would then be taxed on an "income first" basis,
and be subject to a 10% federal tax penalty. For more information, see "FEDERAL
TAX CONSIDERATIONS," "B. Taxation of the Policies in General."
SURRENDERS. In the case of a complete surrender, the amount received by the
Policy Owner is equal to the entire Accumulated Value under the Policy, net of
the applicable contingent deferred sales charge on New Payments, the Policy Fee,
and any tax withholding, if applicable. Subject to the same rules that are
applicable to partial redemptions, the Company will not assess a contingent
deferred sales charge on a Free Withdrawal Amount. Because Old Payments count
in the calculation of the Free Withdrawal Amount, if Old Payments equal or
exceed the Free Withdrawal Amount, the Company may assess the full applicable
contingent deferred sales charge on New Payments.
Where a Policy Owner who is trustee under a pension plan surrenders, in whole or
in part, a Policy on a terminating employee, the trustee will be permitted to
reallocate all or a part of the total Accumulated Value under the Policy to
other policies issued by the Company and owned by the trustee, with no deduction
for any otherwise applicable contingent deferred sales charge. Any such
reallocation will be at the unit values for the Subaccounts as of the valuation
date on which a written, signed request is received at the Company's Principal
Office.
For further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining under the Policy in the case of
partial redemption, and important tax considerations, see "Surrender" and
"Partial Redemption" under "THE VARIABLE ANNUITY POLICIES," and see "FEDERAL TAX
CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY PAYMENTS BEGIN. If a period certain option is chosen
(Option V or the comparable fixed annuity option), a contingent deferred sales
charge will be deducted from the Accumulated Value of the Policy if the Annuity
Date occurs at any time during the surrender charge period. Such charge is the
same as that which would apply had the policy been surrendered on the Annuity
Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any policy year under an option involving a life contingency (Options I, II,
III, IV-A, IV-B or the comparable fixed annuity options).
If an owner of a fixed annuity policy issued by the Company wishes to elect a
variable annuity option, the Company may permit such owner to exchange, at the
time of annuitization, the fixed policy for a Policy offered in this Prospectus.
The proceeds of the fixed policy, minus any contingent deferred sales charge
applicable under the fixed policy if a period certain option is chosen, will be
applied towards the variable annuity option desired by the owner. The number of
Annuity Units under the option will be calculated using the Annuity Unit values
as of the 15th of the month preceding the Annuity Date.
SALES EXPENSE. The Company pays sales commissions equal to 5% (4% on policies
originally issued as part of a 401(k) plan) of the purchase payments to
registered representatives of Allmerica Investments, Inc. Managers who
supervise the agents will receive overriding commissions ranging up to no more
than 2% of purchase payments.
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The Company intends to recoup the commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges, described above,
and the investment earnings on amounts allocated to accumulate on a fixed basis
in excess of the interest credited on fixed accumulations by the Company. There
is no additional charge to Policy Owners or the Separate Account. Any
contingent deferred sales charges assessed on a Policy will be retained by the
Company except for amounts it may pay to Allmerica Investments, Inc. for
services it performs and expenses it may incur as principal underwriter and
general distributor. Alternative commission schedules are available with lower
initial commission amounts based on purchase payments, plus ongoing annual
compensation of up to 1% of contract value.
B. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
policies. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when purchase payments were
received, to the extent permitted in your Policy the premium tax charge is
deducted on a pro rata basis when partial withdrawals are made, upon
surrender of the Policy, or when annuity payments begin (the Company
reserves the right instead to deduct the premium tax charge for these
Policies at the time the purchase payments are received); or
(2) the premium tax charge is deducted when annuity payments begin.
If no amount for premium tax was deducted at the time the purchase payment was
received, but subsequently tax is determined to be due prior to the Annuity
Date, the Company reserves the right to deduct the premium tax from the Policy
value at the time such determination is made.
C. POLICY FEE.
A Policy Fee currently is deducted on the policy anniversary date and upon full
surrender of the Policy when the Accumulated Value is $50,000 or less. The
Policy Fee will be the lesser of $30 or 3% of the Accumulated Value under the
Policy on the policy anniversary or full surrender date. The Policy Fee is
waived for policies issued to and maintained by the Trustee of a 401(k) plan.
Where policy value has been allocated to more than one account (General Account
and/or one or more of the Subaccounts), a percentage of the total Policy Fee
will be deducted from the Policy Value in each account. The portion of the
charge deducted from each account will be equal to the percentage which the
Policy Value in that account represents of the total Accumulated Value under the
Policy. The deduction of the Policy Fee will result in cancellation of a number
of Accumulation Units equal in value to the percentage of the charge deducted
from that account.
D. ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS.
MORTALITY AND EXPENSE RISK CHARGE - The Company makes a charge of 1.25% on an
annual basis of the daily value of each Subaccount's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Policies. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
guarantee that it will make annuity payments in accordance with annuity rate
provisions established at the time the Policy is issued for the life of the
Annuitant (or in accordance with the annuity option selected), no matter how
long the Annuitant (or other payee) lives and no matter how long all Annuitants
as a class live. Therefore, the mortality charge is deducted during the annuity
phase on all contracts, including those that do not involve a life contingency,
even though the Company does not bear direct mortality risk with respect to
variable annuity settlement options that do not involve life contingencies. The
expense risk arises from the Company's guarantee that the charges it makes will
not exceed the limits described in the Policies and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results
in a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
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Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE - The Company assesses each Subaccount with a
daily charge at an annual rate of 0.20% of the average daily net assets of the
Subaccount. The charge is imposed during both the accumulation period and the
annuity period. The daily Administrative Expense Charge is assessed to help
defray administrative expenses actually incurred in the administration of the
Subaccount, without profits. However, there is no direct relationship between
the amount of administrative expenses imposed on a given policy and the amount
of expenses actually attributable to that policy.
Deductions for the Policy Fee (described under C. POLICY FEE) and for the
Administrative Expense Charge are designed to reimburse the Company for the cost
of administration and related expenses and are not expected to be a source of
profit. The administrative functions and expense assumed by the Company in
connection with the Separate Account and the Policies include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
TRANSFER CHARGE - The Company currently makes no charge for transfers. The
Company guarantees that the first six transfers in a Policy Year will be free of
charge, but reserves the right to assess a charge, guaranteed never to exceed
$25, for the seventh and each subsequent transfer in a Policy Year.
The Policy Owner may have automatic transfers of at least $100 a month made on a
periodic basis (a) from Subaccount 3 or Sub-Account 5 (which invest in the Money
Market Fund and Government Bond Fund of the Trust, respectively) to one or more
of the other Subaccounts or (b) in order to reallocate Policy Value among the
Subaccounts. Automatic transfers may be made on a monthly, bimonthly, quarterly,
semiannual or annual schedule. The first automatic transfer counts as one
transfer towards the six transfers which are guaranteed to be free in each
policy year. For more information, see "The Policy Transfer Privilege."
OTHER CHARGES - Because the Subaccounts purchase shares of the Underlying Funds,
the value of the net assets of the Subaccounts will reflect the investment
advisory fee and other expenses incurred by the Underlying Funds. The
Prospectus and Statement of Additional Information of the Trust, VIPF, VIPF II,
T. Rowe and DGPF contain additional information concerning expenses of the
Underlying Funds.
THE VARIABLE ANNUITY POLICIES
The Policies are designed for use in connection with several types of retirement
plans as well as for sale to individuals. Participants under such plans, as
well as Policy Owners, Annuitants, and beneficiaries, are cautioned that the
rights of any person to any benefits under such Policies may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Policies.
The Policies offered by the Prospectus may be purchased from representatives of
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD). Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, Massachusetts, 01653, is indirectly wholly-owned by State Mutual.
The Policies also may be purchased from certain independent broker-dealers which
are NASD members.
Policy Owners may direct any inquiries to SMA Life Annuity Customer Services,
SMA Life Assurance Company, 440 Lincoln Street, Worcester, Massachusetts 01653.
A. PURCHASE PAYMENTS.
Purchase payments are payable to the Company. The initial payment will be
credited to the Policy as of the date that the properly completed application
which accompanies the payment is received by the Company at its principal
office. If an application is incomplete, or does not specify how payments are
to be allocated among the Accounts, the initial purchase payment will be
returned within five business days. After a policy is issued, Accumulation
Units will be credited to the Policy at the unit value computed as of the
Valuation Date that a purchase payment is received at the Company's principal
office.
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Purchase payments are not limited as to frequency and number, but there are
certain limitations as to amount. Generally, the initial payment must be at
least $600. Under a salary deduction or a monthly automatic payment plan, the
minimum initial payment is $50. In all cases, each subsequent payment must be
at least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's average
annual contribution per eligible plan participant is at least $600. Total
payments may not exceed the maximum limit specified in the Policy. If the
payments are divided among two or more accounts, a net amount of at least $10 of
each payment must be allocated to each account.
Generally, payments will be allocated among the Accounts according to the Policy
Owner's instructions when the Policy is issued. However, to the extent
permitted by state law, if the Policy is issued in Georgia, Indiana, Michigan,
Missouri, New York, North Carolina, Oklahoma, South Carolina, Texas, Utah,
Washington, West Virginia or in connection with an IRA, for the first 14 days
following the date of issue, all Separate Account allocations will be held in
Subaccount 3 (the Money Market Fund of the Trust). For California senior
citizens age 60 and older, all Separate Account allocations will be held in
Subaccount 3 for 34 days following the date of issue because of the extended
California free-look right for these individuals. Thereafter, all amounts will
be allocated according to the Policy Owner's instructions. The Policy Owner may
change allocation instructions for new payments pursuant to written or telephone
request. If telephone requests are elected by the Policy Owner, a properly
completed authorization form must be on file before telephone requests will be
honored. The policy of the Company and its agents and affiliates is that they
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. The Company will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine;
otherwise, the Company may be liable for any losses due to unauthorized or
fraudulent instructions. The procedures the Company follows for transactions
initiated by telephone include requirements that callers on behalf of a Policy
Owner identify themselves by name and identify the Annuitant by name, date of
birth and social security number. All transfer instructions by telephone are
tape recorded.
B. TRANSFER PRIVILEGE.
At any time prior to the Annuity Date, subject to the consent of the Company, a
Policy Owner may have amounts transferred among the Subaccounts or between a
Subaccount and the General Account, where available. Transfer values will be
effected at the Accumulation Value next computed after receipt of the transfer
order. The Company will make transfers pursuant to written or telephone
requests. As discussed in "A. Purchase Payments," a properly completed
authorization form must be on file before telephone requests will by honored.
Transfers involving the General Account are currently permitted only if:
(a) There has been at least a ninety (90) day period since the last
transfer from the General Account; and
(b) The amount transferred from the General Account in each transfer does
not exceed the lesser of $100,000 or 25% of the Accumulated Value
under the Policy.
These rules are subject to change by the Company.
The Policy Owner may have automatic transfers of at least $100 made on a
periodic basis from Subaccount 3 or Sub-Account 5 (which invest in the Money
Market Fund and Government Bond Fund of the Trust, respectively) to one or more
of the other Subaccounts or reallocate policy value among the Subaccounts.
Automatic transfers may be made on a one, two or three month schedule. The first
automatic transfer counts as one transfer towards the six transfers which are
guaranteed to be free in each policy year.
The transfer privilege is subject to the consent of the Company. The Company
reserves the right to impose limitations on transfers including, but not limited
to: (1) the minimum amount that may be transferred, (2) the minimum amount that
may remain in a Subaccount following a transfer from that Subaccount, (3) the
minimum period of time between transfers involving the General Account, and (4)
the maximum amount that may be transferred each time from the General Account.
Currently, the Company makes no charge for transfers. The first six (6)
transfers in a Policy year are guaranteed to be free of any charge. For the
seventh and each subsequent transfer in a Policy year the Company reserves the
right to assess a charge, guaranteed never to exceed $25, to reimburse it for
the expense of processing transfers.
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C. SURRENDER.
At any time prior to the Annuity Date, a Policy Owner may surrender the Policy
and receive its Accumulated Value, less applicable charges ("Surrender Amount").
The Policy Owner must return the Policy and a signed, written request for
surrender, satisfactory to the Company, to the Company's Principal Office. The
amount payable to the Policy Owner upon surrender will be based on the
Accumulated Value of the Policy as of the Valuation Date on which the request
and the Policy are received at the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Policy is surrendered if payments have been credited to the policy during the
last nine full policy years. See "CHARGES AND DEDUCTIONS." The Policy Fee will
be deducted upon surrender of the Policy.
After the Annuity Date, only Policies under which future annuity payments are
limited to a specified period (as specified in Annuity Option V) may be
surrendered. The Surrender Amount is the commuted value of any unpaid
installments, computed on the basis of the assumed interest rate incorporated in
such annuity payments. No contingent deferred sales charge is imposed after the
Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Subaccount in any
period during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each Separate Account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to the Company's General Account for a period not to exceed
six months.
The surrender rights of Policy Owners who are participants under Section 403(b)
plans or who are participants in the Texas Optional Retirement Program (Texas
ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems
and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
D. PARTIAL REDEMPTION.
At any time prior to the Annuity Date, a Policy Owner may redeem a portion of
the Accumulated Value of his or her Policy, subject to the limits stated below.
The Policy Owner must file a signed, written request for redemption,
satisfactory to the Company, at the Company's Principal Office. The written
request must indicate the dollar amount the Policy Owner wishes to receive and
the account from which such amount is to be redeemed. The amount redeemed
equals the amount requested by the Policy Owner plus any applicable contingent
deferred sales charge, as described under "CHARGES AND DEDUCTIONS."
Where allocations have been made to more than one account, a percentage of the
partial redemption may be allocated to each such account. A partial redemption
from a Subaccount will result in cancellation of a number of units equivalent in
value to the amount redeemed, computed as of the Valuation Date that the request
is received at the Company's principal office.
Each partial redemption must be in a minimum amount of $200. No partial
redemption will be permitted if the Accumulated Value remaining under the Policy
would be reduced to less than $1,000. Partial redemptions will be paid in
accordance with the time limitations described under "Surrender."
After the Annuity Date, only Policies under which future variable annuity
payments are limited to a specified period may be partially redeemed. A partial
redemption after the Annuity Date will result in cancellation of a number of
Annuity Units equivalent in value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Policy Owners
who are participants under Section 403(b) plans or under the Texas ORP, see
"FEDERAL TAX CONSIDERATIONS," "I. Public School Systems and Certain Tax Exempt
Organizations" and "J. Texas Optional Retirement Program."
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For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
E. DEATH BENEFIT.
If the Annuitant dies (or a Policy Owner predeceases the Annuitant) prior to the
Annuity Date while the Policy is in force, the Company will pay the beneficiary
a death benefit, except where the Policy continues as provided in "F. THE
SPOUSE OF THE POLICY OWNER AS BENEFICIARY."
Upon death of the Annuitant (including a Policy Owner who is also the
Annuitant), the death benefit is equal to the greatest of (a) the Accumulated
Value under the Policy or (b) the total amount of gross payment(s) made under
the Policy reduced proportionally to reflect the amount of all prior partial
withdrawals or (c) the death benefit that would have been payable on the most
recent fifth year policy anniversary, increased for subsequent purchase payments
and reduced proportionally to reflect withdrawals after that date.
A partial withdrawal will reduce the gross payments available as a death benefit
under (b) in the same proportion that the Accumulated Value was reduced on the
date of withdrawal. For each withdrawal, the reduction is calculated by
multiplying the total amount of gross payments by a fraction, the numerator of
which is the amount of the partial withdrawal and the denominator of which is
the Accumulated Value immediately prior to the withdrawal. For example, if gross
payments total $8,000 and a $3,000 withdrawal is made when the Accumulated Value
is $12,000, the proportional reduction of gross payments available as a death
benefit is calculated as follows: The Accumulated Value is reduced by 1/4
(3,000 divided by 12,000); therefore, the gross amount available as a death
benefit under (b) will also be reduced by 1/4 (8,000 times 1/4 equals $2,000),
so that the $8,000 gross payments are reduced to $6,000. Payments made after a
withdrawal will increase the death benefit available under (b) by the amount of
the payment.
A partial withdrawal after the most recent fifth year Policy anniversary will
decrease the death benefit available under (c) in the same proportion that the
Accumulated Value was reduced on the date of the withdrawal. For example, if the
death benefit that would have been payable on the most recent fifth year Policy
anniversary is $12,000 and partial withdrawals totalling $5,000 are made
thereafter when the Accumulated Value is $15,000, the proportional reduction of
death benefit available under (c) is calculated as follows: The Accumulated
Value is reduced by 1/3 (5,000 divided by 15,000); therefore, the death benefit
that would have been payable on the most recent fifth year Policy anniversary
will also be reduced by 1/3 (12,000 times 1/3 or $4,000), so that the death
benefit available under (c) will be $8,000 ($12,000 minus $4,000). Payments
made after the most recent fifth year Policy anniversary will increase the death
benefit available under (c) by the amount of the payment. (For Policies issued
on Form No. A3018-91, and state variations thereof, see APPENDIX B for special
provisions.)
Upon death of a Policy Owner who is not the Annuitant, the death benefit is
equal to the Accumulated Value of the Policy next determined following receipt
of due proof of death received at the Principal Office. The death benefit is
paid only on the first of any joint Policy Owner to predecease the Annuitant.
The death benefit generally will be paid to the beneficiary in one sum.
However, the beneficiary may, by written request, elect one of the following
options:
(1) The payment of the one sum may be delayed for a period not to exceed
five years from the date of death.
(2) The death benefit may be paid in the form of a life annuity or an
annuity for a period certain not extending beyond the beneficiary's
life expectancy. Annuity benefits must begin within one year from the
date of death and will be provided in accordance with the annuity
options described in "THE VARIABLE ANNUITY POLICIES - I. Description
of Variable Annuity Options."
If there is more than one beneficiary, the death benefit will be paid to such
beneficiaries in one sum unless the Company consents to pay an annuity option
chosen by the beneficiaries.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed monthly annuity payments, any unpaid amounts or
installments will be paid to the beneficiary. The Company must pay the
remaining payments at least as rapidly as under the payment option in effect on
the date of the Annuitant's death. If there is more than one beneficiary, the
commuted value of the payments,
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computed on the basis of the assumed interest rate incorporated in the annuity
option table on which such payments are based, shall be paid to the
beneficiaries in one sum.
With respect to any death benefit, the Accumulated Value under the Policy shall
be based on the unit values next computed after due proof of the Annuitant's
death has been received at the Company's principal office. If the beneficiary
elects to receive the death benefit in one sum, the death benefit will be paid
within seven business days. If the beneficiary has not elected an annuity
option within one year from the date notice of death is received by the Company,
the Company will pay the death benefit in one sum. The death benefit will
reflect any earnings or losses experienced during the period and any
withdrawals.
F. THE SPOUSE OF THE POLICY OWNER AS BENEFICIARY.
The Policy Owner's spouse, if named as the beneficiary, may by written request
continue the Policy in lieu of receiving the amount payable upon death of the
policy Owner. Upon such election, the spouse will become the new Policy Owner
(and, if the deceased Owner was also the Annuitant, the new Annuitant). All
other rights and benefits provided in the Policy will continue, except that any
subsequent spouse of such new Policy Owner will not be entitled to continue the
Policy upon such new Policy Owner's death.
G. ASSIGNMENT.
The Policies, other than those sold in connection with certain qualified plans,
may be assigned by the Policy Owner at any time prior to the Annuity Date and
while the Annuitant is alive (see "FEDERAL TAX CONSIDERATIONS"). The Company
will not be deemed to have knowledge of an assignment unless it is made in
writing and filed at the Principal Office. The Company will not assume
responsibility for determining the validity of any assignment. If an assignment
of the Policy is in effect on the Annuity Date, the Company reserves the right
to pay to the assignee, in one sum, that portion of the Surrender Value of the
Policy to which the assignee appears to be entitled. The Company will pay the
balance, if any, in one sum to the Policy Owner in full settlement of all
liability under the Policy. The interest of the Policy Owner and of any
beneficiary will be subject to any assignment.
H. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
Subject to certain restrictions described below, the Policy Owner has the right
(1) to select the annuity option under which annuity payments are to be made,
and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Annuity payments are
determined according to the annuity tables in the Policy, by the annuity option
selected, and by the investment performance of the Account(s) selected.
To the extent a fixed annuity is selected, Accumulated Value will be transferred
to the General Account of the Company, and the annuity payments will be fixed in
amount. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Subaccount(s) is made each month. Since the value of an
Annuity Unit in a Subaccount will reflect the investment performance of the
Subaccount, the amount of each monthly payment will vary.
The annuity option selected must produce an initial payment of at least $50. If
a combination of fixed and variable payments is selected, the initial payment on
each basis must be at least $50. The Company reserves the right to increase
these minimum amounts. If the annuity option(s) selected does not produce
initial payments which meet these minimums, the Company will pay the Accumulated
Value in one sum. Once the Company begins making annuity payments, the
Annuitant cannot make partial redemptions or surrender the annuity benefit,
except in the case where future annuity payments are limited to a "period
certain" (only under Option V or a comparable fixed option). Only beneficiaries
entitled to receive remaining payments for a "period certain" may elect to
instead receive a lump sum settlement.
The Annuity Date is selected by the Policy Owner. To the extent permitted in
your state, the Annuity Date may be the first day of any month (a) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Policy is 75 or under, or (b) within 10 years from the date of issue of the
Policy and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of issue is between 76 and 90. The Policy Owner may elect to change the
Annuity Date by sending a request to the Company's Principal Office at least one
month before the new Annuity Date. The new Annuity Date must be the first day
of any month occurring before the Annuitant's 90th birthday. The new Annuity
Date must be within the life expectancy of the Annuitant. The Company shall
determine such life expectancy at the time a change in Annuity Date is
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requested. The Internal Revenue Code and the terms of qualified plans impose
limitations on the age at which annuity payments may commence and the type of
annuity option selected. See "FEDERAL TAX CONSIDERATIONS" for further
information.
If the Policy Owner does not elect otherwise, annuity payments will be made in
accordance with Option I, a variable life annuity with 120 monthly payments
guaranteed. Changes in either the Annuity Date or annuity option can be made up
to one month prior to the Annuity Date.
I. DESCRIPTION OF VARIABLE ANNUITY OPTIONS.
The Company currently provides the variable annuity options described below.
Variable annuity options may be funded through the Growth Fund, the Money Market
Fund, the Equity Index Fund, and/or the Select Growth and Income Fund.
The Company also provides fixed-amount annuity options which are comparable to
the variable annuity options. Regardless of how payments were allocated during
the accumulation period, any one of the variable annuity options or the
fixed-amount options may be selected, or any one of the variable annuity options
may be selected in combination with any one of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
OPTION I--Variable Life Annuity with 120 Monthly Payments Guaranteed
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if the payee should die before 120 monthly payments have been
paid, the monthly annuity payments will continue to the beneficiary until a
total of 120 monthly payments have been paid.
OPTION II--Variable Life Annuity
A variable annuity payable monthly only during the lifetime of the payee. It
would be possible under this option for the Annuitant to receive only one
annuity payment if the Annuitant dies prior to the due date of the second
annuity payment, two annuity payments if the Annuitant dies before the due date
of the third annuity payment, and so on. However, payments will continue during
the lifetime of the payee, no matter how long the payee lives.
OPTION III--Unit Refund Variable Life Annuity
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if (1) exceeds (2) then monthly variable annuity payments will
continue to the beneficiary until the number of such payments equals the number
determined in (1).
Where: (1) is the dollar amount of the Accumulated Value divided by the
dollar amount of the first monthly payment (which determines the
greatest number of payments payable to the beneficiary), and
(2) is the number of monthly payments paid prior to the death of the
payee,
OPTION IV-A--Joint and Survivor Variable Life Annuity
A monthly variable annuity payable jointly to two payees during their joint
lifetime, and then continuing during the lifetime of the survivor. The amount
of each payment to the survivor is based on the same number of Annuity Units
which applied during the joint lifetime of the two payees. One of the payees
must be either the person designated as the Annuitant in the Policy or the
beneficiary. There is no minimum number of payments under this option. See
Option IV-B, below.
OPTION IV-B--Joint and Two-thirds Survivor Variable Life Annuity
A monthly variable annuity payable jointly to two payees during their joint
lifetime, and then continuing thereafter during the lifetime of the survivor.
However, the amount of each monthly payment to the survivor is based upon
two-thirds of the number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be the person designated as
the Annuitant in the Policy or the beneficiary. There is no minimum number of
payments under this option. See Option IV-A, above.
OPTION V--Period Certain Variable Annuity
A monthly variable annuity payable for a stipulated number of from one to thirty
years. It should be noted that Option V does not involve a life contingency.
In the computation of the payments under this option, the charge for annuity
rate guarantees, which includes a factor for mortality risks, is
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made. Although not contractually required to do so, the Company currently
follows a practice of permitting persons receiving payments under Option V to
elect to convert to a variable annuity involving a life contingency. The
Company may discontinue or change this practice at any time, but not with
respect to Policy Owners who have elected Option V prior to the date of any
change in this practice. See "FEDERAL TAX CONSIDERATIONS" for a discussion of
the possible adverse tax consequences of selecting Option V.
J. NORRIS DECISION.
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from
contributions paid into a plan after August 1, 1983 be calculated without regard
to the sex of the employee. Annuity benefits attributable to payments received
by the Company under a policy issued in connection with an employer-sponsored
benefit plan affected by the NORRIS decision will be based on the greater of (1)
the Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed unisex rates described in such Policy, regardless of whether the
Annuitant is male or female.
Although the Company believes that the Supreme Court ruling does not affect
Policies funding IRA plans that are not employer-sponsored, the Company will
apply certain aspects of the ruling to annuity benefits under such Policies,
except in those states in which it is prohibited. Such benefits will be based on
(1) the greater of the guaranteed unisex annuity rates described in the Policies
or (2) the Company's sex-distinct Non-Guaranteed Current Annuity Option Rates.
K. COMPUTATION OF POLICY VALUES AND ANNUITY PAYMENTS.
THE ACCUMULATION UNIT. Each net purchase payment is allocated to the account(s)
selected by the Policy Owner. Allocations to the Subaccounts are credited to
the Policy in the form of Accumulation Units. Accumulation Units are credited
separately for each Subaccount. The number of Accumulation Units of each
Subaccount credited to the Policy is equal to the portion of the net purchase
payment allocated to the Subaccount, divided by the dollar value of the
applicable Accumulation Unit as of the Valuation Date the payment is received at
the Company's Principal Office. The number of Accumulation Units resulting from
each payment will remain fixed unless changed by a subsequent split of
Accumulation Unit value, a transfer, a partial redemption, or surrender. The
dollar value of an Accumulation Unit of each Subaccount varies from Valuation
Date to Valuation Date based on the investment experience of that Subaccount and
will reflect the investment performance, expenses and charges of its Underlying
Funds. The value of an Accumulation Unit was set at $1.00 on the first
Valuation Date for each Subaccount.
Allocations to the General Account are not converted into Accumulation Units,
but are credited interest at a rate periodically set by the Company. See
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
The Accumulated Value under the Policy is determined by (1) multiplying the
number of Accumulation Units in each Subaccount by the value of an Accumulation
Unit of that Subaccount on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the General Account, if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Subaccount for the Valuation Period then ended is
determined from the investment performance of that Subaccount. Such rate is (1)
the investment income of that Subaccount for the Valuation Period, plus capital
gains and minus capital losses of that Subaccount for the Valuation Period,
whether realized or unrealized, adjusted for provisions made for taxes, if any,
divided by (2) the amount of that Subaccount's assets at the beginning of the
Valuation Period. The adjusted gross investment rate may be either positive or
negative.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR. The net investment rate for a
Subaccount's variable accumulations for any Valuation Period is equal to the
adjusted gross investment rate of the Subaccount for such Valuation Period
decreased by the equivalent for such period of a charge equal to 1.45% per
annum. This charge cannot be increased.
The net investment factor is 1.000000 plus the applicable net investment rate.
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The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY PAYMENTS" in the Statement of Additional Information.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a measure
of the value of the Annuitant's monthly annuity payments under a variable
annuity option. The value of an Annuity Unit in each Subaccount initially was
set at $1.00. The value of an Annuity Unit under a Subaccount on any Valuation
Date thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the product of (1) the net investment factor of
the Subaccount for the current Valuation Period and (2) a factor to adjust
benefits to neutralize the assumed interest rate. The assumed interest rate,
discussed below, is incorporated in the variable annuity options offered in the
Policy.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY PAYMENTS. The first monthly
annuity payment is based upon the Accumulated Value as of a date not more than
four weeks preceding the date the first annuity payment is due. Currently,
variable annuity payments are made on the first of the month based on unit
values as of the 15th day of the preceding month.
The Policy provides annuity rates which determine the dollar amount of the first
monthly payment under each form of annuity for each $1,000 of applied value
(Accumulated Value applied under a specific annuity option to provide annuity
income payments, minus any applicable premium tax). The annuity rates in the
Policy are based on a modification of the 1983 Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. Norris Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3 1/2% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity payments will increase
over periods when the actual net investment result of the Subaccount(s) funding
the annuity exceeds the equivalent of the assumed interest rate for the period.
Variable Annuity Payments will decrease over periods when the actual net
investment result of the respective Subaccount is less than the equivalent of
the assumed interest rate for the period.
The dollar amount of the first monthly annuity payment under a particular option
is determined by multiplying (1) the Accumulated Value applied under that option
(after deduction for applicable contingent deferred sales charge and premium
tax, if any) divided by $1,000, by (2) the applicable amount of the first
monthly payment per $1,000 of value. The dollar amount of the first monthly
variable annuity payment is then divided by the value of an Annuity Unit of the
selected Subaccount(s) to determine the number of Annuity Units represented by
the first payment. This number of Annuity Units remains fixed under all annuity
options except the joint and two-thirds survivor annuity option. In each
subsequent month, the dollar amount of the variable annuity payment is
determined by multiplying this fixed number of Annuity Units by the value of an
Annuity Unit on the applicable Valuation Date.
After the first payment, the dollar amount of each monthly variable annuity
payment will vary with subsequent variations in the value of the Annuity Unit of
the selected Subaccount(s). The dollar amount of each fixed amount monthly
annuity payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Policy Owners both fixed and
variable annuity rates more favorable than those contained in the Policy. Any
such rates will be applied uniformly to all Policy Owners of the same class.
For an illustration of variable annuity payment calculation using a hypothetical
example, see "ANNUITY PAYMENTS" in the Statement of Additional Information.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Policy, on redemptions or
surrenders, on annuity payments, and on the economic benefit to the Policy
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal
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income tax laws as they are interpreted as of the date of this Prospectus. No
representation is made regarding the likelihood of continuation of current
federal income tax laws or of current interpretations by the Internal Revenue
Service (IRS).
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY POLICIES IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER SHOULD ALWAYS BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Policies, the Separate Account or the Subaccounts may have upon
its tax. The Separate Account presently is not subject to tax, but the Company
reserves the right to assess a charge for taxes should the Separate Account at
any time become subject to tax. Any charge for taxes will be assessed on a fair
and equitable basis in order to preserve equity among classes of Policy Owners
and with respect to each Separate Account as though that Separate Account were a
separate taxable entity.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Internal Revenue Code ("Code"). The Company files a
consolidated tax return with its parent, State Mutual, and other affiliates.
The Internal Revenue Service has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
contracts under Section 817(h) of the Code. The regulations provide that the
investments of a segregated asset account underlying a variable annuity contract
are adequately diversified if no more than 55% of the value of its assets is
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. If the investments are not adequately diversified, the income on a
contract, for any taxable year of the Policy Owner, would be treated as ordinary
income received or accrued by the Policy Owner. It is anticipated that the
Funds of the Allmerica Investment Trust, the Portfolios of VIPF and VIPF II, the
Portfolio of T. Rowe and the Series of DGPF will comply with the diversification
requirements.
A. QUALIFIED AND NON-QUALIFIED POLICIES.
From a federal tax viewpoint there are two types of variable annuity Policies,
"qualified" Policies and "non-qualified" Policies. A qualified Policy is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Policy is one that is not purchased in connection with one of the
indicated retirement plans. The tax treatment for certain partial redemptions
or surrenders will vary according to whether they are made from a qualified
Policy or a non-qualified Policy. For more information on the tax provisions
applicable to qualified Policies, see Sections D through J, below.
B. TAXATION OF THE POLICIES IN GENERAL.
The Company believes that the Policies described in this Prospectus will, with
certain exceptions (see K below), be considered annuity policies under Section
72 of the Internal Revenue Code (the "Code"). This section provides for the
taxation of annuities. The following discussion concerns annuities subject to
Section 72. Section 72(e)(11)(A)(ii) requires that all non-qualified deferred
annuity policies issued by the same insurance company to the same Policy Owner
during the same calendar year be treated as a single Policy in determining
taxable distributions under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the Policy is
not taxable to the Policy Owner until it is withdrawn from the Policy. If the
Policy is surrendered or amounts are withdrawn prior to the Annuity Date, to the
extent of the amount withdrawn any investment gain in value over the cost basis
of the Policy would be taxed as ordinary income. Under the current provisions
of the Code, amounts received under a non-qualified Policy prior to the Annuity
Date (including payments made upon the death of the Annuitant or Policy Owner),
or as non-periodic payments after the Annuity Date, are generally first
attributable to any investment gains credited to the Policy over the taxpayer's
basis (if any) in the Policy. Such amounts will be treated as income subject to
federal income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59-1/2. The penalty tax will not be imposed
after age 59-1/2, or if the withdrawal follows the death of the Policy Owner
(or, if the Policy Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Annuitant.
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Furthermore, under Section 72 of the Code, this penalty tax will not be imposed,
irrespective of age, if the amount received is one of a series of "substantially
equal" periodic payments made at least annually for the life or life expectancy
of the payee. This requirement is met when the Policy Owner elects to have
distributions made over the Policy Owner's life expectancy, or over the joint
life expectancy of the Policy Owner and beneficiary. The requirement that the
amount be paid out as one of a series of "substantially equal" periodic payments
is met when the number of units withdrawn to make each distribution is
substantially the same.
In a private letter ruling, the IRS took the position that where distributions
from a variable annuity policy were determined by amortizing the accumulated
value of the policy over the taxpayer's remaining life expectancy (such as under
the Policy's life expectancy distribution ("LED") option), and the option could
be changed or terminated at any time, the distributions failed to qualify as
part of a "series of substantially equal payments" within the meaning of Section
72 of the Code. The distributions were therefore subject to the 10% federal
penalty tax. This private letter ruling may be applicable to a Policy Owner who
receives distributions under the LED option prior to age 59 1/2. Subsequent
private letter rulings, however, have treated LED-type withdrawal programs as
effectively avoiding the 10% penalty tax. The position of the IRS on this issue
is unclear.
If the Policy Owner transfers (assigns) the Policy to another individual as a
gift prior to the Annuity Date, the Code provides that the Policy Owner will
incur taxable income at the time of the transfer. An exception is provided for
certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the Surrender Value of the
Policy over the Policy Owner's cost basis at the time of the transfer. The
transfer is also subject to federal gift tax provisions. Where the Policy Owner
and Annuitant are different persons, the change of ownership of the Policy to
the Annuitant on the Annuity Date, as required under the Policy, is a gift and
will be taxable to the Policy Owner as such. However, the Policy Owner will not
incur taxable income. Rather the Annuitant will incur taxable income upon
receipt of annuity payments as discussed below.
When annuity payments are commenced under the Policy, generally a portion of
each payment may be excluded from gross income. The excludable portion is
generally determined by a formula that establishes the ratio that the cost basis
of the Policy bears to the expected return under the Policy. The portion of the
payment in excess of this excludable amount is taxable as ordinary income. Once
all cost basis in the Policy is recovered, the entire payment is taxable. If
the last Annuitant dies before cost basis is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.
C. TAX WITHHOLDING AND PENALTIES.
The Code requires withholding with respect to payments or distributions from
employee benefit plans, annuities, and IRAs, unless a taxpayer elects not to
have withholding. In addition, the Code requires reporting to the IRS of the
amount of income received with respect to payment or distributions from
annuities.
In certain situations, the Code provides for a tax penalty if, prior to death,
disability or attainment of age 59 1/2, a Policy Owner makes a withdrawal or
receives any amount under the Policy, unless the distribution is in the form of
a life annuity (including life expectancy distributions). The penalty is 10% of
the amount includible in income by the Policy Owner.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Policies offered by this Prospectus will vary according to whether
the amount redeemed or surrendered is allocable to an investment in the Policy
made before or after certain dates.*
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified employer plans, as defined by the Code,
vary according to the type of plan and the terms and conditions of the plan
itself. Therefore, the following is general information about the use of the
Policies with various types of qualified plans. The rights of any person to any
benefits under such qualified plans will be subject to the terms and conditions
of the qualified plans themselves regardless of the terms and conditions of the
Policy.
A loan to a participant or beneficiary from plans qualified under Sections 401
and 403 or an assignment or pledge of an interest in such a plan is generally
treated as a distribution. This general rule does not apply
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to loans which contain certain repayment terms and do not exceed a specified
maximum amount, as required under Section 72(p).
E. QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS AND QUALIFIED ANNUITY
PLANS.
When an employee (including a self-employed individual) or one or more of the
employee's beneficiaries receives a "lump sum" distribution (a distribution from
a qualified plan described in Code Section 401(a) within one taxable year equal
to the total amount payable with respect to such an employee) the taxable
portion of such distribution may qualify for special treatment under a special
five-year income averaging provision of the Code. The employee must have had at
least 5 years of participation under the plan, and the lump sum distribution
must be made after the employee has attained age 59 1/2 or on account of his or
her death, separation from the employer's service (in the case of a common-law
employee) or disability (in the case of a self-employed individual). Such
treatment can be elected for only one taxable year once the individual has
reached age 59 1/2. An employee who attained age 50 before January 1, 1986 may
elect to treat part of the taxable portion of a lump-sum distribution as
long-term capital gain and may also elect 10-year averaging instead of five-year
averaging.
The Company can provide prototype plans for certain of the pension or profit
sharing plans for review by your legal counsel. For information, ask your
agent.
F. SELF-EMPLOYED INDIVIDUALS.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended, frequently
referred to as "H.R. 10", allows self-employed individuals and partners to
establish qualified pension and profit sharing trusts and annuity plans to
provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements applicable
to corporate qualified plans, with some special restrictions imposed on
"owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
G. INDIVIDUAL RETIREMENT ACCOUNT PLANS.
Any individual who earns "compensation" (as defined in the Code and including
alimony payable under a court decree) from employment or self-employment,
whether or not he or she is covered by another qualified plan, may establish an
Individual Retirement Account or Annuity plan ("IRA") for the accumulation of
retirement savings on a tax-deferred basis. Income from investments is not
included in "compensation." The assets of an IRA may be invested in, among
other things, annuity policies including the Policies offered by this
Prospectus.
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the above-described
limit on each. An individual with an IRA may establish an additional IRA for a
non-working spouse if they file a joint return. Contributions to the two IRAs
together are deductible up to the lesser of $2,250 or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be
deducted, taxes on their earnings are deferred until the earnings are
distributed. The maximum permissible non-deductible contribution is $2,000 for
an individual taxpayer and $2,250 for a taxpayer and non-working spouse. These
limits are reduced by the amount of any deductible contributions made by the
taxpayer.
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Contributions may be made with respect to a particular year until the due date
of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2, and failure to
make adequate distributions at this time may result in certain adverse tax
consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a
non-deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's tax
return to enable the IRS to determine the proportion of the IRA balance which
represents non-deductible contributions. If the required information is
provided, that part of the amount withdrawn which is proportionate to the
individual's aggregate non-deductible contributions over the aggregate balance
of all of the individual's IRAs, is excludable from income.
Distributions which are a return of a non-deductible contribution are
non-taxable, as they represent a return of basis. If the required information
is not provided to the IRS, distributions from an IRA to which both deductible
and non-deductible contributions have been made are presumed to be fully
taxable.
H. SIMPLIFIED EMPLOYEE PENSIONS.
Employees may establish simplified employee pensions ("SEPs") under Code Section
408(k) if certain requirements are met. A SEP is an IRA to which the employer
contributes under a written formula. Currently, a SEP may accept employer
contributions each year up to $30,000 or 15% of compensation (as defined),
whichever is less. To establish SEPs the employer must make a contribution for
every employee age 21 and over who has performed services for the employer for
at least three of the five immediately preceding calendar years and who has
earned at least $300 for the year.
The employer's contribution is excluded from the employee's gross income for the
taxable year for which it was made up to the $30,000/15% limit. In addition to
the employer's contribution, the employee may contribute 100% of the employee's
earned income, up to $2,000, to the SEP, but such contributions will be subject
to the rules described above in "F. Individual Retirement Account Plans."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
I. PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS.
Under the provisions of Section 403(b) of the Code, payments made for annuity
policies purchased for employees under annuity plans adopted by public school
systems and certain organizations which are tax exempt under Section 501(c)(3)
of the Code are excludable from the gross income of such employees to the extent
that the aggregate purchase payments for such annuity policies in any year do
not exceed the maximum contribution permitted under the Code.
A Policy qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Policy Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax.
The distribution restrictions are effective for years beginning after December
31, 1988, but only with respect to amounts that were not held under the Policy
as of that date.
J. TEXAS OPTIONAL RETIREMENT PROGRAM.
Under a Code Section 403(b) annuity policy issued as a result of participation
in the Texas Optional Retirement Program, distributions may not be received
except in the case of the participant's death, retirement or termination of
employment in the Texas public institutions of higher education. These
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restrictions are imposed by reason of an opinion of the Texas Attorney General
interpreting the Texas laws governing the Optional Retirement Program.
K. SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES.
Code Section 457 allows employees of a state, one of its political subdivisions,
or certain tax-exempt entities to participate in eligible government deferred
compensation plans. An eligible plan, by its terms, must not allow deferral of
more than $7,500 or 33 1/3% of a participant's includible compensation for the
taxable year, whichever is less. Includible compensation does not include
amounts excludable under the eligible deferred compensation plan or amounts paid
into a Code Section 403(b) annuity. The amount a participant may defer must be
reduced dollar-for-dollar by elective deferrals under a SEP, 401(k) plan or a
deductible employee contribution to a 501(c)(18) plan. Under eligible deferred
compensation plans the state, political subdivision, or tax-exempt entity will
be owner of the Policy.
If an employee also participates in another eligible plan or contributes to a
Code Section 403(b) annuity, a single limit of $7,500 will be applied for all
plans. Additionally, the employee must designate how much of the $7,500 or
33 1/3% limitation will be allocated among the various plans. Contributions to
an eligible plan will serve to reduce the maximum exclusion allowance for a
Code Section 403(b) annuity. Amounts received by employees under such plans
generally are includible in gross income in the year of receipt.
L. NON-INDIVIDUAL OWNERS.
Non-individual Owners (e.g., a corporation) of deferred annuity contracts
generally will be currently taxed on any increase in the cash surrender value of
the deferred annuity attributable to contributions made after February 28, 1986.
This rule does not apply to immediate annuities or to deferred annuities held by
a qualified pension plan, an IRA, a 403(b) plan, estates, employers with respect
to terminated pension plans, or a nominee or agent holding a contract for the
benefit of an individual. Corporate-owned annuities may result in exposure to
the alternative minimum tax, to the extent that income on the annuities
increases the corporation's adjusted current earnings.
REPORTS
A Policy Owner is sent a report semi-annually which states certain financial
information about the Underlying Funds. The Company will also furnish an annual
report to the Policy Owner containing a statement of his or her account,
including unit values and other information as required by applicable law, rules
and regulations.
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from any Separate Account or Subaccount to another of the
Company's separate accounts or Subaccounts having assets of the same class, (2)
to operate the Separate Account or any Subaccount as a management investment
company under the 1940 Act or in any other form permitted by law, (3) to
deregister the Separate Account under the 1940 Act in accordance with the
requirements of the 1940 Act and (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Subaccount, in the event that Underlying Fund shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the
Subaccount. In no event will the changes described above be made without notice
to Policy Owners in accordance with the 1940 Act.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account or of the Subaccounts.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have
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been omitted from this Prospectus pursuant to the rules and regulations of the
Commission. The omitted information may be obtained from the Commission's
principal office in Washington, D.C., upon payment of the Commission's
prescribed fees.
APPENDIX A
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account are not generally subject to regulation under
the provisions of the Securities Act of 1933 or the Investment Company Act of
1940. Disclosures regarding the fixed portion of the annuity contract and the
General Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission. ALLOCATIONS TO AND TRANSFERS TO AND FROM THE GENERAL
ACCOUNT OF THE COMPANY ARE NOT PERMITTED IN CERTAIN STATES.
The General Account of the Company is made up of all of the general assets of
the Company other than those allocated to any Separate Account. Allocations to
the General Account become part of the assets of the Company and are used to
support insurance and annuity obligations.
A portion or all of net purchase payments may be allocated to accumulate at a
fixed rate of interest in the General Account, where available. Such net
amounts are guaranteed by the Company as to principal and a minimum rate of
interest. Under the Policies, the minimum interest which may be credited on
amounts allocated to the General Account is 3% compounded annually. (For
Policies issued on Form No. A3018-91, and state variations thereof, see APPENDIX
B for special provisions.) Additional "Excess Interest" may or may not be
credited at the sole discretion of the Company.
If a Policy is surrendered, or if an Excess Amount is redeemed, while the Policy
is in force and before the Annuity Date, a contingent deferred sales charge is
imposed if such event occurs before the payments attributable to the surrender
or withdrawal have been credited to the Policy less than nine full policy years.
LOANS FROM THE GENERAL ACCOUNT (QUALIFIED POLICIES ONLY)
Loans will be permitted only for TSAs and Policies issued to a plan qualified
under Section 401(a) and 401(k) of the Code. Loans are permitted only from a
Policy's accumulation in the General Account, where available. If the
accumulation in the General Account, as of the date the Company receives the
loan request, does not permit the loan, the Company will make a pro-rata
transfer from the Subaccounts to the General Account sufficient to permit the
loan, based on the amounts in the Subaccounts on the date the Company receives
the loan request. A pro-rata transfer means the Company will allocate the
transfer among the Subaccounts in the same proportion that the Policy Value in
each Subaccount bears to the total Policy Value, less debt, on the date of the
transfer. The maximum loan amount is the amount determined under the Company's
maximum loan formula for qualified plans. The minimum loan amount is $1,000.
Loans will be secured by a security interest in the Policy. Loans are subject
to applicable retirement legislation and their taxation is determined under the
Federal income tax laws. The amount borrowed will be transferred to a fixed,
minimum guarantee loan assets account in the Company's General Account, where it
will accrue interest at a specified rate below the then current loan interest
rate. Generally, loans must be repaid within five (5) years.
The amount of the death benefit, the amount payable on a full surrender and the
amount applied to provide an annuity on the Annuity Date will be reduced to
reflect any outstanding loan balance (plus accrued interest thereon). Partial
withdrawals may be restricted by the maximum loan limitation.
APPENDIX B
INFORMATION APPLICABLE ONLY TO POLICY NO. A3018-91
(AND STATE VARIATIONS)
If your Policy is issued on Form No. A3018-91, or a state variation thereof
("original Policy"), your Policy is substantially similar to the Policies
described in this prospectus ("new Policies"), except as follows:
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1. The minimum interest rate credited to amounts allocated to the General
Account respecting the new Policies is 3% compounded annually. For original
Policies, the minimum interest rate guarantees are 5% for the first five
Policy years, 4% for the next five Policy years, and 3.5% thereafter.
2. The guaranteed death benefit under the new Policies is reduced
proportionally to reflect partial withdrawals (in the same proportion that
the Accumulated Value was reduced by the withdrawals). Under the original
Policies, partial withdrawals are subtracted from the guaranteed death
benefit.
3. Under the new Policies, the Free Withdrawal Amount is the greater of (1)
cumulative earnings (Accumulated Value as of the most recent Valuation Date
reduced by total gross payments not previously redeemed), (2) 10% of the
Accumulated Value as of the most recent Valuation Date, reduced by the
total amount of any prior partial redemptions made in the same calendar
year to which no contingent deferred sales charge was applied, or (3) the
life expectancy distribution, if applicable. The Free Withdrawal Amount
for new Policies is first deducted from cumulative earnings, and any excess
will be deemed withdrawn on a LIFO (last-in-first-out) basis.
Under the original Policies, the Free Withdrawal Amount is the
greater of (1) 10% of the Accumulated Value as of December 31 of the
previous calendar year, or (2) the life expectancy distribution, if
applicable. The Free Withdrawal Amount for original Policies is
deducted first from Old Payments, then from the earliest New
Payments and so on until all New Payments have been exhausted
pursuant to the FIFO (first-in-first-out) method of accounting (LIFO
or last-in-first-out method in New Jersey).
4. If you surrender your Policy or annuitize under a period certain option at
the end of one, three or fives years, the expenses you would pay on a
$1,000 investment, assuming 5% annual return on assets, would average a few
dollars less than shown in the expense examples under "ANNUAL AND
TRANSACTION EXPENSES."
APPENDIX C
EXCHANGE OFFER
A. VARIABLE CONTRACT EXCHANGE OFFER.
The Company reserves the right to suspend this exchange offer at any time. This
exchange offer applies to all variable annuity contracts issued by the Company,
except for (1) variable annuity contracts A3019-92 and A3022-93 (and state
variation forms) known as Delaware Medallion, (2) variable annuity contract
A3020-92 (and state variation forms) known as Allmerica Select, and (3) new
Policies issued on Form No. A3021-93 (an state variations thereof) with respect
to an exchange for an original Policy issued on Form No. A3018-91 (and state
variations thereof). A variable annuity contract to which this exchange offer
applies may be exchanged at net asset value for the new or original Policies
described in this prospectus, which are issued on Form Nos. A3021-93 or
A3018-91, respectively, and state variations thereof. To effect an exchange,
the Company should receive (1) a completed application for the Policy,
(2) written request for the exchange, (3) the contract to be exchanged for the
Policy, and (4) a signed Letter of Awareness.
CONTINGENT DEFERRED SALES CHARGE COMPUTATION. No surrender charge applicable to
the contracts to be exchanged will apply to the surrender effecting the
exchange. Where a contract other than a Policy is exchanged for a Policy, the
contingent deferred sales charge under the acquired Policy will be computed as
if prior purchase payments for the exchanged contract had been made for the
acquired Policy on the date of issue of the exchanged contract. Where another
Policy is exchanged for a Policy, the contingent deferred sales charge under the
acquired Policy will be computed as if prior purchase payments for the exchanged
Policy had been made for the acquired Policy at least as early as the date on
which they were made for the exchanged Policy. For those exchanged contracts
for which a front-end sales charge was deducted from each purchase payment, the
transferred accumulated values will be treated as "Old Payments" under the
Policy, so that no deferred sales charge will be assessed on aggregate
subsequent withdrawals from the Policy of up to the amount of the transferred
accumulated values. For additional purchase payments made under the Policy
after the transfer of accumulated value from the exchanged contract, the
contingent deferred sales charge will be computed based on the number of years
that the additional purchase payments to which the withdrawal is attributed have
been credited under the Policy, as provided in this Prospectus.
SUMMARY OF DIFFERENCES BETWEEN EXCHANGED CONTRACTS AND THE POLICY. The Policy
and the variable contracts to which this exchange offer applies, if other than
another Policy, differ substantially as summarized below. There may be
additional differences important to a person considering an exchange, and the
prospectuses of the
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<PAGE>
Policy and the variable contract to be exchanged should be reviewed carefully
before the exchange is made. The differences between the new Policies and the
original Policies are described in Appendix B. ANY POLICY OWNER OF AN ORIGINAL
POLICY CONTEMPLATING AN EXCHANGE FOR A NEW POLICY SHOULD CAREFULLY CONSIDER ANY
POTENTIAL ADVERSE EFFECT.
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under
the Policy, as described in this Prospectus, imposes higher charge percentages
against the excess amount redeemed and generally applies such percentages for a
greater number of years than the exchanged contracts. For certain classes of
exchanged contracts, new purchase payments, subject to the contingent deferred
sales charge under the Policy, would not have been subject to the charge under
the exchanged contract.
POLICY FEE AND ADMINISTRATIVE EXPENSE CHARGE. Under the Policy, the Company
deducts a Policy Fee, at a maximum of $30, on each policy anniversary date and
upon full surrender, when the Accumulated Value is $50,000 or less, and assesses
each Subaccount with a daily administrative expense charge at an annual rate of
0.20% of the average daily net assets of the Subaccount. Depending on the class
of contracts to which this exchange offer is made, either no policy fee is
deducted or a policy fee of $9 is deducted twice a year. For certain classes of
contracts, a combined sales and administrative expense is deducted from purchase
payments. No administrative expense charge based on a percentage of Subaccount
assets is imposed under the contracts to which this exchange offer is made.
TRANSFER CHARGE. No charges for transfers among the Subaccounts and the General
Account are imposed for contracts to which this exchange offer is made.
Currently, no such charge is imposed under the Policy and the first six
transfers in a Policy year are guaranteed to be free of any charge. However,
the Company reserves the right to assess a charge, guaranteed never to exceed
$25, for the seventh and each subsequent transfer in a Policy year.
DEATH BENEFIT. The Policy offers a "stepped-up death benefit" which is not
offered under the exchanged contract; namely, the death benefit that would have
been payable on the most recent fifth year Policy Anniversary, adjusted for
subsequent purchase payments and withdrawals after that date. Upon exchange for
the Policy, the accumulated value of the exchanged contract becomes the
"purchase payment" for the Policy. Therefore, the prior purchase payments made
for the exchanged contract would not become a basis for determining the gross
payment (less redemptions) guarantee under the Policy. Consequently, whether
the initial minimum death benefit under the Policy acquired in an exchange is
greater than, equal to, or less than the death benefit of the exchanged contract
depends upon whether the accumulated value transferred to the Policy is greater
than, equal to, or less than the gross payments (less redemptions) under the
exchanged contract.
ANNUITY TABLES. The contracts to which this exchange offer is made contain more
favorable annuity tables than the Policy for use in determining the amount of
the first variable annuity payment under the annuity options offered. The
contracts and the Policy each provide minimum guarantees.
INVESTMENTS. Accumulated Value and purchase payments under the Policy may be
allocated to several underlying funds in addition to those permitted under the
exchanged contracts.
B. FIXED ANNUITY EXCHANGE OFFER.
This exchange offer also applies to all fixed annuity contracts issued by the
Company. A fixed annuity contract to which this exchange offer applies may be
exchanged at net asset value for the Policy described in this Prospectus,
subject to the same provisions for effecting the exchange and for applying the
Policy's contingent deferred sales charge as described above for variable
annuity contracts. This Prospectus should be read carefully before making such
exchange. Unlike a fixed annuity, the Policy's value is not guaranteed and will
vary depending on the investment performance of the underlying funds to which it
is allocated. The Policy has a different charge structure than a fixed annuity
contract, which includes not only a contingent deferred sales charge that may
vary from that of the class of contracts to which the exchanged fixed contract
belongs, but also Policy fees, mortality and expense risk charges (for the
Company's assumption of certain mortality and expense risks), administrative
expense charges, transfer charges (for transfers permitted among Subaccounts and
the General Account), and expenses incurred by the underlying funds.
Additionally, the interest rates offered under the General Account of the Policy
and the Annuity Tables for determining minimum annuity payments may be different
from those offered under the exchanged fixed contract.
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<PAGE>
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE.
Persons who, under the terms of this exchange offer, exchange their contract for
the Policy and subsequently revoke the Policy within the time permitted, as
described in the sections of this Prospectus captioned "RIGHT TO REVOKE
INDIVIDUAL RETIREMENT ANNUITY" and "RIGHT TO REVOKE OR SURRENDER IN SOME
STATES," will have their exchanged contract automatically reinstated as of the
date of revocation. The refunded amount will be applied as the new current
accumulated value under the reinstated contract, which may be more or less than
it would have been had no exchange and reinstatement occurred. The refunded
amount will be allocated initially among the general account and subaccounts of
the reinstated contract in the same proportion that the value in the general
account and the value in each subaccount bore to the transferred accumulated
value on the date of the exchange of the contract for the Policy. For purposes
of calculating any contingent deferred sales charge under the reinstated
contract, the reinstated contract will be deemed to have been issued and to have
received past purchase payments as if there had been no exchange.
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<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
INDIVIDUAL VARIABLE ANNUITY POLICIES
STATEMENT OF ADDITIONAL INFORMATION
FOR
INDIVIDUAL VARIABLE ANNUITY POLICIES FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-K
INVESTING IN SHARES OF ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS
FUND, VARIABLE INSURANCE PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES,
INC. AND DELAWARE GROUP PREMIUM FUND, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF THE SEPARATE ACCOUNT DATED MAY 1, 1995
("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ANNUITY CUSTOMER
SERVICES, ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY, 440 LINCOLN
STREET, WORCESTER, MASSACHUSETTS 01653
DATED OCTOBER 1, 1995
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . 2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY . . . . . 3
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . 9
GENERAL INFORMATION AND HISTORY
Separate Account VA-K ("Separate Account") is a separate investment account of
Allmerica Financial Life Insurance and Annuity Company ("Company") established
by vote of the Board of Directors on November 1, 1990. The Company changed its
name from SMA Life Assurance Company effective October 1, 1995. The Company is a
life insurance company organized under the laws of Delaware in July, 1974. Its
principal office is located at 440 Lincoln Street, Worcester, Massachusetts
01653, telephone 508-855-1000. The Company is wholly-owned by SMA Financial
Corp., a Massachusetts holding company which is in turn wholly-owned by State
Mutual Life Assurance Company of America ("State Mutual"). State Mutual, 440
Lincoln Street, Worcester, Massachusetts, is a mutual life insurance company
organized under the laws of Massachusetts in 1844. State Mutual is in the
process of converting from a mutual life insurance company to a stock life
insurance company ("demutualization"). Following demutualization, State Mutual
will be known as First Allmerica Financial Life Insurance Company and will be a
wholly owned subsidiary of Allmerica Financial Corporation, 440 Lincoln Street,
Worcester, Massachusetts
Currently, 18 Subaccounts of the Separate Account are available under the
Policies. Each Subaccount invests in a corresponding investment portfolio of
Allmerica Investment Trust, formerly SMA Investment Trust ("Trust"), Variable
Insurance Products Fund ("VIPF"), Variable Insurance Products Fund II ("VIPF
II"), T. Rowe Price International Series, Inc. ("T. Rowe") or Delaware Group
Premium Fund, Inc. ("DGPF"). (The Trust is managed by Allmerica Investment
Management Company, Inc. VIPF and VIPF II are managed by Fidelity Management and
Research Company ("Fidelity Management"). The International Stock Portfolio of
T. Rowe is managed by Rowe Price-Fleming International, Inc. ("Price-Fleming").
The International Equity Series of DGPF is managed by Delaware International
Advisers Ltd. ("International Advisers").
The Trust, VIPF, VIPF II, T. Rowe and DGPF are open-end, diversified series
investment companies. Eleven different Funds of the Trust are available under
the Policies: the Growth Fund, Investment Grade Income Fund, Money Market Fund,
Equity Index Fund, Government Bond Fund, Select International Growth Fund,
Select Aggressive Growth Fund, Select Capital Appreciation Fund, Select Growth
Fund, Select Growth and Income Fund and Small Cap Value Fund. Certain of these
Funds may not be available in all states. Four Portfolios of VIPF are available
under the Policies: the High
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Income Portfolio, Equity-Income Portfolio, Growth Portfolio, and Overseas
Portfolio. One Portfolio of VIPF II is available under the Policies: the Asset
Manager Portfolio. One portfolio of T. Rowe is available under the Policies:
the International Stock Portfolio. The International Equity Series is the only
Series of DGPF available under the Policies. Each Fund, Portfolio and Series
available under the Policies (together, the "Underlying Funds") has its own
investment objectives and certain attendant risks.
TAXATION OF THE POLICIES, SEPARATE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
Policy, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any
other taxes that may become payable in the future in connection with the
Policies or the Separate Account.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Code and files a consolidated tax return with its parent and
affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Policies or the Separate Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Policy Owners. The Separate Account
presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Separate Account. Underlying Fund shares owned by the Subaccounts are held on
an open account basis. A Subaccount's ownership of Underlying Fund shares is
reflected on the records of the Underlying Fund and not represented by any
transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1994 and
1993 and for each of the three years in the period ended December 31, 1994 and
of Separate Account VA-K ExecAnnuity Plus of the Company as of December 31,
1994 and the periods in 1994 and 1993 indicated, included in this
Statement of Additional Information constituting part of the Registration
Statement, have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Policies.
UNDERWRITERS
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD), serves as principal underwriter and general distributor
for the Policies pursuant to a contract between Allmerica Investments, Inc., the
Company and the Separate Account. Allmerica Investments, Inc. distributes the
Policies on a best efforts basis. Allmerica Investments, Inc., 440 Lincoln
Street, Worcester, Massachusetts 01653 was organized in 1969 as a wholly-owned
subsidiary of State Mutual and is, at present, indirectly wholly-owned by State
Mutual.
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<PAGE>
The Policies offered by this Prospectus are offered continuously and may be
purchased from NASD registered representatives of Allmerica Investments, Inc.
and from certain independent broker-dealers which are NASD members and whose
representatives are authorized by applicable law to sell variable annuity
policies.
Commissions are paid by the Company to its licensed insurance agents on sales of
the Policies. The Company intends to recoup the commission and other sales
expense through a combination of anticipated surrender, partial redemption
and/or annuitization charges, the investment earnings on amounts allocated to
accumulate on a fixed basis in excess of the interest credited on fixed
accumulations by the Company, and the profit, if any, from the mortality and
expense risk charge.
All persons selling the Policies are required to be licensed by their respective
state insurance authorities for the sale of variable annuity policies.
Registered representatives of Allmerica Investments, Inc. receive commissions
equal to 5% (4% on Policies originally issued as part of a 401(k) plan) of
Purchase Payments. Managers who supervise the agents will receive overriding
commissions ranging up to no more than 2% of purchase payments. Independent
broker-dealers receive commissions of 5%, of which a portion is paid to their
registered representatives.
The aggregate amount of commissions paid to representatives of Allmerica
Investment, Inc. with respect to sales of the Company's Variable Annuity
Policies was $26,842,152.00 in 1994, $21,276,666.00 in 1993 and $20,808,483.00
in 1992.
Commissions are paid by the Company and do not result in any charge to Policy
Owners or to the Separate Account in addition to the charges described under
"CHARGES AND DEDUCTIONS" in the Prospectus.
ANNUITY PAYMENTS
The method by which the Accumulated Value under the Policy is determined is
described in detail under "K. Computation of Policy Values and Annuity Payments"
in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Subaccount at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit value at the end of the current Valuation Period would be
calculated as follows:
<TABLE>
<S> <C>
(1) Accumulation Unit Value - Previous Valuation Period. . . . . . . $ 1.135000
(2) Value of Assets - Beginning of Valuation Period. . . . . . . . . $5,000,000
(3) Excess of investment income and net gains over capital losses. . . . $1,675
(4) Adjusted Gross Investment Rate for the valuation period (3):(2). . 0.000335
(5) Annual Charge (one day equivalent of 1.45% per annum). . . . . . . 0.000039
(6) Net Investment Rate (4)-(5). . . . . . . . . . . . . . . . . . . . 0.000296
(7) Net Investment Factor 1.000000 + (6) . . . . . . . . . . . . . . . 1.000296
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(8) Accumulation Unit Value - Current Period (1)x(7) . . . . . . . . $ 1.135336
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
accumulated unit value at the end of the Valuation Period would have been
$1.134576.
The method for determining the amount of annuity payments is described in detail
under "K. Computation of Policy Values and Annuity Payments" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY PAYMENT CALCULATION USING HYPOTHETICAL EXAMPLE.
The determination of the Annuity Unit value and the variable annuity payment may
be illustrated by the following hypothetical example: Assume an Annuitant has
40,000 Accumulation Units in a Separate Account, and that the value of an
Accumulation Unit on the Valuation Date used to determine the amount of the
first variable annuity payment is $1.120000. Therefore, the Accumulation Value
of the Policy is $44,800 (40,000 x $1.120000). Assume also that the Policy
Owner elects an option for which the first monthly payment is $6.57 per $1,000
of Accumulated Value applied. Assuming no premium tax or contingent deferred
sales charge, the first monthly payment would be 44.800 multiplied by $6.57, or
$294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3-1/2% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit values
because the former reflect the 3-1/2% assumed interest rate used in the annuity
rate calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined to be 267.5818. The value of this same number of Annuity Units will
be paid in each subsequent month under most options. Assume further that the
net investment factor for the Growth Account for the Valuation Period applicable
to the next annuity payment is 1.000190. Multiplying this factor by .999906
(the one-day adjustment factor for the assumed interest rate of 3-1/2% per
annum) produces a factor of 1.000096. This is then multiplied by the Annuity
Unit value on the immediately preceding Valuation Date (assumed here to be
$1.105000). The result is an Annuity Unit value of $1.105106 for the current
monthly payment. The current monthly payment is then determined by multiplying
the number of Annuity Units by the current Annuity Unit value, or 267.5818 times
$1.105106, which produces a current monthly payment of $295.71.
PERFORMANCE INFORMATION
Performance information for a Subaccount may be compared, in reports and
promotional literature, to certain indices described in the prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other materials information on
various topics of interest to Policy Owners and prospective Policy Owners.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, market timing, dollar cost
averaging, asset allocation, constant ratio transfer and account rebalancing),
the advantages and disadvantages of investing in tax-deferred and taxable
investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and investment
alternatives to certificates of deposit and other financial instruments,
including comparisons between the Policies and the characteristics of and market
for such financial instruments.
TOTAL RETURN
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"Total Return" refers to the total of the income generated by an investment in a
Subaccount and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Subaccounts asset charge and any applicable contingent deferred sales
load which would be assessed upon complete redemption of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission. The quotations are computed by
finding the average annual compounded rates of return over the specified periods
that would equate the initial amount invested to the ending redeemable values,
according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end of the
specified period
The calculation of Total Return includes the annual charges against the asset of
the Subaccount. This charge is 1.45% on an annual basis. The calculation of
ending redeemable value assumes (1) the policy was issued at the beginning of
the period and (2) a complete surrender of the policy at the end of the period.
The deduction of the contingent deferred sales charge, if any, applicable at the
end of the period is included in the calculation, according to the following
schedule:
<TABLE>
<CAPTION>
Policy year from date of payment Charge as Percentage
------------------------------- --------------------
in which Surrender Occurs of New Payments redeemed*
------------------------- -------------------------
<S> <C>
1-2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
<FN>
*Subject to the maximum limit described in the prospectus.
</TABLE>
No contingent deferred sales charge is deducted upon expiration of the periods
specified above. In all calendar years, an amount equal to the greater of
Cumulative Earnings, 10% of the Accumulated Value under the Policy or the life
expectancy distribution, is not subject to the contingent sales load.
The calculations of Total Return include the deduction of the $30 Annual Policy
fee.
-6-
<PAGE>
TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1994
(Assuming COMPLETE redemption of the investment)
<TABLE>
<CAPTION>
Total Return for Average Annual Total
year ended Return since
SUBACCOUNT NAME 12/31/94 inception*
---------- ---- -------- ---------
<S> <C> <C> <C>
Sub-Account 1 Growth -8.46% 4.79%
Sub-Account 2 Investment Grade -11.53% 4.12%
Sub-Account 3 Money Market -4.74% 0.71%
Sub-Account 4 Equity Index -7.58% 4.81%
Sub-Account 5 Government Bond -9.49% 2.90%
Sub-Account 6 Select Aggressive Growth -10.89% 9.54%
Sub-Account 7 Select Growth -10.09% -1.67%
Sub-Account 8 Select Growth and Income -7.90% 0.17%
Sub-Account 9 Small Cap Value -15.04% 0.32%
Sub-Account 11 Select Int'l. Equity N/A -11.60%
Sub-Account 12 Select Capital Appreciation N/A N/A
Sub-Account 102 High Income -10.15% 10.99%
Sub-Account 103 Equity-Income -1.65% 11.56%
Sub-Account 104 Growth -8.63% 9.89%
Sub-Account 105 Overseas -6.92% 5.04%
Sub-Account 106 Asset Manager N/A -9.49%
Sub-Account 150 International Stock N/A N/A
Sub-Account 20 International Equity -6.00% 4.29%
<FN>
* Inception Returns reflect the average annual total return. The date of
inception respecting Subaccounts 1-5 and 102-105 was 9/3/91. The date of
inception respecting Subaccounts 6-8 was 9/15/92. The date of inception
respecting Subaccount 9 was 5/3/93. The date of inception respecting
Subaccounts 11 and 106 was 5/1/94. The date of inception respecting Subaccount
20 was 5/3/93. Subaccounts 12 and 150 were not in existence in 1994.
</TABLE>
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return information in this section refers to the total of
the income generated by an investment in a Subaccount and of the changes of
value of the principal invested (due to realized and unrealized capital gains or
losses) for a specified period reduced by the Subaccount's asset charges.
However, it is assumed that the investment is NOT redeemed at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
P(1 + T)n = EV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of the specified
period
-7-
<PAGE>
The calculation of Supplemental Total Return reflects the 1.45% annual charge
against the assets of the Subaccounts. The ending value assumes that the policy
is NOT redeemed at the end of the specified period, and there is therefore no
adjustment for the contingent deferred sales charge that would be applicable if
the policy was redeemed at the end of the period.
The calculations of Supplemental Total Return includes the deduction of the $30
Annual Policy fee.
TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1994
--------------------------------------------------
(Assuming NO redemption of the investment)
<TABLE>
<CAPTION>
Total Return for Average Annual
year ended Total Return
SUBACCOUNT NAME 12/31/94 since inception*
---------- ---- -------- ---------------
<S> <C> <C> <C>
Sub-Account 1 Growth -1.26% 6.19%
Sub-Account 2 Investment Grade -4.33% 5.53%
Sub-Account 3 Money Market 2.46% 2.27%
Sub-Account 4 Equity Index -0.38% 6.20%
Sub-Account 5 Government Bond -2.29% 4.36%
Sub-Account 6 Select Aggressive Growth -3.69% 11.86%
Sub-Account 7 Select Growth -2.89% 1.07%
Sub-Account 8 Select Growth and Income -0.70% 2.85%
Sub-Account 9 Small Cap Value -7.84% 4.50%
Sub-Account 11 Select Int'l. Equity N/A -4.40%
Sub-Account 12 Select Capital Appreciation N/A N/A
Sub-Account 102 High Income -2.95% 12.18%
Sub-Account 103 Equity-Income 5.55% 12.75%
Sub-Account 104 Growth -1.43% 11.12%
Sub-Account 105 Overseas 0.28% 6.43%
Sub-Account 106 Asset Manager N/A -2.29%
Sub-Account 150 International Stock N/A N/A
Sub-Account 20 International Equity 1.20% 8.39%
<FN>
* Inception Returns reflect the average annual total return. The date of
inception respecting Subaccounts 1-5 and 102-105 was 9/3/91. The date of
inception respecting Subaccounts 6-8 was 9/15/92. The date of inception
respecting Subaccount 9 was 5/3/93. The date of inception respecting
Subaccounts 11 and 106 was 5/1/94. The date of inception respecting Subaccount
20 was 5/3/93. Subaccounts 12 and 150 were not in existence in 1994.
</TABLE>
YIELD AND EFFECTIVE YIELD - SUBACCOUNT 3
(INVESTS IN THE MONEY MARKET FUND OF THE TRUST)
Set forth below is yield and effective yield information for Subaccount 3 for
the seven-day period ended December 31, 1994:
Yield 2.33%
Effective Yield 2.36%
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the Securities and Exchange Commission. Under those
methods, the yield quotation is computed by determining the net change
(exclusive of capital changes) in the value of a hypothetical pre-existing
account having a balance of one accumulation unit of the Subaccount at the
beginning of the period, subtracting a charge reflecting the annual 1.45%
deduction for mortality and expense risk and the administrative charge, dividing
the difference by the value of the account at the beginning of the same period
to obtain the base period return, and then multiplying the return
-8-
<PAGE>
for a seven-day base period by (365/7), with the resulting yield carried to the
nearest hundredth of one percent.
Subaccount 3 computes effective yield by compounding the unannualized base
period return by using the formula:
Effective Yield = [(base period return + 1)(365/7)] - 1
The calculations of yield and effective yield do NOT reflect the $30 Annual
Policy fee.
FINANCIAL STATEMENTS
Financial Statements are included for the Company and for the Subaccounts of
Separate Account VA-K investing in the Underlying Funds.
<PAGE>
SMA LIFE ASSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1994 and 1993
<PAGE>
SMA LIFE ASSURANCE COMPANY
December 31, 1994
Financial Statements
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . 1
Statement of Financial Position. . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Operations and Changes in Stockholder's Equity. . . . . . . . . . 3
Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 13, 1995
To the Board of Directors and Stockholder of
SMA Life Assurance Company
In our opinion, the accompanying statement of financial position and the related
statements of operations and changes in stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of SMA Life
Assurance Company at December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the financial statements, the Company may adopt
Statement of Financial Accounting Standards No. 120, "Accounting and Reporting
by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts", and Financial Accounting Standards Board
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises", in 1996. If these
pronouncements are adopted, the financial statements for the year ended December
31, 1994 will be retroactively restated for the effects of these changes in
accounting principles.
Price Waterhouse LLP
Boston, Massachusetts
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A Wholly Owned Subsidiary of State Mutual Life Assurance Company of America)
STATEMENT OF FINANCIAL POSITION
as of December 31
(in thousands)
<TABLE>
<CAPTION>
ASSETS 1994 1993
---- ----
<S> <C> <C>
Cash $ 7,248 $ 10,172
Investments:
Bonds 1,595,275 1,567,658
Stocks 12,283 23,478
Mortgage loans 295,532 383,059
Policy loans 116,600 109,014
Real estate 51,288 40,904
Short term investments 45,239 4,999
Other investment assets 27,443 314
----------- -----------
Total cash and investments 2,150,908 2,148,598
Premiums deferred and uncollected 5,452 6,953
Investment income due and accrued 39,442 39,993
Other assets 6,548 12,560
Assets held in separate accounts 1,869,695 1,296,620
----------- -----------
$ 4,072,045 $ 3,504,724
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities:
Life reserves $ 890,880 $ 905,813
Annuity and other fund reserves 928,325 925,098
Accident and health reserves 121,580 115,081
Claims payable 11,720 10,476
----------- -----------
Total policy liabilities 1,952,505 1,956,468
Expenses and taxes payable 17,484 43,123
Other liabilities 32,445 26,069
Asset valuation reserve 20,786 10,964
Obligations related to separate account business 1,859,502 1,285,884
----------- -----------
Total liabilities 3,882,722 3,322,508
----------- -----------
Stockholder's equity:
Common stock, $1,000 par value
Authorized - 10,000 shares
Issued and outstanding - 2,517 shares 2,517 2,517
Additional paid-in capital 199,307 199,307
Unassigned deficit (13,621) (20,744)
Special contingency reserves 1,120 1,136
----------- -----------
Total stockholder's equity 189,323 182,216
----------- -----------
$ 4,072,045 $ 3,504,724
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
STATEMENT OF OPERATIONS AND
CHANGES IN STOCKHOLDER'S EQUITY
for the year ended December 31
(In thousands)
<TABLE>
<CAPTION>
REVENUE 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Premiums and other considerations:
Life $ 195,633 $ 189,285 $ 181,992
Annuities 707,172 660,143 365,443
Accident and health 31,927 35,718 35,612
Reinsurance commissions and reserve adjustments 4,195 2,309 2,372
---------- ---------- ----------
Total premiums and other considerations 938,927 887,455 585,419
Net investment income 170,430 177,612 183,159
Realized capital gains (losses), net of tax (17,172) (7,225) 576
Other revenue 26,065 19,055 13,224
---------- ---------- ----------
Total revenue 1,118,250 1,076,897 782,378
---------- ---------- ----------
POLICY BENEFITS AND OPERATING EXPENSES
Policy benefits:
Claims, surrenders and other benefits 331,418 275,290 250,317
Increase in policy reserves 40,113 15,292 159,127
---------- ---------- ----------
Total policy benefits 371,531 290,582 409,444
Operating and selling expenses 164,175 160,928 134,482
Taxes, except capital gains tax 22,846 19,066 29,540
Net transfers to separate accounts 553,295 586,539 199,164
---------- ---------- ----------
Total policy benefits and operating expenses 1,111,847 1,057,115 772,630
---------- ---------- ----------
NET INCOME 6,403 19,782 9,748
STOCKHOLDER'S EQUITY AT BEGINNING OF YEAR 182,216 171,941 177,809
Unrealized capital gains (losses) on investments 12,170 (9,052) (20,770)
Transfer from (to) asset valuation reserve (9,822) 1,974 2,883
Other adjustments (1,644) (2,429) 2,271
---------- ---------- ----------
STOCKHOLDER'S EQUITY AT END OF YEAR $ 189,323 $ 182,216 $ 171,941
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
STATEMENT OF CASH FLOWS
for the year ended December 31
(In thousands)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Premiums, deposits and other income $ 962,147 $ 902,725 $ 602,253
Allowances and reserve adjustments on
reinsurance ceded 3,279 22,185 18,918
Net investment income 173,294 182,843 182,531
Net increase in policy loans (7,585) (7,812) (8,777)
Benefits to policyholders and beneficiaries (330,900) (298,612) (257,274)
Operating and selling expenses and taxes (213,399) (176,361) (126,421)
Net transfers to separate accounts (600,760) (634,021) (221,492)
Other sources (applications) 19,868 7,757 (43,869)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 5,944 (1,296) 145,869
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sales and maturities of long term investments:
Bonds 478,512 386,414 400,636
Stocks 63 64 80
Real estate and other invested assets 3,008 11,094 4,350
Repayment of mortgage principal 65,334 79,844 95,972
Capital gains tax (968) (3,296) --
Acquisition of long term investments:
Bonds (508,603) (466,086) (710,371)
Stocks -- -- (2,617)
Real estate and other invested assets (24,544) (2,392) (1,910)
Mortgage loans (364) (2,266) (852)
Other investing activities 18,934 (27,254) (3,001)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 31,372 (23,878) (217,713)
---------- ---------- ----------
Net change in cash and short term investments 37,316 (25,174) (71,844)
CASH AND SHORT TERM INVESTMENTS
Beginning of the year 15,171 40,345 112,189
---------- ---------- ----------
End of the year $ 52,487 $ 15,171 $ 40,345
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - SMA Life Assurance Company (SMA Life or
the "Company") is a wholly owned subsidiary of SMA Financial Corp., which is
wholly owned by State Mutual Life Assurance Company of America (State Mutual), a
mutual life insurance company. The stockholder's equity of the Company is being
maintained at a minimum level of 5% of general account assets by State Mutual in
accordance with a policy established by vote of State Mutual's Board of
Directors.
The Company's financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware and in conformity with practices prescribed by the National Association
of Insurance Commissioners (NAIC), which are generally accepted accounting
principles for mutual life insurance companies and their stock life insurance
subsidiaries.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
VALUATION OF INVESTMENTS - Investments in bonds are carried principally at
amortized cost, in accordance with NAIC guidelines. Preferred stocks are
carried generally at cost and common stocks are carried at market value. Policy
loans are carried principally at unpaid principal balances.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts. Mortgage loans are reduced for losses expected by
management to be realized on transfers of mortgage loans to real estate (upon
foreclosure), on the disposition or settlement of mortgage loans and on mortgage
loans which management believes may not be collectible in full. In determining
the amount of the loss, management considers, among other things, the estimated
fair value of the underlying collateral. Investment real estate and real estate
acquired through foreclosure are carried at the lower of depreciated cost or
market value.
An asset valuation reserve (AVR) for bonds, mortgage loans, stocks, real estate,
and other invested assets is maintained by appropriations from surplus in
accordance with a formula specified by the NAIC and is classified as a
liability.
FINANCIAL INSTRUMENTS - In the normal course of business, the Company enters
into transactions involving various types of financial instruments including
investments such as bonds and stocks and investment and loan commitments. These
instruments involve credit risk and also may be subject to risk of loss due to
interest rate fluctuations. The Company evaluates and monitors each financial
instrument individually and, when appropriate, obtains collateral or other
security to minimize losses.
RECOGNITION OF PREMIUM INCOME AND ACQUISITION COSTS - In general, premiums are
recognized as revenue over the premium paying period of the policies;
commissions and other costs of acquiring the policies are charged to operations
when incurred.
SEPARATE ACCOUNTS - Separate account assets and liabilities represent segregated
funds administered and invested by the Company for the benefit of certain
variable annuity and variable life contractholders. Assets consist principally
of bonds, common stocks, and short term obligations at market value. The
investment income, gains, and losses of these accounts generally accrue to the
contractholders and therefore, are not included in the Company's net income.
Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
stockholder's equity.
INSURANCE RESERVES AND ANNUITY AND OTHER FUND RESERVES - Reserves for life
insurance, annuities, and accident and health insurance are established in
amounts adequate to meet the estimated future obligations of policies in force.
These liabilities are computed based upon mortality, morbidity and interest rate
assumptions applicable to these coverages, including provision for adverse
deviation. Interest rates range from 3% to 6% for life insurance and 3 1/2% to
9 1/2% for annuities, and mortality and morbidity assumptions reflect the
Company's experience and industry standards. The assumptions vary by plan, age
at issue, year of issue and duration. Claims reserves are computed based on
historical experience modified for expected trends in frequency and severity.
Withdrawal characteristics of annuity and other fund reserves vary by contract.
5
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
At December 31, 1994 and 1993, approximately 77% and 70%, respectively, of the
contracts (included in both the general account and separate accounts of the
Company) were not subject to discretionary withdrawal or were subject to
withdrawal at book value less surrender charge.
FEDERAL INCOME TAXES - State Mutual, its non-insurance domestic subsidiaries and
SMA Life file a consolidated United States Federal income tax return. Entities
included within the consolidated group are segregated into either a life
insurance or non-life insurance company subgroup. The consolidation of these
subgroups is subject to certain statutory restrictions on the percentage of
eligible non-life taxable operating losses that can be applied to offset life
company taxable income. Allmerica P&C and its subsidiaries file a separate
United States Federal income tax return.
The Federal income tax for the non-life insurance subsidiaries is calculated on
a separate return basis. Any current tax liability (benefit) is paid to
(reimbursed by) State Mutual. Tax benefits resulting from taxable operating
losses of the non-life subsidiaries are not reimbursed currently by State
Mutual. However, to the extent such losses are utilized by the consolidated
group, they are reflected as a liability of State Mutual.
The Federal income tax for the life companies is calculated on a line of
business basis, excluding the operating results of the non-insurance
subsidiaries and Allmerica P&C. The tax is allocated to each life company based
on its contribution to the taxable income or loss of each line of business.
CAPITAL GAINS AND LOSSES - Realized capital gains and losses, net of applicable
capital gains tax or benefit, exclusive of those transferred to the interest
maintenance reserve (IMR), are included in the statement of operations.
Unrealized capital gains and losses are reflected as direct credits or charges
to stockholder's equity. The IMR, which is included in other liabilities,
establishes a reserve for realized gains and losses, net of tax, resulting from
changes in interest rates on short and long term fixed income investments. Net
realized gains and losses charged to the IMR are amortized into net investment
income over the remaining life of the investment sold.
PENDING ACCOUNTING PRONOUNCEMENT - In April 1993, the Financial Accounting
Standards Board (FASB) issued Interpretation No. 40, "Applicability of Generally
Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises"
(FIN 40), which establishes a different definition of generally accepted
accounting principles for mutual life insurance companies (and their stock life
insurance subsidiaries). Under the Interpretation, financial statements of
mutual life insurance companies (and their stock life insurance subsidiaries)
which are prepared on the basis of statutory accounting, will no longer be
characterized as in conformity with generally accepted accounting principles.
In January 1995, the FASB issued Statement of Financial Accounting Standards No.
120, "Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating Contracts" (SFAS
No. 120), and the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position No. 95-1, "Accounting for Certain Insurance
Activities of Mutual Life Insurance Enterprises" (SOP 95-1). SFAS No. 120
extends the requirements of SFAS No. 60, "Accounting and Reporting by Insurance
Enterprises," No. 97, "Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments," and No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," to mutual life insurance
enterprises. SOP 95-1 establishes accounting for certain participating life
insurance contracts for mutual life insurance enterprises. SFAS No. 120
requires mutual life insurance enterprises (and permits stock life insurance
enterprises) to apply the provisions of SOP 95-1 to those contracts which meet
the conditions in SFAS No. 120.
FIN 40, SFAS No. 120 and SOP 95-1 are all effective for financial statements
issued for fiscal years beginning after December 15, 1995.
Management of the Company has not yet determined the effect on its financial
statements of applying the new pronouncements nor whether it will continue to
present its general purpose financial statements in conformity with the
statutory basis of accounting or adopt the accounting changes required in order
to continue to present its financial statements in conformity with generally
accepted accounting principles. If the Company chooses to adopt the accounting
changes required, the effect of the changes would be reported retroactively
through restatement of all previously issued financial statements beginning with
the earliest year presented. The cumulative effect of adopting these changes
would be included in the earliest year presented.
6
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
NOTE 2 - INVESTMENTS
BONDS - The carrying value and fair value of investments in bonds,are as
follows:
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 17,651 $ 8 $ 762 $ 16,897
State, local and government agency bonds 1,110 54 -- 1,164
Foreign government bonds 31,863 83 3,735 28,211
Corporate securities 1,462,871 8,145 56,011 1,415,005
Mortgage-backed securities 81,780 268 1,737 80,311
----------- ----------- ----------- -----------
$ 1,595,275 $ 8,558 $ 62,245 $ 1,541,588
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 7,969 $ 356 $ -- $ 8,325
State, local and government agency bonds 15,212 678 -- 15,890
Foreign government bonds 24,152 720 9 24,863
Corporate securities 1,519,050 74,777 4,430 1,589,397
Mortgage-backed securities 1,275 92 -- 1,367
----------- ----------- ----------- -----------
Total $ 1,567,658 $ 76,623 $ 4,439 $ 1,639,842
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The carrying value and fair value by contractual maturity at December 31, 1994,
are shown below. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties or the Company may have the right to put or
sell the obligation back to the issuer. Mortgage-backed securities are
classified based on expected maturities.
<TABLE>
<CAPTION>
Carrying Fair
(In thousands) Value Value
----- -----
<S> <C> <C>
Due in one year or less $ 225,814 $ 224,695
Due after one year through five years 774,918 751,778
Due after five years through ten years 428,080 404,377
Due after ten years 166,463 160,738
----------- -----------
Total $ 1,595,275 $ 1,541,588
----------- -----------
----------- -----------
</TABLE>
MORTGAGE LOANS AND REAL ESTATE - Mortgage loans and real estate investments, are
diversified by property type and location. Real estate investments have been
obtained primarily through foreclosure. Mortgage loans are collateralized by
the related properties and are generally no more than 75% of the property value
at the time the original loan is made. At December 31, 1994 and 1993, mortgage
loan and real estate investments were distributed by the following types and
geographic regions:
7
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
<TABLE>
<CAPTION>
(In thousands)
Property Type 1994 1993
- ------------- ---- ----
<S> <C> <C>
Office buildings $ 140,292 $ 172,694
Residential 57,061 74,514
Retail 72,787 72,756
Industrial/Warehouse 39,424 62,572
Other 37,256 41,427
--------- ---------
Total $ 346,820 $ 423,963
--------- ---------
--------- ---------
<CAPTION>
Geographic Region 1994 1993
- ----------------- ---- ----
<S> <C> <C>
South Atlantic $ 92,934 $ 118,434
East North Central 72,704 78,343
Middle Atlantic 48,688 58,291
Pacific 39,892 45,666
West North Central 27,377 33,325
Mountain 12,211 31,116
New England 26,613 28,759
East South Central 6,224 8,250
West South Central 20,177 21,779
--------- ---------
Total $ 346,820 $ 423,963
--------- ---------
--------- ---------
</TABLE>
NET INVESTMENT INCOME - The components of net investment income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Bonds $ 123,495 $ 126,729 $ 119,777
Stocks 1,799 953 692
Mortgage loans 31,945 40,823 52,406
Real estate 8,425 9,493 8,412
Policy loans 8,797 8,215 7,701
Other investments 1,651 674 344
Short term investments 1,378 840 1,848
--------- --------- ---------
177,490 187,727 191,180
Less investment expenses 9,138 11,026 8,035
--------- --------- ---------
Net investment income, before IMR amortization 168,352 176,701 183,145
IMR amortization 2,078 911 14
--------- --------- ---------
Net investment income $ 170,430 $ 177,612 $ 183,159
--------- --------- ---------
--------- --------- ---------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES - Realized capital gains (losses) on
investments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Bonds $ 645 $ 10,133 $ 3,302
Stocks (62) 16 33
Mortgage loans (17,142) (83) 162
Real Estate 605 (2,044) 1,985
--------- --------- ---------
(15,954) 8,022 5,482
Less income tax 968 3,296 4,623
--------- --------- ---------
Net realized capital gains (losses) before transfer to IMR (16,922) 4,726 859
Net realized capital gains transferred to IMR (250) (11,951) (283)
--------- --------- ---------
Net realized capital gains (losses) $ (17,172) $ (7,225) $ 576
--------- --------- ---------
--------- --------- ---------
</TABLE>
8
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
Proceeds from voluntary sales of investments in bonds during 1994, 1993 and 1992
were $178,640 thousand, $131,783 thousand and $153,218 thousand, respectively.
Gross gains of $3,010 thousand, $4,523 thousand and $3,043 thousand and gross
losses of $4,553 thousand, $450 thousand and $139 thousand, respectively, were
realized on those sales.
NOTE 3 - FAIR VALUE DISCLOSURES OF FINANCIAL INFORMATION
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value information
about certain financial instruments (insurance contracts, real estate, goodwill
and taxes are excluded) for which it is practicable to estimate such values,
whether or not these instruments are included in the balance sheet. The fair
values presented for certain financial instruments are estimates which, in many
cases, may differ significantly from the amounts which could be recognized upon
immediate liquidation. In cases where market prices are not available,
estimates of fair value are based on discounted cash flow analyses which utilize
current interest rates for similar financial instruments which have comparable
terms and credit quality.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
FINANCIAL ASSETS:
CASH AND SHORT TERM INVESTMENTS - The carrying amounts reported in the statement
of financial position approximate fair value.
BONDS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models using
discounted cash flow analyses.
STOCKS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models.
MORTGAGE LOANS - Fair values are estimated by discounting the future contractual
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings. The fair value of below investment grade
mortgage loans is limited to the lesser of the present value of the cash flows
or book value.
POLICY LOANS - The carrying amount reported in the statement of financial
position approximates fair value since policy loans have no defined maturity
dates and are inseparable from the insurance contracts.
FINANCIAL LIABILITIES:
ANNUITY AND OTHER FUND RESERVES (WITHOUT MORTALITY/MORBIDITY FEATURES) - Fair
values for the Company's liabilities under individual annuity contracts are
estimated based on current surrender values.
9
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
The estimated fair values of the financial instruments as of December 31 were as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 7,248 $ 7,248 $ 10,172 $ 10,172
Short term investments 45,239 45,239 4,999 4,999
Bonds 1,595,275 1,541,588 1,567,658 1,639,842
Stocks 12,283 12,283 32,478 32,478
Mortgage loans 295,532 291,704 383,059 395,327
Policy loans 116,600 116,600 109,014 109,014
Financial Liabilities:
Individual annuity contracts 869,230 862,662 870,112 865,668
Supplemental contracts without life
contingencies 16,673 16,673 14,842 14,842
Other contract deposit funds 1,105 1,105 1,317 1,317
</TABLE>
NOTE 4 - FEDERAL INCOME TAXES
The federal income tax provisions for 1994, 1993 and 1992 were $13,109 thousand,
$8,551 thousand and $18,108 thousand, respectively, which include taxes
applicable to realized capital gains of $968 thousand, $3,296 thousand and
$4,623 thousand.
The effective federal income tax rates were 67%, 30% and 65% in 1994, 1993 and
1992, respectively. The differences between the federal statutory rate and the
Company's effective tax rates are primarily related to decreases in taxable
income for the write-offs of mortgage loans; and increases in taxable income for
differences in policyholder liabilities for federal income tax purposes and
financial reporting purposes and the deferral of policy acquisition costs for
federal tax purposes. The Company paid to State Mutual $14,353 thousand,
$8,100 thousand and $30,000 thousand in 1994, 1993 and 1992, respectively, for
its federal income taxes.
The consolidated federal income tax returns are routinely audited by the
Internal Revenue Service (IRS) and provisions are routinely made in the
financial statements in anticipation of the results of these audits. The
Internal Revenue Service (IRS) has completed its examination of all of the
consolidated federal income tax returns through 1988. Deficiencies asserted
with respect to tax years 1977 through 1981 have been paid and recorded and the
consolidated group has filed a recomputation of such years with appeals claiming
a refund with respect to certain agreed upon issues, but has not recognized any
benefit in its financial statements. The consolidated group is currently
considering its response to certain adjustments proposed by the IRS with respect
to the consolidated federal income tax returns for 1982 and 1983. If upheld,
these proposed adjustments would result in additional payments; however, the
consolidated group will vigorously defend its position with respect to these
adjustments. In management's opinion, adequate tax liabilities have been
established for all years.
NOTE 5 - REINSURANCE
The Company participates in reinsurance to reduce overall risks, including
exposure to large losses and to permit recovery of a portion of direct losses.
Reinsurance contracts do not relieve the Company from its obligation to its
policyholders. Reinsurance financial data for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Reinsurance premiums assumed $ 3,788 $ 4,190 $ 4,614
Reinsurance premiums ceded 17,430 14,798 15,570
Deduction from insurance liability including
reinsurance recoverable on unpaid claims 46,734 42,805 48,191
</TABLE>
10
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A Wholly Owned Subsidiary of State Mutual Life Assurance Company of America)
The Company cedes to State Mutual approximately 10% of its individual life
business. Premiums ceded to State Mutual aggregated $7,771 thousand, $9,000
thousand and $9,586 thousand in 1994, 1993 and 1992, respectively. The Company
has also entered into various reinsurance agreements with State Mutual under
which certain insurance risks related to individual accident and health
business, premium income and related expenses are assumed by the Company from
State Mutual. Premiums assumed pursuant to these agreements aggregated $3,788
thousand, $4,190 thousand and $4,614 thousand in 1994, 1993 and 1992,
respectively .
NOTE 6 - DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends by insurers. These
laws affect the dividend paying ability of the Company. Pursuant to Delaware's
statute, the maximum amount of dividends and other distributions that an insurer
may pay in any twelve month period, without the prior approval of the Delaware
Commissioner of Insurance, is limited to the greater of (i) 10% of its statutory
policyholder surplus as of the preceding December 31 or (ii) the individual
company's statutory net gain from operations for the preceding calendar year (if
such insurer is a life company) or its net income (not including realized
capital gains) for the preceding calendar year (if such insurer is not a life
company). Any dividends to be paid by an insurer, whether or not in excess of
the aforementioned threshold, from a source other than earned surplus would also
require the prior approval of the Delaware Commissioner of Insurance. While the
Company is currently operating on a profitable basis, it has a negative earned
surplus position and accordingly is precluded from paying dividends to State
Mutual without the approval of the Commissioner of Insurance.
NOTE 7 - RELATED PARTY TRANSACTIONS
State Mutual provides management, operating personnel and facilities on a cost
reimbursement basis to the Company. Expenses for services received from State
Mutual were $102,461 thousand, $98,676 thousand and $88,273 thousand in 1994,
1993 and 1992, respectively. The net amounts payable to State Mutual and
affiliates for accrued expenses and various other liabilities and receivables
were $8,344 thousand and $12,182 thousand at December 31, 1994 and 1993,
respectively.
During 1992, the Company sold a building to an affiliated company at its
estimated fair value of $4,350 thousand. The Company recognized a capital gain
on the sale, net of tax, in the amount of $1,310 thousand.
NOTE 8 - FUNDS ON DEPOSIT
In March 1994, the Company voluntarily withdrew from being licensed in New York.
In connection with the withdrawal State Mutual, which is licensed in New York,
became qualified to sell the products previously sold by SMA Life in New York.
The Company agreed with the New York Department of Insurance to maintain,
through a custodial account in New York, a security deposit, the market value of
which will at all times equal 102% of all outstanding general account
liabilities of the Company for New York policyholders, claimants and creditors.
As of December 31, 1994, the carrying value and fair value of the assets on
deposit was $327,899 thousand and $323,474 thousand, respectively, which is in
excess of the required amount.
Additional securities with a carrying value of $3,855 thousand and $3,353
thousand were on deposit with various other state and governmental authorities
as of December 31, 1994 and 1993, respectively.
NOTE 9 - LITIGATION
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the
advice of legal counsel, the ultimate resolution of these proceedings will not
have a material effect on the Company's financial statements.
11
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account
1 2 3
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica
Investment Trust. . . . . . . . . . $125,224,780 $ 68,734,317 $ 40,370,621
Investment in shares of Fidelity
Variable Insurance Products Fund. . -- -- --
Investment in shares of Delaware
Group Premium Fund, Inc.. . . . . . -- -- --
Receivable from SMA Life Assurance
Company (Sponsor) . . . . . . . . . -- -- 221,677
------------ ------------ ------------
Total assets . . . . . . . 125,224,780 68,734,317 40,592,298
LIABILITIES:
Payable to SMA Life Assurance
Company (Sponsor) . . . . . . . . . 187,091 7,473 --
------------ ------------ ------------
Net assets. . . . . . . . . . . . $125,037,689 $ 68,726,844 $ 40,592,298
------------ ------------ ------------
------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity
policies. . . . . . . . . . . . . $ 85,647,288 $ 45,266,282 $ 28,808,131
Non-qualified variable annuity
policies. . . . . . . . . . . . . . 39,390,401 23,460,562 11,784,167
Value of investment by SMA Life
Assurance Company (Sponsor) . . . . -- -- --
------------ ------------ ------------
$125,037,689 $ 68,726,844 $ 40,592,298
------------ ------------ ------------
------------ ------------ ------------
Qualified units outstanding,
December 31, 1994 . . . . . . . . . 70,140,259 37,841,228 26,732,735
Net asset value per qualified
unit, December 31, 1994. . . . . . $ 1.221086 $ 1.196216 $ 1.077635
Non-qualified units outstanding,
December 31, 1994 . . . . . . . . . 32,258,499 19,612,313 10,935,212
Net asset value per non-qualified
unit, December 31, 1994. . . . . . . $ 1.221086 $ 1.196216 $ 1.077635
</TABLE>
The accompanying notes are an integral part of these financial statements.
90
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
4 5 6 7 8
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica
Investment Trust. . . . . . . . . . $ 35,520,013 $ 37,713,170 $ 70,188,510 $ 39,328,725 $ 54,475,191
Investment in shares of Fidelity
Variable Insurance Products Fund. . -- -- -- -- --
Investment in shares of Delaware
Group Premium Fund, Inc.. . . . . . -- -- -- -- --
Receivable from SMA Life Assurance
Company (Sponsor) . . . . . . . . . 124,657 -- -- 36,935 20,109
------------ ------------ ------------ ------------ ------------
Total assets . . . . . . . . . . 35,644,670 37,713,170 70,188,510 39,365,660 54,495,300
LIABILITIES:
Payable to SMA Life Assurance
Company (Sponsor) . . . . . . . . . -- 233,213 8,181 -- --
------------ ------------ ------------ ------------ ------------
Net assets . . . . . . . . . . . $ 35,644,670 $ 37,479,957 $ 70,180,329 $ 39,365,660 $ 54,495,300
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity
policies. . . . . . . . . . . . . $ 24,123,164 $ 22,048,317 $ 47,665,370 $ 28,191,355 $ 36,273,823
Non-qualified variable annuity
policies. . . . . . . . . . . . . . 11,521,506 15,431,640 22,514,959 11,174,305 18,221,477
Value of investment by SMA Life
Assurance Company (Sponsor) . . . . -- -- -- -- --
------------ ------------ ------------ ------------ ------------
$ 35,644,670 $ 37,479,957 $ 70,180,329 $ 39,365,660 $ 54,495,300
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Qualified units outstanding,
December 31, 1994 . . . . . . . . . 19,745,636 19,129,998 36,871,212 27,510,471 37,012,183
Net asset value per qualified
unit, December 31, 1994 . . . . . . $ 1.221696 $ 1.152552 $ 1.292753 1.024750 $ 1.066495
Non-qualified units outstanding,
December 31, 1994 . . . . . . . . . 9,430,747 13,389,105 17,416,288 10,904,421 17,085,384
Net asset value per non-qualified
unit, December 31, 1994 . . . . . . $ 1.221696 $ 1.152552 $ 1.292753 $ 1.024750 $ 1.066495
</TABLE>
91
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1994, CONTINUED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account
9 11 20
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica
Investment Trust. . . . . . . . . . $ 35,495,635 $ 11,959,072 --
Investment in shares of Fidelity
Variable Insurance Products Fund. . -- -- --
Investment in shares of Delaware
Group Premium Fund, Inc.. . . . . . -- -- $ 30,748,650
Receivable from SMA Life
Assurance Company (Sponsor) . . . . 62,761 18,596 34,819
------------ ------------ ------------
Total assets. . . . . . . . . . . 35,558,396 11,977,668 30,783,469
LIABILITIES:
Payable to SMA Life Assurance
Company (Sponsor) . . . . . . . . . -- -- --
------------ ------------ ------------
Net assets. . . . . . . . . . . . $ 35,558,396 $ 11,977,668 $ 30,783,469
------------ ------------ ------------
------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity
policies. . . . . . . . . . . . . $ 22,904,034 $ 8,200,480 $ 20,157,713
Non-qualified variable
annuity policies. . . . . . . . . . 10,502,480 3,777,093 10,625,756
Value of investment by SMA
Life Assurance Company (Sponsor). . 2,151,882 95 --
------------ ------------ ------------
$ 35,558,396 $ 11,977,668 $ 30,783,469
------------ ------------ ------------
------------ ------------ ------------
Qualified units outstanding,
December 31, 1994 . . . . . . . . . 21,287,444 8,578,303 17,630,457
Net asset value per qualified
unit, December 31, 1994. . . . . . . $ 1.075941 $ .955956 $ 1.143346
Non-qualified units outstanding,
December 31, 1994 . . . . . . . . 11,761,204 3,951,216 9,293,561
Net asset value per non-qualified
unit, December 31, 1994. . . . . . 1.075941 $ .955956 $ 1.143346
</TABLE>
The accompanying notes are an integral part of these financial statements.
92
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
102 103 104 105 106
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica
Investment Trust. . . . . . . . . . -- -- -- -- --
Investment in shares of Fidelity
Variable Insurance Products Fund. . $ 39,699,484 $155,464,062 $128,771,943 $ 73,520,518 $ 20,163,506
Investment in shares of Delaware
Group Premium Fund, Inc . . . . . . -- -- -- -- --
Receivable from SMA Life
Assurance Company (Sponsor) . . . . -- 72,781 44,167 23,149 82,139
------------ ------------ ------------ ------------ ------------
Total assets. . . . . . . . . . . 39,699,484 155,536,843 128,816,110 73,543,667 20,245,645
LIABILITIES:
Payable to SMA Life Assurance
Company (Sponsor) . . . . . . . . . 68,734 -- -- -- --
------------ ------------ ------------ ------------ ------------
Net assets. . . . . . . . . . . . $ 39,630,750 $155,536,843 $128,816,110 $ 73,543,667 $ 20,245,645
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity
policies . . . . . . . . . . . . . $ 26,673,549 $101,983,946 $ 86,715,020 $ 49,827,615 $ 13,866,312
Non-qualified variable
annuity policies . . . . . . . . . 12,957,201 53,552,897 42,101,090 23,716,052 6,379,333
Value of investment by SMA
Life Assurance Company (Sponsor) . -- -- -- -- --
------------ ------------ ------------ ------------ ------------
$ 39,630,750 $155,536,843 $128,816,110 $ 73,543,667 $ 20,245,645
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Qualified units outstanding,
December 31, 1994 . . . . . . . . . 18,200,157 68,425,212 61,067,733 40,498,172 14,191,452
Net asset value per qualified
unit, December 31, 1994 . . . . . . $ 1.465567 $ 1.490444 $ 1.419981 $ 1.230367 $ .977089
Non-qualified units outstanding,
December 31, 1994 . . . . . . . . . 8,841,084 35,930,835 29,649,052 19,275,592 6,528,917
Net asset value per non-qualified
unit, December 31, 1994 . . . . . . $ 1.465567 $ 1.490444 $ 1.419981 $ 1.230367 $ .977089
</TABLE>
93
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . $ 8,024,921 $ 4,220,172 $ 1,439,528
EXPENSES:
Mortality and expense risk fees . . . . . . . . 1,286,910 813,618 453,284
Administrative expense charges. . . . . . . . . 205,906 130,179 72,525
-------------- -------------- --------------
Total expenses . . . . . . . . . . . . . . . 1,492,816 943,797 525,809
-------------- -------------- --------------
Net investment income (loss). . . . . . . . . . 6,532,105 3,276,375 913,719
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss). . . . . . . . . . . . (77,605) (302,026) --
Net unrealized gain (loss). . . . . . . . . . . (7,654,867) (5,876,366) --
-------------- -------------- --------------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . . (7,732,472) (6,178,392) --
-------------- -------------- --------------
Net increase (decrease) in net assets from
operations. . . . . . . . . . . . . . . . . . . $ (1,200,367) $ (2,902,017) $ 913,719
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
94
<PAGE>
SEPARATES ACCOUNT VA-K - EXECANNUITY PLUS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
4 5 6 7 8
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . $ 1,185,906 $ 3,007,995 -- $ 118,763 $ 2,381,249
EXPENSES:
Mortality and expense risk fees . . . . . . . . 395,526 664,061 $ 641,520 419,247 559,466
Administrative expense charges. . . . . . . . . 63,284 106,250 102,643 67,079 89,515
------------ ------------ ------------ ----------- ------------
Total expenses . . . . . . . . . . . . . . . 458,810 770,311 744,163 486,326 648,981
------------ ------------ ------------ ----------- ------------
Net investment income (loss). . . . . . . . . . 727,096 2,237,684 (744,163) (367,563) 1,732,268
------------ ------------ ------------ ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss). . . . . . . . . . . . 50,049 (1,184,661) 16,407 31,408 12,425
Net unrealized gain (loss). . . . . . . . . . . (875,249) (2,499,037) (1,367,963) (643,425) (2,133,455)
------------ ------------ ------------ ----------- ------------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . (825,200) (3,683,698) (1,351,556) (612,017) (2,121,030)
------------ ------------ ------------ ----------- ------------
Net increase (decrease) in net assets from
operations. . . . . . . . . . . . . . . . . . $ (98,104) $ (1,446,014) $ (2,095,719) $ (979,580) $ (388,762)
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
</TABLE>
95
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994, CONTINUED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
9 11(b) 20
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . $ 156,192 $ 25,959 $ 69,675
EXPENSES:
Mortality and expense risk fees . . . . . . . . 311,446 35,168 260,175
Administrative expense charges. . . . . . . . . 49,831 5,627 41,628
------------ ------------- -------------
Total expenses . . . . . . . . . . . . . . . 361,277 40,795 301,803
------------ ------------- -------------
Net investment income (loss). . . . . . . . . . (205,085) (14,836) (232,128)
------------ ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss). . . . . . . . . . . . 734 12 9,950
Net unrealized gain (loss). . . . . . . . . . . (1,850,142) (376,972) (105,524)
------------ ------------- -------------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . (1,849,408) (376,960) (95,574)
------------ ------------- -------------
Net increase(decrease) in net assets from
operations. . . . . . . . . . . . . . . . . . $ (2,054,493) $ (391,796) $ (327,702)
------------ ------------- -------------
------------ ------------- -------------
<FN>
(a) For the period May 3, 1994 (date of initial investment) to December 31,
1994.
(b) For the period May 5, 1994 (date of initial investment) to December 31,
1994.
</TABLE>
The accompanying notes are an integral part of these financial statements.
96
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
102 103 104 105 106(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . $ 2,154,793 $ 7,791,252 $ 4,606,671 $ 186,713 $ 7,388
EXPENSES:
Mortality and expense risk fees . . . . . . . . 410,534 1,507,649 1,261,417 708,408 81,341
Administrative expense charges. . . . . . . . . 65,686 241,224 201,827 113,345 13,015
------------ ------------ ------------ ------------ ------------
Total expenses . . . . . . . . . . . . . . . 476,220 1,748,873 1,463,244 821,753 94,356
------------ ------------ ------------ ------------ ------------
Net investment income (loss). . . . . . . . . . 1,678,573 6,042,379 3,143,427 (635,040) (86,968)
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss). . . . . . . . . . . . (21,988) 9,016 1,795 22,313 (3,667)
Net unrealized gain (loss). . . . . . . . . . . (2,819,325) 361,647 (3,302,501) (642,765) (494,758)
------------ ------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on. . .
investments . . . . . . . . . . . . . . . . . (2,841,313) 370,663 (3,300,706) (620,452) (498,425)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
operations. . . . . . . . . . . . . . . . . . $ (1,162,740) $ 6,413,042 $ (157,279) $ (1,255,492) $ (585,393)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
97
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
SUB-ACCOUNT 1 SUB-ACCOUNT 2
FOR THE YEAR ENDED FOR THE YEAR ENDED
12/31/94 12/31/93 12/31/94 12/31/93
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS:
Net investment income
(loss). . . . . . . . . . $ 6,532,105 $ 8,056,639 $ 3,276,375 $ 2,533,500
Net realized gain (loss).
from security transactions (77,605) 80,650 (302,026) 1,521
Net unrealized gain (loss)
on investments . . . . . (7,654,867) (4,207,515) (5,876,366) (274,266)
------------ ------------ ------------ ------------
Net increase (decrease)
in net assets from
operations . . . . . . . (1,200,367) 3,929,774 (2,902,017) 2,260,755
FROM CAPITAL TRANSACTIONS:
Net purchase payments . . 13,685,616 22,101,761 11,144,255 21,053,685
Terminations. . . . . . . (2,871,353) (1,549,740) (2,017,720) (920,545)
Annuity benefits. . . . . (713,084) (239,512) (181,865) (95,957)
Other transfers from (to)
the General Account of
SMA Life Assurance
Company (Sponsor) . . . 26,340,545 25,140,813 2,053,302 20,666,452
Net increase (decrease)
in investment by SMA
Life Assurance Company
(Sponsor) . . . . . . . -- -- -- --
------------ ------------ ------------ ------------
Net increase(decrease)
in net assets from
capital transactions. . 36,441,724 45,453,322 10,997,972 40,703,635
------------ ------------ ------------ ------------
Net increase(decrease) in
net assets. . . . . . . . 35,241,357 49,383,096 8,095,955 42,964,390
NET ASSETS:
Beginning of year . . . . 89,796,332 40,413,236 60,630,889 17,666,499
------------ ------------ ------------ ------------
End of year . . . . . . . $125,037,689 $ 89,796,332 $ 68,726,844 $ 60,630,889
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
98
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT 3 SUB-ACCOUNT 4 SUB-ACCOUNT 5
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
12/31/94 12/31/93 12/31/94 12/31/93 12/31/94 12/31/93
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
FROM OPERATIONS
Net investment income
(loss). . . . . . . . . . $ 913,719 $ 547,596 $ 727,096 $ 279,999 $ 2,237,684 $ 2,563,645
Net realized gain (loss).
from security transaction -- -- 50,049 45,205 (1,184,661) 278,028
Net unrealized gain (loss)
on investments . . . . . -- -- (875,249) 1,080,964 (2,499,037) (244,559)
------------ ------------- ------------ ------------ ------------ ------------
Net increase (decrease) .
in net assets from
operations . . . . . . . 913,719 547,596 (98,104) 1,406,168 (1,446,014) 2,597,114
FROM CAPITAL TRANSACTIONS:
Net purchase payments . . 131,434,295 109,599,528 4,219,396 6,766,181 15,611,540 47,082,526
Terminations. . . . . . . (3,415,762) (1,232,128) (839,746) (340,367) (2,251,338) (1,280,103)
Annuity benefits. . . . . (163,546) (112,489) (288,980) (129,613) (260,130) (164,561)
Other transfers from (to)
the General Account of
SMA Life Assurance
Company (Sponsor) . . . (120,587,957) (108,271,959) 5,098,512 9,023,934 (45,260,308) (4,016,437)
Net increase (decrease)
in investment by SMA
Life Assurance Company
(Sponsor) . . . . . . . -- -- -- -- -- (6,337,953)
------------ ------------- ------------ ------------ ------------ ------------
Net increase(decrease)
in net assets from
capital transactions. . 7,267,030 (17,048) 8,189,182 15,320,135 (32,160,236) 35,283,472
------------ ------------- ------------ ------------ ------------ ------------
Net increase(decrease) in
net assets. . . . . . . 8,180,749 530,548 8,091,078 16,726,303 (33,606,250) 37,880,586
NET ASSETS:
Beginning of year . . . . 32,411,549 31,881,001 27,553,592 10,827,289 71,086,207 33,205,621
------------ ------------- ------------ ------------ ------------ ------------
End of year . . . . . . . $ 40,592,298 $ 32,411,549 $ 35,644,670 $ 27,553,592 $ 37,479,957 $ 71,086,207
------------ ------------- ------------ ------------ ------------ ------------
------------ ------------- ------------ ------------ ------------ ------------
</TABLE>
99
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
SUB-ACCOUNT 6 SUB-ACCOUNT 7
FOR THE YEAR ENDED FOR THE YEAR ENDED
12/31/94 12/31/93 12/31/94 12/31/93
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
FROM OPERATIONS:
Net investment income
(loss) . . . . . . . . . . . $ (744,163) $ (201,080) $ (367,563) $ (202,402)
Net realized gain (loss)
from security
transactions . . . . . . . . 16,407 1,152 31,408 5,649
Net unrealized gain
(loss) on investments. . . . (1,367,963) 2,750,784 (643,425) 852,285
----------- ----------- ----------- -----------
Net increase (decrease)
in net assets from
operations . . . . . . . . . (2,095,719) 2,550,856 (979,580) 655,532
FROM CAPITAL TRANSACTIONS:
Net purchase payments . . . . 13,822,023 11,744,487 5,402,873 10,083,845
Terminations. . . . . . . . . (1,250,083) (216,611) (930,447) (215,580)
Annuity benefits. . . . . . . (122,670) (139,127) (62,781) (57,877)
Other transfers from
(to) the General
Account of SMA Life
Assurance Company (Sponsor). 24,712,223 18,875,018 8,431,181 13,821,773
Net increase(decrease)
in investment by
SMA Life Assurance
Company (Sponsor). . . . . . -- -- -- --
----------- ----------- ----------- -----------
Net increase(decrease)
in net assets from
capital transactions . . . . 37,161,493 30,263,767 12,840,826 23,632,161
----------- ----------- ----------- -----------
Net increase(decrease)
in net assets. . . . . . . . 35,065,774 32,814,623 11,861,246 24,287,693
NET ASSETS:
Beginning of year . . . . . . 35,114,555 2,299,932 27,504,414 3,216,721
----------- ----------- ----------- -----------
End of year . . . . . . . . . $70,180,329 $35,114,555 $39,365,660 $27,504,414
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<FN>
* Date of initial investment.
</TABLE>
The accompanying notes are an integral part of these financial statements.
100
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT 8 SUB-ACCOUNT 9 SUB-ACCOUNT 11
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE PERIOD FOR THE PERIOD
12/31/94 12/31/93 12/31/94 4/30/93* TO 5/05/94* TO
12/31/94 12/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
FROM OPERATIONS:
Net investment income
(loss). . . . . . . . . . . $ 1,732,268 $ 227,154 $ (205,085) $ 38,100 $ (14,836)
Net realized gain (loss)
from security transactions. 12,425 4,455 734 995 12
Net unrealized gain
(loss) on investments . . . (2,133,455) 1,144,706 (1,850,142) 1,045,930 (376,972)
----------- ----------- ----------- ----------- ------------
Net increase (decrease)
in net assets from
operations . . . . . . . . . (388,762) 1,376,315 (2,054,493) 1,085,025 (391,796)
FROM CAPITAL TRANSACTIONS:
Net purchase payments . . . . 7,596,689 12,861,564 7,025,166 1,644,874 2,273,069
Terminations. . . . . . . . . (1,342,773) (318,580) (367,595) (64,291) (49,517)
Annuity Benefits. . . . . . . (186,271) (113,524) (48,695) --- ---
Other transfers from
(to) the General
Account of SMA Life
Assurance Company
(Sponsor). . . . . . . . . . 14,600,125 15,759,598 19,442,674 6,895,731 10,145,812
Net increase (decrease)
in investment by
SMA Life Assurance
Company (Sponsor). . . . . . -- -- -- 2,000,000 100
----------- ----------- ----------- ----------- ------------
Net increase(decrease)
in net assets from
capital transactions . . . . 20,667,770 28,189,058 26,051,550 10,476,314 12,369,464
----------- ----------- ----------- ----------- ------------
Net increase (decrease)
in net assets. . . . . . . . 20,279,008 29,565,373 23,997,057 11,561,339 11,977,668
NET ASSETS:
Beginning of year . . . . . . 34,216,292 4,650,919 11,561,339 -- --
----------- ----------- ----------- ----------- ------------
End of year . . . . . . . . . $54,495,300 $34,216,292 $35,558,396 $11,561,339 $ 11,977,668
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
</TABLE>
101
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Sub-Account 20 Sub-Account 102
For the Year Ended For the Period For the Year Ended
12/31/94 5/06/93* to 12/31/93 12/31/94 12/31/93
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . . . . . . . . . . . . $ (232,128) $ (20,132) $ 1,678,573 $ 288,233
Net realized gain (loss) from security transactions. . . 9,950 1,182 (21,988) 14,459
Net unrealized gain (loss) on investments. . . . . . . . (105,524) 567,391 (2,819,325) 1,400,074
------------ ----------- ------------ ------------
Net increase (decrease) in net assets from operations. . (327,702) 548,441 (1,162,740) 1,702,766
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . 5,570,896 1,719,024 8,308,614 6,357,422
Terminations . . . . . . . . . . . . . . . . . . . . . . (372,420) (47,623) (983,151) (296,027)
Annuity benefits . . . . . . . . . . . . . . . . . . . . (40,673) -- (159,685) (183,591)
Other transfers from (to) the General Account of
SMA Life Assurance Company (Sponsor) . . . . . . . . . 17,275,101 6,458,425 13,115,151 8,323,938
Net increase(decrease) in investment by
SMA Life Assurance Company (Sponsor) . . . . . . . . . -- -- -- --
------------ ----------- ------------ ------------
Net increase (decrease) in net assets from
capital transactions . . . . . . . . . . . . . . . . . 22,432,904 8,129,826 20,280,929 14,201,742
------------ ----------- ------------ ------------
Net increase (decrease) in net assets. . . . . . . . . . 22,105,202 8,678,267 19,118,189 15,904,508
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . . . . . 8,678,267 -- 20,512,561 4,608,053
------------ ----------- ------------ ------------
End of year. . . . . . . . . . . . . . . . . . . . . . . $ 30,783,469 $ 8,678,267 $ 39,630,750 $ 20,512,561
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
<FN>
* Date of initial investment.
</TABLE>
The accompanying notes are an integral part of these financial statements.
102
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT 103 SUB-ACCOUNT 104
FOR THE YEAR ENDED FOR THE YEAR ENDED
12/31/94 12/31/93 12/31/94 12/31/93
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . . . . . . . . . . . . . . $ 6,042,379 $ 697,583 $ 3,143,427 $ (39,076)
Net realized gain (loss) from security transactions. . . . . 9,016 25,546 1,795 38,315
Net unrealized gain (loss) on investments. . . . . . . . . . 361,647 5,409,498 (3,302,501) 6,291,982
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations. . . . 6,413,042 6,132,627 (157,279) 6,291,221
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . . . 24,027,022 22,828,405 22,593,395 16,508,644
Terminations . . . . . . . . . . . . . . . . . . . . . . . . (2,638,047) (1,005,805) (2,346,385) (830,812)
Annuity benefits . . . . . . . . . . . . . . . . . . . . . . (363,485) (247,693) (351,166) (202,600)
Other transfers from (to) the General Account of
SMA Life Assurance Company (Sponsor) . . . . . . . . . . . 41,585,953 37,169,947 38,287,326 26,680,823
Net increase(decrease) in investment by
SMA Life Assurance Company (Sponsor) . . . . . . . . . . . -- -- -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from
capital transactions . . . . . . . . . . . . . . . . . . . 62,611,443 58,744,854 58,183,170 42,156,055
------------- ------------- ------------- -------------
Net increase (decrease) in net assets. . . . . . . . . . . . 69,024,485 64,877,481 58,025,891 48,447,276
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . . . . . . . 86,512,358 21,634,877 70,790,219 22,342,943
------------- ------------- ------------- -------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . $ 155,536,843 $ 86,512,358 $ 128,816,110 $ 70,790,219
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
103
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT 105 SUB-ACCOUNT 106
FOR THE YEAR ENDED FOR THE PERIOD
12/31/94 12/31/93 5/03/94* TO 12/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . . . . . . . . . . . . . . . . $ (635,040) $ (25,236) $ (86,968)
Net realized gain (loss) from security transactions. . . . . . . 22,313 8,302 (3,667)
Net unrealized gain (loss) on investments. . . . . . . . . . . . (642,765) 3,868,861 (494,758)
------------ ------------ ------------
Net increase (decrease) in net assets from operations. . . . . . (1,255,492) 3,851,927 (585,393)
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . . . . . . . . . 13,636,170 5,866,468 5,109,950
Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . (1,254,517) (269,265) (154,999)
Annuity benefits . . . . . . . . . . . . . . . . . . . . . . . . (223,156) (81,818) --
Other transfers from (to) the General Account of
SMA Life Assurance Company (Sponsor). . . . . . . . . . . . . 31,481,584 15,691,615 15,876,087
Net increase(decrease) in investment by
SMA Life Assurance Company (Sponsor). . . . . . . . . . . . . -- -- --
------------ ------------ ------------
Net increase(decrease) in net assets from capital transactions . 43,640,081 21,207,000 20,831,038
------------ ------------ ------------
Net increase(decrease) in net assets . . . . . . . . . . . . . . 42,384,589 25,058,927 20,245,645
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . 31,159,078 6,100,151 --
------------ ------------ ------------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,543,667 $ 31,159,078 $ 20,245,645
------------ ------------ ------------
------------ ------------ ------------
<FN>
* Date of initial investment.
</TABLE>
The accompanying notes are an integral part of these financial statements.
104
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994
NOTE 1 - ORGANIZATION
Separate Account VA-K - ExecAnnuity Plus (VA-K) is a separate investment
account of SMA Life Assurance Company (the Company). VA-K was established on
November 1, 1990 for the purpose of separating from the general assets of the
Company those assets used to fund certain variable annuity policies issued by
the Company. The Company is a wholly-owned subsidiary of State Mutual Life
Assurance Company of America (State Mutual). Under applicable insurance law, the
assets and liabilities of VA-K are clearly identified and distinguished from the
other assets and liabilities of the Company. VA-K cannot be charged with
liabilities arising out of any other business of the Company.
VA-K is registered as a unit investment trust under the Investment Company
Act of 1940, as amended (the 1940 Act). VA-K currently offers sixteen
Sub-Accounts under the ExecAnnuity Plus policies. Each Sub-Account invests
exclusively in a corresponding investment portfolio of the Allmerica Investment
Trust (the Trust) managed by Allmerica Investment Management Company, Inc., a
wholly-owned subsidiary of State Mutual, of the Variable Insurance Products Fund
(VIPF) or the Variable Insurance Products Fund II (VIPF II) managed by Fidelity
Management & Research Company (Fidelity Management), or of the Delaware Group
Premium Fund, Inc. (DGPF) managed by Delaware International Advisors, LTD. The
Trust, VIPF, VIPF II, and DGPF are open-end, diversified series management
investment companies registered under the 1940 Act.
Separate Account VA-K has two types of variable annuity policies,
"qualified" policies and "non-qualified" policies. A qualified policy is one
that is purchased in connection with a retirement plan which meets the
requirements of Section 401, 403, 408, or 457 of the Internal Revenue Code,
while a non-qualified policy is one that is not purchased in connection with one
of the indicated retirement plans. The tax treatment for certain partial
redemptions or surrenders will vary according to whether they are made from a
qualified policy or a non-qualified policy.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Investments - Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Trust, VIPF, VIPF II, or DGPF. Net
realized gains and losses on securities sold are determined on the average cost
method. Dividends and capital gain distributions are recorded on the ex-dividend
date and are reinvested in additional shares of the respective investment
portfolio of the Trust, VIPF, VIPF II, or DGPF at net asset value.
105
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
Federal Income Taxes - The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code and files a consolidated Federal
Income Tax return with State Mutual. The Company anticipates no tax liability
resulting from the operations of VA-K. Therefore, no provision for income taxes
has been charged against VA-K.
Capital Transactions - The components of the prior year's net increase
(decrease) in net assets from capital transactions have been disclosed in the
current year Statements of Changes in Net Assets to conform to the current year
presentation.
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share
of each Sub-Account's investment in the Trust, VIPF, VIPF II and DGPF at
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
PORTFOLIO INFORMATION
SUB- INVESTMENT NUMBER OF AGGREGATE NET ASSET
ACCOUNT PORTFOLIO SHARES COST VALUE PER SHARE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allmerica Investment Trust:
1 Growth . . . . . . . . . . . . . . . . . . . . . 69,032,404 $ 135,260,159 $ 1.814
2 Investment Grade Income. . . . . . . . . . . . . 67,919,286 75,185,373 1.012
3 Money Market . . . . . . . . . . . . . . . . . . 40,370,621 40,370,621 1.000
4 Equity Index . . . . . . . . . . . . . . . . . . 24,196,194 34,871,352 1.468
5 Government Bond. . . . . . . . . . . . . . . . . 37,826,650 40,358,842 0.997
6 Select Aggressive Growth . . . . . . . . . . . . 50,242,312 68,685,563 1.397
7 Select Growth. . . . . . . . . . . . . . . . . . 35,785,919 39,062,356 1.099
8 Select Growth and Income . . . . . . . . . . . . 53,043,029 55,441,995 1.027
9 Small Cap Value. . . . . . . . . . . . . . . . . 32,594,706 36,299,847 1.089
11 Select International Equity. . . . . . . . . . . 12,418,559 12,336,044 0.963
Delaware Group Premium Fund:
20 International Equities . . . . . . . . . . . . . 2,594,823 30,286,782 11.850
Fidelity Variable Insurance Products Fund:
102 High Income. . . . . . . . . . . . . . . . . . . 3,689,543 40,922,392 10.760
103 Equity Income. . . . . . . . . . . . . . . . . . 10,127,952 148,197,416 15.350
104 Growth . . . . . . . . . . . . . . . . . . . . . 5,936,927 123,735,528 21.690
105 Overseas . . . . . . . . . . . . . . . . . . . . 4,691,801 70,806,968 15.670
Fidelity Variable Insurance Products Fund II:
106 Asset Manager. . . . . . . . . . . . . . . . . . 1,462,183 20,658,264 13.790
</TABLE>
106
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum based on the average daily
net assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account .20% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account but are paid to
the Company on a monthly basis. Net purchase payments represent gross purchase
payments less applicable premium taxes.
A policy fee is currently deducted on the policy anniversary date and upon
full surrender of the policy when the accumulated value is $50,000 or less. The
policy fee is the lesser of $30 or 3% of the Accumulated Value under the Policy
on the policy anniversary or full surrender date. The policy fee is waived for
policies originally issued as part of a 401(k) plan. For the year ended December
31, 1994, policy fees deducted from accumulated value in VA-K amounted to
$495,124.
Allmerica Investments, Inc. (Allmerica Investments), a wholly-owned
subsidiary of State Mutual, is principal underwriter and general distributor of
VA-K, and does not receive any compensation for sales of the VA-K - ExecAnnuity
Plus policies. Commissions are paid to registered representatives of Allmerica
Investments by the Company. As the current series of policies have a contingent
deferred sales charge, no deduction is made for sales charges at the time of the
sale. For the period ended December 31, 1994, the Company received $672,328 for
contingent deferred sales charges applicable to VA-K.
107
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
NOTE 5 - POLICYOWNERS AND SPONSOR TRANSACTIONS
As of December 31, 1994, the Company was record owner of approximately 6% of
the total units outstanding of Sub-Account 9. Transactions from policyowners and
sponsor were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PERIOD ENDED DECEMBER 31,
1994 1993
---- ----
UNITS AMOUNT UNITS AMOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sub-Account 1
Issuance of units. . . . . . . . . 46,063,704 $ 56,411,913 47,822,174 $ 57,033,576
Redemption of units. . . . . . . . (16,274,755) (19,970,189) (9,585,518) (11,580,254)
------------ ------------- ----------- -------------
Net increase . . . . . . . . . . . 29,788,949 $ 36,441,724 38,236,656 $ 45,453,322
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 2
Issuance of units. . . . . . . . . 28,436,274 $ 34,607,095 37,003,907 $ 45,726,138
Redemption of units. . . . . . . . (19,471,269) (23,609,123) (3,943,416) (5,022,503)
------------ ------------- ----------- -------------
Net increase . . . . . . . . . . . 8,965,005 $ 10,997,972 33,060,491 $ 40,703,635
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 3
Issuance of units. . . . . . . . . 212,264,596 $ 225,211,406 143,412,684 $ 149,881,123
Redemption of units. . . . . . . . (205,412,111) (217,944,376) (143,375,261) (149,898,171)
------------ ------------- ----------- -------------
Net increase (decrease). . . . . . 6,852,485 $ 7,267,030 37,423 $ (17,048)
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 4
Issuance of units. . . . . . . . . 12,155,970 $ 14,784,662 15,273,726 $ 18,221,326
Redemption of units. . . . . . . . (5,446,364) (6,595,480) (2,342,143) (2,901,191)
------------ ------------- ----------- -------------
Net increase.. . . . . . . . . . . 6,709,606 $ 8,189,182 12,931,583 $ 15,320,135
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 5
Issuance of units. . . . . . . . . 31,608,706 $ 36,579,014 74,020,229 $ 86,468,977
Redemption of units. . . . . . . . (59,356,156) (68,739,250) (43,598,233) (51,185,505)
------------ ------------- ----------- -------------
Net increase (decrease). . . . . . (27,747,450) $ (32,160,236) 30,421,996 $ 35,283,472
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 6
Issuance of units. . . . . . . . . 34,959,973 $ 46,070,940 25,666,426 $ 32,169,769
Redemption of units. . . . . . . . (6,831,859) (8,909,447) (1,526,221) (1,906,002)
------------ ------------- ----------- -------------
Net increase.. . . . . . . . . . . 28,128,114 $ 37,161,493 24,140,205 $ 30,263,767
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 7
Issuance of units. . . . . . . . . 19,383,925 $ 20,134,410 25,330,894 $ 26,030,481
Redemption of units. . . . . . . . (7,033,935) (7,293,584) (2,304,992) (2,398,320)
------------ ------------- ----------- -------------
Net increase . . . . . . . . . . . 12,349,990 $ 12,840,826 23,025,902 $ 23,632,161
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
</TABLE>
108
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PERIOD ENDED DECEMBER 31,
1994 1993
---- ----
UNITS AMOUNT UNITS AMOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sub-Account 8
Issuance of units. . . . . . . . . 26,341,980 $ 28,018,303 29,839,394 $ 31,159,642
Redemption of units. . . . . . . . (7,101,289) (7,350,533) (2,694,098) (2,970,584)
------------ ------------- ----------- -------------
Net increase . . . . . . . . . . . 19,240,691 $ 20,667,770 27,145,296 $ 28,189,058
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 9
Issuance of units. . . . . . . . . 26,332,033 $ 29,543,920 10,240,439 $ 10,840,983
Redemption of units. . . . . . . . (3,186,200) (3,492,370) (337,624) (364,669)
------------ ------------- ----------- -------------
Net increase . . . . . . . . . . . 23,145,833 $ 26,051,550 9,902,815 $ 10,476,314
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 11
Issuance of units. . . . . . . . . 12,980,066 $ 12,813,208 -- $ --
Redemption of units. . . . . . . . (450,647) (443,744) -- --
------------ ------------- ----------- -------------
Net increase.. . . . . . . . . . . 12,529,419 $ 12,369,464 -- $ --
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 20
Issuance of units. . . . . . . . . 21,740,902 $ 25,341,308 7,851,291 $ 8,306,831
Redemption of units. . . . . . . . (2,498,472) (2,908,404) (169,703) (177,005)
------------ ------------- ----------- -------------
Net increase . . . . . . . . . . . 19,242,430 $ 22,432,904 7,681,588 $ 8,129,826
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 102
Issuance of units. . . . . . . . . 18,018,437 $ 27,053,209 11,555,708 $ 16,490,967
Redemption of units. . . . . . . . (4,561,134) (6,772,280) (1,597,367) (2,289,225)
------------ ------------- ----------- -------------
Net increase . . . . . . . . . . . 13,457,303 $ 20,280,929 9,958,341 $ 14,201,742
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 103
Issuance of units. . . . . . . . . 53,572,519 $ 77,790,347 46,461,806 $ 62,955,905
Redemption of units. . . . . . . . (10,481,162) (15,178,904) (3,052,950) (4,211,051)
------------ ------------- ----------- -------------
Net increase . . . . . . . . . . . 43,091,357 $ 62,611,443 43,408,856 $ 58,744,854
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 104
Issuance of units. . . . . . . . . 50,517,101 $ 70,547,270 34,271,463 $ 46,796,702
Redemption of units. . . . . . . . (8,937,909) (12,364,100) (3,387,283) (4,640,647)
------------ ------------- ----------- -------------
Net increase.. . . . . . . . . . . 41,579,192 $ 58,183,170 30,884,180 $ 42,156,055
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 105
Issuance of units. . . . . . . . . 40,661,583 $ 51,583,751 20,180,323 $ 22,892,419
Redemption of units. . . . . . . . (6,284,286) (7,943,670) (1,512,459) (1,685,419)
------------ ------------- ----------- -------------
Net increase.. . . . . . . . . . . 34,377,297 $ 43,640,081 18,667,864 $ 21,207,000
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
Sub-Account 106
Issuance of units. . . . . . . . . 22,347,557 $ 22,432,857 -- $ --
Redemption of units. . . . . . . . (1,627,188) (1,601,819) -- --
------------ ------------- ----------- -------------
Net increase . . . . . . . . . . . 20,720,369 $ 20,831,038 -- $ --
------------ ------------- ----------- -------------
------------ ------------- ----------- -------------
</TABLE>
109
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
NOTE 6 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
contract for federal income tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations issued
by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that VA-K satisfies the current requirements of
the regulations, and it intends that VA-K will continue to meet such
requirements.
110
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
NOTE 7 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust, VIPF, VIPF II and
DGPF shares by VA-K during the year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
SUB-
ACCOUNT INVESTMENT PORTFOLIO PURCHASES SALES
- ------- -------------------- ------------- -------------
<S> <C> <C> <C>
Allmerica Investment Trust:
1 Growth . . . . . . . . . . . . . . . . . . . . . $ 45,810,482 $ 2,728,521
2 Investment Grade Income. . . . . . . . . . . . . 20,185,445 5,888,992
3 Money Market . . . . . . . . . . . . . . . . . . 67,529,668 60,132,129
4 Equity Index . . . . . . . . . . . . . . . . . . 10,347,349 1,496,051
5 Government Bond. . . . . . . . . . . . . . . . . 9,344,922 39,018,349
6 Select Aggressive Growth . . . . . . . . . . . . 37,447,930 710,587
7 Select Growth. . . . . . . . . . . . . . . . . . 13,855,010 1,301,340
8 Select Growth and Income . . . . . . . . . . . . 23,030,560 435,292
9 Small Cap Value. . . . . . . . . . . . . . . . . 25,968,204 86,479
11 Select International Equity. . . . . . . . . . . 12,444,074 108,042
Delaware Group Premium Fund:
20 International Equities . . . . . . . . . . . . . 22,516,277 237,637
Fidelity Variable Insurance Products Fund:
102 High Income. . . . . . . . . . . . . . . . . . . 22,934,131 718,209
103 Equity Income. . . . . . . . . . . . . . . . . . 69,588,520 726,905
104 Growth . . . . . . . . . . . . . . . . . . . . . 61,810,359 212,599
105 Overseas.. . . . . . . . . . . . . . . . . . . . 43,520,976 329,865
Fidelity Variable Insurance Products Fund II:
106 Asset Manager. . . . . . . . . . . . . . . . . . 20,894,237 232,305
------------- -------------
Totals . . . . . . . . . . . . . . . . . . . . . $ 507,228,144 $ 114,363,302
------------- -------------
------------- -------------
</TABLE>
111
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of SMA Life
Assurance Company and Policyowners
of Separate Account VA-K - ExecAnnuity Plus
of SMA Life Assurance Company
In our opinion, the accompanying statements of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of Sub-Accounts 1, 2,
3, 4, 5, 6, 7, 8, 9, 11, 20, 102, 103, 104, 105 and 106 (constituting the
Separate Account VA-K - ExecAnnuity Plus of SMA Life Assurance Company) at
December 31, 1994, the results of each of their operations and the changes in
each of their net assets for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of SMA Life Assurance Company's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1994 by
correspondence with the Trust and Funds, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 13, 1995
112
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
----------------------------------
(a) FINANCIAL STATEMENTS
Financial Statements Included in Part A
---------------------------------------
None
Financial Statements Included in Part B
---------------------------------------
Financial Statements for the Subaccounts of Separate Account VA-K
investing in the Underlying Funds
Financial Statements for SMA Life Assurance Company
Financial Statements Included in Part C
---------------------------------------
None
(b) EXHIBITS
Exhibit 1 - Vote Authorizing Establishment of Registrant dated November 1,
1990 was previously filed on April 1, 1991, and is incorporated
herein by reference.
Exhibit 2 - Not Applicable, Pursuant to Rule 26a-2, the Insurance Company may
hold the assets of the Registrant NOT pursuant to a trust
indenture or other such instrument.
Exhibit 3 - Specimen Sales and Administrative Service Agreement, Schedule of
Sales Commissions were previously filed on April 1, 1991, and are
incorporated herein by reference.
Exhibit 4 - Specimen Generic Policy Forms were previously filed on October
20, 1993, and are incorporated herein by reference.
Exhibit 5 - Specimen Generic Application Forms was previously filed on
October 20, 1993 and are incorporated herein by reference.
Exhibit 6 - The Depositor's Articles of Incorporation and Bylaws, as amended.
----------------------------------------------------------------
Exhibit 7 - Not Applicable.
Exhibit 8 - AUV Calculation Services Agreement with The Shareholder Services
Group dated March 31, 1995 WAS PREVIOUSLY FILED ON MAY 1, 1995
AND IS INCORPORATED HEREIN BY REFERENCE.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants.
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 13 - Schedules for Computation of Performance Quotations.
Exhibit 14 - Not Applicable.
Item 25. Directors and Officers of the Depositor.
---------------------------------------
The principal business address of all the following Directors and
Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
Principal Occupation Name and Position
- -------------------- -----------------
Barry Z. Aframe Vice President and Counsel, State
Vice President and Counsel Mutual
<PAGE>
Abigail M. Armstrong Counsel, State Mutual
Secretary and Counsel
Richard J. Baker Vice President and Secretary, State
Director and Vice President Mutual
Whitworth F. Bird, Jr., M.D. Vice President and Medical
Vice President and Medical Director Director, State Mutual
Alan R. Boyer Vice President, State Mutual
Vice President
Mark R. Colborn Vice President, and Controller,
Vice President and Controller State Mutual
Lisa M. Coleman Vice President, State Mutual
Vice President
Dix F. Davis Vice President, State Mutual
Vice President
Bruce A. Emond Vice President, State Mutual
Vice President
Edward W. Ford Vice President, State Mutual
Vice President
Bruce H. Freedman Vice President, State Mutual
Vice President
Brian L. Hirst Vice President and Actuary, State
Vice President and Actuary Mutual
Kruno Huitzingh Vice President and Chief Information
Vice President and Chief Information Officer, State Mutual
Officer
John P. Kavanaugh Vice President, State Mutual
Director
John F. Kelly Senior Vice President, General
Director Counsel, and Assistant Secretary,
State Mutual
Richard H. Kremer Vice President, State Mutual
Vice President
Jeffrey P. Lagarce Vice President, State Mutual
Vice President
Joseph W. MacDougall, Jr. Vice President, Associate General
Vice President, Associate General Counsel Counsel, and Assistant Secretary,
and Assistant Secretary State Mutual
William H. Mawdsley Vice President and Actuary, State
Vice President and Actuary Mutual
Roderick A. McGarry, II Vice President, State Mutual
Vice President
John W. Nunley Vice President, State Mutual
Vice President
John F. O'Brien Director, President and Chief
Director and Chairman of the Board Executive Officer, State Mutual
Edward J. Parry, III Vice President and Treasurer, State
Vice President and Treasurer Mutual
<PAGE>
Richard M. Reilly Vice President, State Mutual
Director, President and CEO
Henry P. St. Cyr Vice President and Asst. Treasurer,
Vice President and Asst. Treasurer State Mutual
Eric Simonsen Vice President and Chief Financial
Director, Vice President and Chief Officer, State Mutual
Financial Officer
Ann K. Tripp Vice President, State Mutual
Vice President
Jerome F. Weihs Vice President, State Mutual
Vice President
Diane E. Wood Vice President, State Mutual
Vice President
Item 26. Persons Under Common Control With Registrant. See Attached
--------------------------------------------
Organization Chart.
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
NAME ADDRESS TYPE OF BUSINESS
AAM Equity 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory
Worcester MA 01653 services
Allmerica Employees Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester MA 01653
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Institutional 440 Lincoln Street Accounting, marketing
Services, Inc. Worcester MA 01653 and shareholder
services for
investment companies
Allmerica Investment Services, 440 Lincoln Street Holding Company
Inc. (formerly Allmerica Worcester MA 01653
Financial Services, Inc.)
Allmerica Investment Management 440 Lincoln Street Investment Advisory
Company, Inc. Worcester MA 01653 Services
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail
Worcester MA 01653 broker-dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
(Formerly SMA Investment Trust)Worcester MA 01653
Allmerica Property and Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Realty Advisors, Inc. 440 Lincoln Street Investment Advisory
<PAGE>
Worcester MA 01653 services
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services, Inc. 440 Lincoln Street Service Company
Worcester MA 01653
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose
Worcester MA 01653 national trust
company
AMGRO, Inc. 472 Lincoln Street Premium financing
Worcester MA 01653
APC Funding Corp. 440 Lincoln Street Special purpose
Worcester MA 01653 funding vehicle for
commercial paper
Belteville Drive Limited 440 Lincoln Street Real estate
Partnership Worcester MA 01653 partnership
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of 645 West Grand River Multi-line fire &
America Howell MI 48843 casualty insurance
Citizens Insurance Company of 645 West Grand River Multi-line fire &
Ohio Howell MI 48843 casualty insurance
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
Greendale Special Placements 440 Lincoln Street Massachusetts Grantor
Fund Worcester MA 01653 Trust
The Hanover American Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty insurance
The Hanover Insurance Company 100 North Parkway Mult-line fire &
Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Road Incorporated Branch
Management Company, Inc. Richardson TX 75081 Office of The Hanover
Insurance Company
Attorney-in-fact for
Hanover Lloyd's
Insurance Company
Hanover Lloyd's Insurance 801 East Campbell Road Multi-line fire &
Company Richardson TX 75081 casualty insurance
Hollywood Center, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Linder Skokie Real Estate 440 Lincoln Street General business
Corporation Worcester MA 01653 corporation
Lloyds Credit Corporation 440 Lincoln Street Premium financing
Worcester MA 01653 service franchises
Logan Wells Water Company, Inc. 603 Heron Drive Water Company, serving
Bridgeport NJ 08014 land development
investment
Massachusetts Bay Insurance 100 North Parkway Multi-line fire &
<PAGE>
Company Worcester MA 01653 casualty
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerican Financial Life 440 Lincoln Street Life insurance,
Insurance and Annuity Company Worcester MA 01653 accident & health
insurance, annuities,
variable annuities and
variable life
insurance
Somerset Square, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Sterling Risk Management 100 North Parkway Risk management
Services, Inc. Worcester MA 01605 services
Item 27. Number of Contract owners.
-------------------------
As of December 31, 1994, there were 29,050 Contract holders of qualified
Contracts and 8,128 Contract holders of non-qualified Contracts.
Item 28. Indemnification.
---------------
Article VIII of the Bylaws of Allmerica Financial Life Insurance and Annuity
Company (the Depositor) state: Each Director and each Officer of the
Corporation, whether or not in office, (and his executors or administrators),
shall be indemnified or reimbursed by the Corporation against all expenses
actually and necessarily incurred by him in the defense or reasonable settlement
of any action, suit, or proceeding in which he is made a party by reason of his
being or having been a Director or Officer of the Corporation, including any
sums paid in settlement or to discharge judgement, except in relation to matters
as to which he shall be finally adjudged in such action, suit or proceeding to
be liable for negligence or misconduct in the performance of his duties as such
Director or Officer, and the foregoing right of indemnification or reimbursement
shall not affect any other rights to which he may be entitled under the Articles
of Incorporation, any statute, bylaw, agreement, vote of stockholders, or
otherwise.
Item 29. Principal Underwriters.
----------------------
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, Separate Accounts VA-A, VA-B, VA-C, VA-G,
VA-H, VA-P, Allmerica Select Separate Account, and Inheiritage Account
of Allmerica Financial Life Insurance and Annuity Company
- Separate Account I, VA-K, VA-P, Allmerica Select Separate Account, VEL
II Account and Inheiritage Account of State Mutual
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
Name Position or office with underwriter
-------------------- -----------------------------------
Abigail M. Armstrong Secretary and Counsel
Philip J. Coffey Vice President
Bob A. Freelove Vice President
John F. Kelly Director
John F. O'Brien Director
Stephen Parker President and CEO
<PAGE>
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Ronald K. Smith Vice President
Mark Steinberg Senior Vice President
Robert T. Stemple Vice President and Controller
Item 30. Location of Accounts and Records.
--------------------------------
Each account, book or other document required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester, Massachusetts or on
behalf of the Company by the Shareholder Services Group, Inc. at 290 Donald
Lynch Boulevard, Marlborough, Massachusetts.
Item 31. Management Services.
-------------------
Effective March 31, 1995, the Company has engaged The Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts to provide daily unit value
calculations and related services for the Company's separate accounts.
Item 32. Undertakings.
------------
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
(b) The registrant hereby undertakes to include in the prospectus a postcard
that the applicant can remove to send for a Statement of Additional Information.
(c) The registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the requirements
of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Directors, Officers and Controlling Persons of Registrant under any
registration statement, underwriting agreement or otherwise, Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, Officer or Controlling Person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 33. Representations Concerning Withdrawal Restrictions on Section 403(b)
--------------------------------------------------------------------
Plans and under the Texas Optional Retirement Program.
- -----------------------------------------------------
Registrant, a separate account of Allmerica Financial Life Insurance and
Annuity Company ("Company"), states that it is (a) relying on Rule 6c-7 under
the 1940 Act with respect to withdrawal restrictions under the Texas Optional
Retirement Program ("Program') and (b) relying on the "no-action" letter
(Ref. No. IP-6-88) issued on November 28, 1988 to the American Council of
Life Insurance, in applying the withdrawal restrictions of Internal Revenue
Code Section 403(b)(11). Registrant has taken the following steps in
reliance on the letter:
1. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in the prospectus
of each registration statement used in connection with the offer of the
Company's variable contracts.
<PAGE>
2. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in sales
literature used in connection with the offer of the Company's variable
contracts.
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
restrictions imposed by the Program and by Section 403(b)(11) to the
attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (i) the
restrictions on redemption imposed by the Program and by Section 403(b)(11)
and (ii) the investment alternatives available under the employer's
arrangement will be obtained from each participant who purchases a variable
annuity contract prior to or at the time of purchase.
Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not so
denied or limited will be effected as expeditiously as possible.
<PAGE>
EXHIBIT TABLE
Exhibit 6 - Company's Articles of Incorporation and
Bylaws, as amended.
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 10- Consent of Independent Accountants
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned there unto duly authorized, all in the City of Worcester, and
Commonwealth of Massachusetts on the 9th day of September, 1995. Registrant
certifies that it meets the requirement of Securities Act Rule 485(b) for
effectiveness of this Post-Effective Amendment to its Registration Statement.
SMA LIFE ASSURANCE COMPANY
SEPARATE ACCOUNT VA-K
Attest: /s/ Joseph W. MacDougall, Jr.
------------------------------
Joseph W. MacDougall, Jr.
Vice President, Associate General Counsel
and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Richard M. Reilly Director, President and September 9, 1995
- ------------------------ Chief Executive Officer -----------------
Richard M. Reilly
/s/ John F. O'Brien Director and Chairman of the
- ----------------------- Board
John F. O'Brien
/s/ Eric A. Simonsen Director, Vice President and
- ----------------------- Chief Financial Officer
Eric A. Simonsen
/s/ Mark R. Colborn Vice President and
- ----------------------- Controller
Mark R. Colborn
/s/ Richard J. Baker Director and Vice President
- -----------------------
Richard J. Baker
/s/ John F. Kelly Director
- -----------------------
John F. Kelly
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
SMA LIFE ASSURANCE COMPANY, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of SMA Life Assurance
Company resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED: That the Certificate of Incorporation of this corporation be amended
by changing the Article thereof numbered "First" so that as amended said Article
shall be and read as follows: "THE NAME OF THE CORPORATION IS ALLMERICA
FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY."
SECOND: That at a meeting of the Board of Directors of SMA Life Assurance
Company resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED: That effective October 1, 1995, and subject to the approval of the
Stockholder of the Company, the Certificate of Incorporation of SMA Life
Assurance Company, a Delaware corporation, shall be amended to add the following
as Article Tenth:
"A director or officer of this corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director or officer, except to the extent that exculpation from
liability is not permitted under the General Corporation Law of the State of
Delaware as in effect at the time such liability is determined. No amendment or
repeal of this paragraph shall apply to or have any effect on the liability of
alleged liability of any director or officer of the corporation for or with
respect to any acts or omissions of such director or officer occurring prior to
such amendment or repeal.
THIRD: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware, at which meeting the necessary number of shares as
required by statue were voted in favor of the amendments.
<PAGE>
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FIFTH: That the capital of said corporation shall not be reduced or increased
by reason of said amendment.
SIXTH: That the effective date of said amendments shall be October 1, 1995.
In Witness Whereof, said SMA Life Assurance Company has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Bradford K.
Gallagher, its President, and Abigail M. Armstrong, its Secretary, this 29th day
of June 1995.
By: /s/ Bradford K. Gallagher
------------------------------------
President
(Corporate Seal)
By: /s/ Abigail M. Armstrong
------------------------------------
Secretary
Attest:
/s/ Randi B. Setterlund
__________________________
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
***
American Variable Annuity Life Assurance Company, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of American Variable
Annuity Life Assurance Company resolutions were duly adopted setting forth a
proposed amendment of the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "FIRST" so that, as amended
said Article shall be and read as follows:
"The name of the corporation is SMA Life Assurance Company"
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
FIFTH: That the effective date of said amendment shall be January 1,
1982.
IN WITNESS WHEREOF, said American Variable Annuity Life Assurance Company
has caused its corporate seal to be hereunto affixed and this certificate to be
signed by John M. Quinlan, its President, and Sheila B. St. Hilaire, its
Secretary, this 28th day of September, 1981.
/s/ John M. Quinlen
----------------------------------
By: John M. Quinlan
President
/s/ Sheila B. St. Hilaire
---------------------------------
(CORPORATE SEAL) By: Sheila B. St. Hilaire
Secretary
ATTEST: Ralph L. Diller, Asst. Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
AMERICAN VARIABLE ANNUITY LIFE ASSURANCE COMPANY, INC.
KNOW ALL MEN BY THESE PRESENTS: EXHIBIT A
That the following Certificate of Incorporation of AMERICAN VARIABLE ANNUITY
LIFE ASSURANCE COMPANY, INC. shall henceforth be, and constitute the Certificate
of Incorporation of said Corporation as follows:
First: The name of the Corporation is American Variable Annuity Life
Assurance Company, Inc.
Second: Its registered office in the State of Delaware is located at No. 229
South State Street, Dover, County of Kent. The registered agent in
charge thereof at such address is The Prentice-Hall Corporation
System, Inc.
Third: The nature of the business or objects or purposes to be transacted,
promoted, or carried on by the Corporation are as follows:
(a) The insuring of lives of persons and every insurance pertaining
thereto or connected therewith, including accident and health
insurance and the granting or disposing of annuities and the
transacting of disability insurance, whether on a group,
individual, franchise or reinsurance basis, and any other type of
insurance or other business which may be or hereafter be lawfully
conducted by legal reserve life insurance companies organized
under the laws of the State of Delaware. Any such business may be
transacted on a variable basis stated in terms of units or
otherwise but payable in lawful currency, or on a fixed basis
stated in terms of predetermined amounts of lawful currency; the
Corporation may transact any such business in Delaware or
elsewhere.
(b) The Directors of the Corporation shall have the power to segregate
and hold separate from the other funds and assets of the
Corporation premiums or other funds received from the sale of
various types and classes of policies and annuity contracts; the
amount held may be invested in such proportions and in such manner
as determined by the Board of Directors of the Corporation or by a
committee thereof; except as may otherwise by required under
Subsection (c) hereof. The assets held in such separate account
or accounts shall not be chargeable with liabilities arising out
of any other business the Corporation may conduct, but shall be
held and applied exclusively for the benefit of the holders or
beneficiaries of those variable annuity contracts or life
insurance policies with respect to which the account or accounts
have been established;
(c) If a separate account is registered with an Agency of the Federal
Government having jurisdiction over such separate account or
contracts issued in connection therewith, provisions may be made
in the rules and regulations for such separate account for voting
by
<PAGE>
owners of a separate account contracts with respect to the
election of a board of managers for such account, ratification of
the selection of auditors for such account by such board, approval
of investment advisory service contracts for such account, and
such other matters as may be required by applicable law.
Fourth: The authorized capital stock of the Corporation shall be 10,000 shares
of $1,000 par value per share. Stock authorized but not issued may be
issued for such consideration as shall be fixed from time to time by
the Board of Directors, but the consideration shall at all times be
not less than the par value of said shares. When shares of stock
shall be issued, and paid for in cash at the rate determined by the
Board of Directors, such shares shall thereafter be nonassessable.
Fifth: The names and places of residence of the incorporators are as follows:
Ralph L. Diller, 11 Notre Dame Street, Leominster, Massachusetts
01543;
Gaynelle G. Jones, 8 Wabon Street, Dorchester, Massachusetts 02121;
Marilyn G. Quattrocchi, Harris Avenue, Lincoln, Rhode Island 02865
Sixth: The powers of the incorporators shall terminate upon the filing of
this Certificate of Incorporation, and the initial Board of Directors
of the Corporation shall be composed of:
Harold E. Ahlquist 75 Birchwood Drive
Holden, Massachusetts 01520
W. Douglas Bell 50 Wyndhurst Drive
Holden, Massachusetts 01520
Norman C. Cross 35 Leominster Road
Lunenburg, Massachusetts 01420
Roland A. Erickson 20 Church Street
Greenwich, Connecticut 06830
Frederick Fedeli 22 High Street
Southboro, Massachusetts 01772
John H. Freese 85 Wyndhurst Drive
Holden, Massachusetts 01520
Ralph F. Gow 14 Monmouth Road
Worcester, Massachusetts 01609
Paul R. O'Connell 34 Drury Lane
Worcester, Massachusetts 01609
and they shall serve until the Annual Meeting of the Corporation to be
held on the second Wednesday of April, 1975 and until their successors
shall have been elected and qualified.
Seventh: The following additional provisions not inconsistent with law are
hereby established for the management, conduct, and regulation of the
business and officers of the Corporation, and for creating, limiting,
defining, and
<PAGE>
regulating the powers of the Corporation and of its directors and
stockholders:
(a) The affairs and business of the Corporation shall be managed and
controlled by a Board of Directors consisting of not less than
three (3).
(b) The Directors shall be elected in such number, for such terms, and
in such manner as shall be provided in the By-laws and any
Director of the Corporation may be removed at any annual or
special meeting of stockholders by the same vote as that required
to elect a Director.
(c) Meetings of stockholders may be held outside the State of Delaware
if the By-laws so provide, in such place as shall be designated in
the notice of meeting. Except as otherwise required by law, the
presence in person or by proxy of the holders of a majority of the
shares of stock entitled to vote shall constitute a quorum at any
meeting of stockholders.
Eighth: The Corporation shall have perpetual existence unless sooner
terminated by the affirmative vote of the holders of two-thirds (2/3)
of the issued and outstanding stock.
Ninth: These Articles of Incorporation may be amended by written
authorization of the holders of a majority of the shares of stock
outstanding and entitled to vote or by affirmative vote of such a
majority voting at a lawful meeting of such stockholders provided
notice given for such meeting includes due notice of the proposal to
amend.
We, the undersigned, for the purpose of forming a corporation under the laws of
the State of Delaware, do make, file, and record this Certificate, and do
certify that the facts herein stated are true; and we have accordingly hereunto
set our respective hands.
Dated at July 26, 1974.
Ralph L. Diller
Gaynelle G. Jones
Marilyn G. Quattrocchi
<PAGE>
Commonwealth of Massachusetts )
)ss
County of Worcester )
Be it remembered, that on this 26th day of July, 1974, there personally appeared
before me, the undersigned, a notary public, Ralph L. Diller, Gaynelle G. Jones,
Marilyn G. Quattrocchi, parties to the foregoing Certificate of Incorporation,
known to me personally to be such, and I having first made known to them and
each of them the contents of said Certificate, they did each severally
acknowledge that they signed, sealed, and delivered the same as their voluntary
act and deed, and each deposed that the facts therein stated were truly set
forth.
Given under my hand and seal of office the day of the year aforesaid.
Robert G. Juneau
Notary Public
My Commission Expires: May 30, 1980
<PAGE>
AGREEMENT OF MERGER
AMERICAN VARIABLE ANNUITY LIFE ASSURANCE COMPANY
(AN ARKANSAS COMPANY)
AND
AMERICAN VARIABLE ANNUITY LIFE ASSURANCE COMPANY, INC.
(A DELAWARE COMPANY)
This Agreement and Plan of Merger (hereinafter referred to as "Agreement")
made as of this 23rd day of September, 1974, between American Variable Annuity
Life Assurance Company (hereinafter referred to as AVA Co.), a stock insurance
company incorporated and existing under the laws of the State of Arkansas and
having its principal place of business in Little Rock, Arkansas, and American
Variable Annuity Life Assurance Company, Inc. (hereinafter referred to as AVA,
Inc.), a stock insurance company incorporated and existing under the laws of the
State of Delaware and having its registered office in Dover, Delaware and its
principal place of business in Worcester, Massachusetts. (Said companies being
sometimes hereinafter called "Constituent Companies").
Whereas, the purpose of this Agreement is to accomplish the transfer of the
domicile of AVA Co. from the State of Arkansas to the State of Delaware through
the utilization of the merger statutes of the respective states, and
Whereas, after full consideration, the Boards of Directors of the
Constituent Companies have deemed it is in the best interests of the Companies
and their shareholders that the Constituent Companies be merged as a single
company and the Surviving Company of said merger comprise the same business
enterprise as AVA Co.
WITNESSETH:
IN CONSIDERATION of the terms and of the mutual agreements, covenants, and
provisions herein contained, and pursuant to the laws of Arkansas and of
Delaware, this Agreement of Merger is made and entered into by and between the
Board of Directors of the said AVA Co. and the Board of Directors of the said
AVA, Inc., do hereby agree as follows:
(1) At the effective date and time set forth herein, AVA Co. is hereby
merged into and with AVA, Inc. with AVA, Inc. the surviving and continuing
company under the laws of the State of Delaware. At the effective date of
merger AVA, Inc. shall assume the name of American Variable Annuity Life
Assurance Company (hereinafter referred to as the "Surviving Company").
(2) The Surviving Company shall continue as a stock insurance company,
and shall have the objects and purposes stated in its Certificate of
Incorporation, Exhibit A annexed, and in general terms have the power and
authority to transact any business which AVA Co. is empowered and authorized to
transact, and shall have the authority to transact any business which domestic
life and health insurance companies are now or hereafter may be authorized to
transact under the laws of the State of Delaware.
(3) At the said effective date and time, and by operation of the
applicable
<PAGE>
laws and statutes of the State of Arkansas and the State of Delaware relating to
the merger of stock insurance corporations, all of the rights and assets of AVA
Co. including without limitation assets tangible and intangible, real and
personal, of whatsoever kind and character and wheresoever located, including
all separate accounts of AVA Co., shall become the assets of the Surviving
Company.
(4) At the effective date and time and by operation of the applicable
laws and statutes of the State of Arkansas and the State of Delaware, the
Surviving Company shall assume and shall be liable and responsible for any and
all of the legal liabilities and legal obligations of AVA Co. then outstanding,
including without limitation, all liabilities for taxes, all liabilities under
insurance contracts theretofore issued or then on binder, and all other legal
liabilities and obligations of AVA Co.
(5) Prior to the merger, the Board of Directors of AVA, Inc. shall
adopt a resolution to be effective at the time of the merger providing that such
separate account or accounts as may be established and maintained by AVA Co. at
the time of the merger shall be deemed to be separate accounts of the Surviving
Company pursuant to the provisions of Delaware law and that the existence of
such separate account or accounts shall continue uninterrupted.
(6) The Surviving Company, through its appropriate officers and
directors, is hereby authorized in the name of either of the Constituent
Companies or in its own name, to execute, acknowledge, and deliver all
instruments of further assurance and to do all other such acts or things as it
may, at any time, deem necessary or desirable to vest in the Surviving Company
any property or rights of any of the merged corporations, or to carry out any of
the purposes expressed in this Agreement.
(7) The registered office of the Surviving Company in Delaware shall be
in Dover, County of Kent, Delaware. The principal office of the Surviving
Company shall be in the City of Worcester, in the County of Worcester,
Massachusetts.
(8) The present By-Laws of AVA, Inc. set forth in Exhibit 3, shall be
the By-Laws of the Surviving Company unless and until altered, amended or
repealed in the manner therein provided.
(9) All shares if authorized and outstanding capital stock of AVA,
Inc., such stock being owned in its entirety AVA Co., shall be cancelled on the
effective date of the merger.
(10) All shares of authorized and outstanding capital stock of AVA Co.
owned in its entirety by State Mutual Life Assurance Company of America, shall
be cancelled effective the date of the merger and stock of the Surviving Company
shall be issued to State Mutual in amounts equivalent to the stock owned in AVA
Co. prior to the merger.
(11) The Constituent Companies agree to do and perform each and every
act required by the laws of Delaware and Arkansas to effectuate such merger.
(12) The proper officers of the respective companies hereto are
authorized and directed from time to time, as the occasion may arise, to do all
acts and to execute and acknowledge all affidavits, deeds, contracts,
assurances, assignments and instruments in writing, and to sign and deliver all
checks on the bank accounts of the respective parties hereto, and do anything
else deemed necessary or proper to
<PAGE>
carry out the provisions of this Agreement, and to affix the corporate seals of
the respective parties to any such instrument in writing.
(13) The merger shall become effective at the close of business December
31, 1974.
(14) In order to clarify the intention of the parties hereto or to
effect or facilitate the filing, recording or official approval of this
Agreement and Plan of Merger and the consummation hereof in accordance with the
purpose and intent of this Agreement, any of the terms or conditions of this
Agreement may be, at any time prior to the merger, amended by mutual agreement
of the Constituent Companies by action duly taken by the respective Boards of
Directors.
(15) This Agreement shall be contingent upon approval by the
shareholders of the Constituent Companies and upon approval by a majority of the
variable annuity contract owners of AVA Co. as the term majority is defined in
the By-Laws and Regulations of its separate account American Variable Annuity
Fund.
(16) This Agreement shall be and become void and of no effect and the
merger contemplated hereby shall be deemed to be abandoned if a majority of the
Board of Directors of either Constituent Companies, at a meeting thereof duly
called and held, shall be resolution deem that it is inadvisable to consummate
the merger.
(17) This Agreement shall further be contingent upon obtaining necessary
approval from the Commissioners of Insurance in the States of Arkansas and
Delaware and the approval of the appropriate governmental regulatory agencies.
(18) No director or officer of either of the Constituent Companies or of
any parent corporation or subsidiary insurer, shall receive any fee, commission,
other compensation or valuable consideration whatever other than regular salary
directly or indirectly, for in any manner aiding, promoting or assisting in the
merger.
(19) Without further action of the shareholders of AVA Co. or AVA, Inc.
or the Boards of Directors of the Constituent Companies, the officers of the
Surviving Company shall be the officers of AVA, Inc. immediately prior to the
merger and there shall be eight initial directors of the Surviving Company whose
names and addresses are as follows:
Harold E. Ahlquist, Jr. Member
75 Birchwood Drive
Holden MA 01520
W. Douglas Bell Chairman
50 Wyndhurst Drive
Holden MA 01520
Norman C. Cross Member
38 Dusty Miller Road
Falmouth MA 02540
Roland A. Erickson Member
101 M Lewis Street
Greenwich CT 06830
<PAGE>
Frederick Fedeli Member
22 High Street
Southboro MA 01772
John H. Freese Member
85 Wyndhurst Drive
Holden MA 01520
Ralph F. Gow Member
14 Monmouth Road
Worcester MA 01609
Paul R. O'Connell Member
34 Drury Lane
Worcester MA 01609
IN WITNESS WHEREOF, American Variable Annuity Life Assurance Company and
American Variable Annuity Life Assurance Company, Inc. have caused this
Agreement to be executed in their corporate names by their respective officers
and who by majorities of their Boards of Directors on this 23rd day of
September, 1974.
AMERICAN VARIABLE ANNUITY LIFE
ASSURANCE COMPANY
(Corporate Seal) By: John H. Freese, President
Attest: Ralph L. Diller, Secretary
Directors of American Variable Annuity Life Assurance Company:
Harold E. Ahlquist, Jr. Frederick Fedeli
W. Douglas Bell John H. Freese
Norman C. Cross Ralph G. Gow
Roland A. Erickson Paul R. O'Connell
AMERICAN VARIABLE ANNUITY LIFE
ASSURANCE COMPANY, INC.
/s/ John H. Freese
--------------------------------
(Corporate Seal) By: John H. Freese, President
Attest: Ralph L. Diller, Secretary
<PAGE>
Directors of American Variable Annuity Life Assurance Company, Inc.:
Harold E. Ahlquist, Jr. Frederick Fedeli
W. Douglas Bell John H. Freese
Norman C. Cross Ralph F. Gow
Roland A. Erickson Paul R. O'Connell
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
AMERICAN VARIABLE ANNUITY LIFE ASSURANCE COMPANY
INTO
AMERICAN VARIABLE ANNUITY LIFE ASSURANCE COMPANY, INC.
American Variable Annuity Life Assurance Company, a corporation organized under
the laws of the State of Arkansas does hereby certify:
FIRST: That it was organized pursuant to the provisions of the Arkansas
Insurance Laws on the 23rd day of January, 1967.
SECOND: That it owns all of the outstanding shares of capital stock of
American Variable Annuity Life Assurance Company, Inc., a corporation organized
pursuant to the provisions of the General Corporation Laws of the State of
Delaware on the 26th day of July, 1974.
THIRD: That its Board of Directors at a meeting held on the 30th day of July,
1974 determined to merge the Corporation into said American Variable Annuity
Life Assurance company, Inc. and did adopt the following resolution:
"RESOLVED: That subject to the approval of State Mutual Life
Assurance Company of America as the sole shareholder of the
company and the approval of the company's variable annuity
contract owners, the company enter into a merger agreement with
its wholly owned subsidiary, American Variable Annuity Life
Assurance Company, Inc. effective with the close of business,
December 31, 1974. The appropriate officers of the company are
hereby authorized to execute the merger agreement substantially
in the form attached hereto and take whatever action may be
necessary to carry out the terms of said merger agreement."
FOURTH: That the attached copy of the Agreement of Merger is the same as that
approved and authorized by resolution of the Board of Directors of the Company
on July 30,1974.
FIFTH: That the sole stockholder of the Company, State Mutual Life Assurance
Company of America, at a stockholder meeting duly called and held on August 16,
1974 for the purpose of approving the merger voted to approve the merger of the
Company into its wholly owned subsidiary, American Variable Annuity Life
Assurance Company, Inc. pursuant to the Agreement of Merger as authorized by the
Board of Directors of the Company on July 30, 1974.
SIXTH: That pursuant to the Agreement of Merger approved and authorized by
the Company's Board of Directors, the merger of American Variable Annuity Life
Assurance Company into American Variable Annuity Life Assurance Company, Inc.
shall be effective at the close of business December 31, 1974.
SEVENTH: That pursuant to the Agreement of Merger approved and authorized by
the Company's Board of Directors, the surviving company shall, effective with
the
<PAGE>
merger, assume the name American Variable Annuity Life Assurance Company.
IN WITNESS WHEREOF, said American Variable Annuity Life Assurance Company, has
caused this Certificate of Ownership and Merger to be signed by John H. Freese,
its President, and Ralph L. Diller, its Secretary, and its corporate seal to be
affixed thereto this 5th day of December, A.D. 1974.
AMERICAN VARIABLE ANNUITY LIFE
ASSURANCE COMPANY
By: /s/ John H. Freese
--------------------------------
President
By: /s/ Ralph L. Diller
--------------------------------
Secretary
(CORPORATE SEAL)
<PAGE>
STATE OF MASSACHUSETTS
COUNTY OF WORCESTER
BE IT REMEMBERED that on this 5th day of December, 1974, personally came
before me, a Notary Public in and for the County and State aforesaid, John H.
Freese, President and Ralph L. Diller, Secretary of American Variable Annuity
Life Assurance Company, a corporation of the State of Arkansas, and they duly
executed said certificate before me and severally acknowledged the said
certificate to be their act and deed and the act and deed of said corporation
and the facts stated therein are true; that the signatures of the said officers
are in the handwriting of each of said officers respectively; and that the seal
affixed to said certificate is the common or corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
Ethel Demark
Notary Public
(SEAL)
<PAGE>
BYLAWS
of
Allmerica Financial Life Insurance and Annuity Company
(Effective October 1, 1995)
ARTICLE I
Meetings of Stockholders
1. The Annual Meeting shall be held on the second Wednesday of April of each
year but if that day is a legal holiday at the place of meeting, the meeting
shall be held on the next following business day not a holiday. If more than
fifteen months are allowed to elapse without an annual stockholders' meeting
being held, any stockholder may call such a meeting to be held. The place of
any Annual Meeting may be outside of the State of Delaware and shall be fixed
from time to time by the Board of Directors.
2. The business to be transacted at the Annual Meeting shall be the election
of Directors, to receive and consider reports of the Corporation's Officers, and
such other business as shall properly be brought before the meeting.
3. At least ten days notice of each Annual Meeting, unless waived in writing,
stating the place, day, and hour thereof shall be given by the Secretary to each
stockholder by mailing postage prepaid to his address as it appears on the
Corporation's books; and no amendments to the Corporation's Articles of
Incorporation may be made at any meeting of the stockholders unless the proposal
to so amend is included in the notice of the meeting.
4. At any time upon written request of the President, any Director, or
stockholders holding in the aggregate one-third of the voting rights of all
stock outstanding, it shall be the duty of the Secretary to call a special
meeting of stockholders to be held at any such time as the Secretary may fix in
the written notice thereof, not less than five nor more than sixty days after
the receipt of request. If the Secretary fails to issue such call, the Director
or stockholders making the request may do so. The notice shall state the
purpose of the meeting and no business of which notice is not so given shall be
transacted at such meeting.
5. The presence in person or by proxy of the holders of the majority of the
shares of stock outstanding and entitled to vote shall constitute a quorum. The
stockholders present at a duly organized meeting can continue to do business
until adjournment notwithstanding the withdrawal of stockholders leaving less
than a quorum.
<PAGE>
6. If a meeting cannot be organized because a quorum has not attended, those
present may adjourn the meeting to such time as they may determine, but in the
case of any meeting called for the election of any Director, the adjournment
must be to the next day and those who attend the adjourned meeting although less
than a quorum as otherwise provided herein shall nevertheless constitute a
quorum for the purpose of electing a Director.
7. If any necessary Officer fails to attend a stockholders' meeting any
stockholder present may be elected to act temporarily in lieu of such absent
Officer.
8. An annual or special meeting of stockholders may be adjourned to another
date without new notice being given.
9. Any action required or permitted to be taken at any annual meeting or
special meeting of the stockholders may be taken without a meeting, without
prior notice, if a consent in writing setting forth the actions so taken is
signed by the holders of all of the outstanding stock of the Company.
ARTICLE II
Stockholders Voting and Other Rights
1. At each meeting of stockholders and upon each proposal presented at each
meeting each stockholder of record shall be entitled to one vote for each share
of stock standing in his name on the books of the Corporation on the record date
as hereafter established.
2. A stockholder may vote or be represented at any stockholders' meeting in
person or by written proxy, which may be revoked at will. The revocation of a
proxy shall not be effective until written notice thereof has been filed with
the Secretary of the Corporation.
3. Unless otherwise provided by law, the Articles of Incorporation, or these
Bylaws, all questions shall be determined by the holders of a majority of the
capital stock voting thereon.
4. The following shall be referred to as a record event:
(a) a meeting of stockholders,
(b) the payment of any dividend,
(c) the allotment of rights,
(d) a change, conversion, or exchange of capital stock.
-2-
<PAGE>
ARTICLE III
Directors
1. The number of Directors which shall constitute the whole Board shall be not
less than three nor more than fifteen. The Directors shall be elected at the
Annual Meeting of Stockholders except as hereinafter provided, and each Director
elected shall hold office for one year or until his successor is elected and
qualified. The Directors need not be stockholders or residents of the State of
Delaware.
2. Vacancies in the Board of Directors may be filled by the remaining members
of the Board, and each person so elected shall be a Director until his successor
is elected by the stockholders at the next Annual Meeting of Stockholders or at
any special meeting of stockholders called for that purpose and held prior to
such Annual Meeting.
3. The Board of Directors may establish the position of Chairman of the Board
and Vice Chairman of the Board and shall choose from among its members for such
positions. The Chairman of the Board as so chosen shall preside at meetings of
the Board and perform such other duties as are assigned to him by the Board. If
the Chairman is absent or unable to discharge the duties of his office, the Vice
Chairman may act in his stead.
4. The Board of Directors shall determine the amount of any expense
reimbursement or remuneration to be paid to its members for attendance at
meetings.
ARTICLE IV
Meetings of the Board of Directors
1. The Board of Directors may hold meetings, both regular and special, either
within or without the State of Delaware.
2. The Board of Directors shall hold an organizational meeting immediately
after the Annual Meeting of Stockholders or at such time as may be fixed by
written consent of a majority of all Directors or by notice given by the
President or Secretary.
3. Regular meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be determined by
resolution of the Board of Directors.
4. Special meetings of the Board may be called by the President on five days
notice to each Director. Special meetings shall be called by the President or
Secretary on like notice on the written request of a majority of the entire
Board of Directors. The notice shall indicate the purpose, time, and place of
the special meeting.
-3-
<PAGE>
5. At the meeting of the Board, a majority or five of the Directors, whichever
is less, shall constitute a quorum for the transaction of business. The
concurrence of a majority of Directors present at any meeting at which there is
a quorum shall constitute the act of the Board of Directors except as may be
otherwise provided by law.
6. Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting, if written
consent thereto is signed by all members of the Board or such Committee, as the
case may be, and such written consent is filed with the minutes of the
proceedings of the Board or Committee.
ARTICLE V
Committees
1. The Board of Directors may elect, from its membership, a Finance Committee
of not less than five Directors, who shall have charge of the investment, sale,
loan, or deposit of funds under the ownership, direction, or control of the
Corporation.
2. The Board may also appoint from its own members, and where permitted by
law, from the Officers and/or employees, other standing committees and temporary
committees, vesting such committees with such powers and prescribing such duties
as the Board shall determine.
3. Each Committee shall keep regular minutes of its meetings and cause them to
be recorded in books to be kept for that purpose and shall report to the Board
from time to time as the Board may request.
ARTICLE VI
Officers
1. The Board of Directors shall choose a President, who shall be a Director, a
Secretary, and a Treasurer. The Directors may also choose one or more Vice
Presidents, Assistant Secretaries, and Assistant Treasurers and such other
Officers as may be deemed necessary. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
2. Any person may hold two (2) or more offices, except that the President
shall not be also the Secretary or Assistant Secretary.
3. The Officers shall hold office for one year and until their successors are
elected and qualified but the Board may remove any officer at will.
-4-
<PAGE>
ARTICLE VII
Duties of Officers
1. The Chief Executive Officer of the Corporation shall be the Chairman of the
Board, or the President, as determined by the Directors, and shall, subject to
the Board of Directors, direct and manage the affairs of the Corporation. If
the Chairman of the Board and Vice Chairman of the Board are both absent or
unable to discharge their duties, the President may fulfill the duties of the
Chairman of the Board.
2. If the President is absent or unable to discharge the duties of his office,
a Vice President may act in his stead. The Chairman of the Board, if he is the
Chief Executive Officer, the President, or any one of the Vice Presidents shall
have the authority to transfer securities, execute releases, extensions, partial
releases, or assignments without recourse of mortgages, to execute deeds and
other instruments or documents, including contracts or insurance and annuities,
on the part of the Company and whenever necessary to affix the Seal of the
Company to the same. The Chairman of the Board, the President, or any Vice
President may, whenever necessary, delegate this authority to perform any of the
acts referred to in this paragraph to any person pursuant to a special power-of-
attorney.
3. The Secretary shall keep a list of stockholders and of the number of shares
standing in the name of each and a record of the transfers thereof. He shall
keep a record of the votes and all other proceedings of all meetings of the
Directors and stockholders; and such other books and records as the Chief
Executive Officer or Directors may require. He shall give, or cause to be
given, notice of all meetings of stockholders and special meetings of the Board
of Directors. He shall have custody of the corporate records and Corporate Seal
and shall have the authority to affix the same to any instrument requiring it;
and when so affixed, it may be attested by his signature or the signature of an
Assistant Secretary; he shall also perform all acts usually incident to the
office of Secretary.
4. If the Secretary is absent or unable to discharge the duties of his office,
an Assistant Secretary may act.
5. The Treasurer shall have charge of all monies and securities of the
Company; and he shall collect all profits from investments which the Company
records establish to be due.
6. The Treasurer shall have authority to transfer securities, to execute
releases, extensions, partial releases, and assignments without recourse of
mortgages, to execute deeds and other instruments or documents on behalf of the
Company, and whenever necessary, to affix the Seal of the Company to the same.
He shall have the power to vote on behalf of the Company in any case where
-5-
<PAGE>
the Company as the holder of any securities had the authority to vote.
7. If the Treasurer is absent or unable to discharge the duties of his office,
an Assistant Treasurer may act.
ARTICLE VIII
Indemnification of Directors and Officers
Each Director and each Officer of the Corporation, whether or not in
office, (and his executors or administrators), shall be indemnified or
reimbursed by the Corporation against all expenses actually and necessarily
incurred by him in the defense or reasonable settlement of any action, suit, or
proceeding in which he is made a party by reason of his being or having been a
Director or Officer of the Corporation, including any sums paid in settlement or
to discharge judgment, except in relation to matters as to which he shall be
finally adjudged in such action, suit, or proceeding to be liable for negligence
or misconduct in the performance of his duties as such Director or Officer; and
the foregoing right of indemnification or reimbursement shall not affect any
other rights to which he may be entitled under the Articles of Incorporation,
any statute, bylaw, agreement, vote of stockholders, or otherwise.
ARTICLE IX
Notice
Whenever any notice is required to be given under the provisions of
statutes, the Articles of Incorporation, or these Bylaws, a waiver thereof, in
writing signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Attendance at any meeting shall constitute a waiver of notice
unless attendance is for the purpose of objecting to the transaction of
business.
ARTICLE X
Corporate Seal
The Corporation's Corporate Seal shall contain the words, "Allmerica
Financial Life Insurance and Annuity Company," surrounding the words, "Corporate
Seal," and the same may be altered by the Board of Directors.
-6-
<PAGE>
ARTICLE XI
Amendment
These Bylaws may be amended or repealed by the Directors or by majority
vote of the shares of stock outstanding and entitled to vote.
I hereby certify that the foregoing is a true copy of the Bylaws of said
Company in force on this date.
WITNESS my hand and the seal of said Company at Worcester, Massachusetts,
this _____ day of ________________, 19___.
____________________________
Secretary
(SEAL)
-7-
<PAGE>
Exhibit 9
September 25, 1995
SMA Life Assurance Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of SMA Life Assurance Company (the "Company"), I
have participated in the preparation of the Post-Effective Amendments to the
Registration Statements for Separate Account VA-K on Form N-4 under the
Securities Act of 1933 and the Investment Company Act of 1940, with respect
to the Company's qualified and non-qualified variable annuity contracts.
I am of the following opinion:
1. Separate Account VA-K is a separate account of the Company validly
existing pursuant to the Delaware Insurance Code and the regulations
issued thereunder.
2. The assets held in Separate Account VA-K are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The individual qualified and non-qualified variable annuity contracts,
when issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company in accordance
with their terms and when sold will be legally issued, fully paid and
non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the
Post-Effective Amendments to the Registration Statements on Form N-4 under
the Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
EXEC.OPN
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 9 to the Registration
Statement on Form N-4 of our report dated February 13, 1995 relating to the
financial statements of SMA Life Assurance Company and our report dated
February 13, 1995, relating to the financial statements of Separate Account
VA-K ExecAnnuity Plus of SMA Life Assurance Company, both of which appear in
such Statement of Additional Information. We also consent to the reference to
us under the heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
September 25, 1995
<TABLE> <S> <C>
<PAGE>
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 001
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 002
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 003
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 004
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 005
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 006
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</TABLE>
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 007
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<PERIOD-END> DEC-31-1994
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<ACCUM-APPREC-OR-DEPREC> 266,369
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<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 19,383,925
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<PAGE>
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 008
<S> <C>
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<PAGE>
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 009
<S> <C>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 67
<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 011
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 68
<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 020
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
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<SERIES>
<NUMBER> 69
<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 102
<S> <C>
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<TABLE> <S> <C>
<PAGE>
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 103
<S> <C>
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<PAGE>
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 104
<S> <C>
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<TABLE> <S> <C>
<PAGE>
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<NUMBER> 72
<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 105
<S> <C>
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<NAME> SMA SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS SUB-ACCOUNT 106
<S> <C>
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<NUMBER-OF-SHARES-SOLD> 22,347,557
<NUMBER-OF-SHARES-REDEEMED> 1,627,188
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 20,245,645
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 10,122,823
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> (.004)
<PER-SHARE-GAIN-APPREC> (.019)
<PER-SHARE-DIVIDEND> 0.0
<PER-SHARE-DISTRIBUTIONS> 0.0
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> .977
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
