<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 VARIABLE ACCOUNT DATED JULY 8,
1996 ("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 JULY 8, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY . . . . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE CONTRACTS, THE VARIABLE ACCOUNT
AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
GENERAL INFORMATION AND HISTORY
Separate Account VA-K ("Variable 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 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,
1995, the Company had over $5 billion in assets and over $18 billion of life
insurance in force.
Effective October 1, 1995, the Company changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
The Company is an indirectly wholly-owned subsidiary of First Allmerica
Financial Life Insurance Company ("First Allmerica"), which in turn is a
wholly-owned subsidiary of Allmerica Financial Corporation ("AFC"). First
Allmerica, originally organized under the laws of Massachusetts in 1844 as a
mutual life insurance company and known as State Mutual Life Assurance
Company of America, converted to a stock life insurance company on October
16, 1995 and adopted its present name. First Allmerica is the fifth oldest
life insurance company in America. As of December 31, 1995 First Allmerica
and its subsidiaries (including the company) had over $11 billion in combined
assets and over $35.2 billion in life insurance in force.
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Currently, 18 Sub-Accounts of the Separate Account are available under the
Contracts. Each Sub-Account invests in a corresponding investment portfolio
of Allmerica Investment Trust, ("Trust"), Variable Insurance Products Fund
("VIP"), Variable Insurance Products Fund II ("VIP II"), T. Rowe Price
International Series, Inc. ("T. Rowe Price") or Delaware Group Premium Fund,
Inc. ("DGPF"). The Trust is managed by Allmerica Investment Management
Company, Inc. VIP and VIP II are managed by Fidelity Management and Research
Company ("Fidelity Management"). The T. Rowe Price International Stock
Portfolio of T. Rowe Price 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, VIP, VIP II, T. Rowe Price and DGPF are open-end, diversified,
management investment companies. Eleven different Funds of the Trust are
available under the Contracts: 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 VIP are available under the Contracts: the
Fidelity VIP High Income Portfolio, Fidelity VIP Equity-Income Portfolio,
Fidelity VIP Growth Portfolio, and Fidelity VIP Overseas Portfolio. One
Portfolio of VIP II is available under the Contracts: the Fidelity VIP II
Asset Manager Portfolio. One Portfolio of T. Rowe Price is available under
the Contracts: the T. Rowe Price International Stock Portfolio. The
International Equity Series is the only Series of DGPF available under the
Contracts. Each Fund, Portfolio and Series available under the Contracts
(together, the "Underlying Funds") has its own investment objectives and
certain attendant risks.
TAXATION OF THE CONTRACTS, VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with
the Contract, 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 Contracts or the Variable Account.
The Variable 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") 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 Contracts or the Variable 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
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among classes of Contract Owners. The Variable Account presently is not
subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of
the Variable Account. Underlying Fund shares owned by the Sub-Accounts are
held on an open account basis. A Sub-Account'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, 1995 and
1994 and for each of the three years in the period ended December 31, 1995
and of Separate Account VA-K ExecAnnuity Plus of the Company as of December
31, 1995 and for the periods 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 Contracts.
UNDERWRITERS
Allmerica Investments, Inc. ("Allmerica Investments"), 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 Contracts pursuant to a contract
between Allmerica Investments, the Company and the Variable Account.
Allmerica Investments distributes the Contracts on a best efforts basis.
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts
01653 was organized in 1969 as a wholly-owned subsidiary of First Allmerica
and is, at present, indirectly wholly-owned by First Allmerica.
The Contracts offered by this Prospectus are offered continuously and may be
purchased from NASD registered representatives of Allmerica Investments 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 Contracts. The Company intends to recoup the commission and other
sales expense through a combination of anticipated surrender, withdrawal,
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.
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All persons selling the Contracts are required to be licensed by their
respective state insurance authorities for the sale of variable annuity
policies. Registered representatives of Allmerica Investments receive
commissions equal to 5% (4% on contracts 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
Investments, Inc. with respect to sales of the Company's Variable Annuity
Contracts was $27,846,000.00 in 1995, $26,842,152.00 in 1994 and
$21,276,666.00 in 1993.
Commissions are paid by the Company and do not result in any charge to
Contract 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 Contract is determined is
described in detail under "K. Computation of Contract 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 Sub-Account 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:
(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)............ 0.000040
(6) Net Investment Rate (4) - (5).................................... 0.000295
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(7) Net Investment Factor 1.000000 + (6)............................. 1.000295
(8) Accumulation Unit Value - Current Period (1) x (7)............... $ 1.135335
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
$1.134574.
The method for determining the amount of annuity payments is described in
detail under "K. Computation of Contract 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 Contract is $44,800 (40,000 X $1.120000). Assume
also that the Contract 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 31/2% 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 Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the prospectus under
"PERFORMANCE
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INFORMATION." In addition, the Company may provide advertising, sales
literature, periodic publications or other material information on various
topics of interest to Contract Owners and prospective Contract 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 Contracts and the
characteristics of and market for such financial instruments.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment
in a Sub-Account and of the changes of value of the principal invested (due
to realized and unrealized capital gains or losses) for a specific period,
reduced by the Sub-Account(s) asset charge and any applicable contingent
deferred sales charge which would be assessed upon complete withdrawal 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 Variable 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 Sub-Account. 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:
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<PAGE>
CONTRACT YEAR FROM DATE CHARGE AS PERCENTAGE
OF PAYMENT IN WHICH OF NEW PAYMENTS
SURRENDER OCCURS WITHDRAWN*
1-2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
*Subject to the maximum limit described in the prospectus.
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
Contract or the life expectancy distribution, is not subject to the
contingent deferred sales charge.
The calculations of Total Return include the deduction of the $30 Annual
Contract fee.
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 Sub-Account 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 Sub-Account(s) asset
charges. However, it is assumed that the investment is NOT withdrawn 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 Variable Account of $1,000
T = average annual total return
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<PAGE>
n = number of years
EV = the ending value of the $1,000 payment at the end of the specified
period
The calculation of Supplemental Total Return reflects the 1.45% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
Contract is NOT withdrawn 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 contract was withdrawn at the end of the period.
The calculations of Supplemental Total Return include the deduction of the
$30 Annual Contract fee.
YIELD AND EFFECTIVE YIELD - SUB-ACCOUNT 3 (INVESTS IN THE MONEY MARKET FUND
OF THE TRUST)
Set forth below is yield and effective yield information for the Sub-Account
3 for the seven-day period ended December 31, 1995:
Yield 5.63%
Effective Yield 5.59%
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 Sub-Account 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
for a seven-day base period by (365/7), with the resulting yield carried to
the nearest hundredth of one percent.
Sub-Account 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
Contract fee.
FINANCIAL STATEMENTS
Financial Statements are included for the Company and for the Sub-Accounts of
Separate Account VA-K investing in the Underlying Funds.
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<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
(formerly SMA Life Assurance Company)
STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
December 31, 1995
Statutory Financial Statements
Report of Independent Accountants . . . . . . . . . . . . . . . . . 1
Statement of Assets, Liabilities, Surplus and Other Funds . . . . . 3
Statement of Operations and Changes in Capital and Surplus. . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Statutory Financial Statements . . . . . . . . . . . . . . 6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)
We have audited the accompanying statutory basis statement of assets,
liabilities, surplus and other funds of Allmerica Financial Life Insurance and
Annuity Company as of December 31, 1995 and 1994, and the related statutory
basis statements of operations and changes in capital and surplus, and of cash
flows for each of the three years ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, which practices
differ from generally accepted accounting principles. The effects on the
financial statements of the variances between the statutory basis of accounting
and generally accepted accounting principles, although not reasonably
determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Allmerica Financial Life Insurance and Annuity Company as of December 31,
1995 and 1994, or the results of its operations or its cash flows for each of
the three years ended December 31, 1995.
<PAGE>
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)
Page 2
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities, surplus and other funds of
Allmerica Financial Life Insurance and Annuity Company as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years ended December 31, 1995, on the basis of accounting described in
Note 1.
As discussed in Note 1 to the financial statements, the Company's parent, State
Mutual Life Assurance Company of America, converted from a Massachusetts mutual
life insurance company to a Massachusetts stock life insurance company on
October 16, 1995. In connection with this transaction, the Company changed its
name to Allmerica Financial Life Insurance and Annuity Company and its parent
became a wholly-owned subsidiary of Allmerica Financial Corporation.
/s/Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Boston, MA
February 5, 1996
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF ASSETS, LIABILITIES, SURPLUS AND
OTHER FUNDS
as of December 31,
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash $ 7,791 $ 7,248
Investments:
Bonds 1,659,575 1,595,275
Stocks 18,132 12,283
Mortgage loans 239,522 295,532
Policy loans 122,696 116,600
Real estate 40,967 51,288
Short term investments 3,500 45,239
Other invested assets 40,196 27,443
----------- -----------
Total cash and investments 2,132,379 2,150,908
Premiums deferred and uncollected (1,231) 5,452
Investment income due and accrued 38,413 39,442
Other assets 6,060 10,569
Assets held in separate accounts 2,978,409 1,869,695
----------- -----------
$ 5,154,030 $ 4,076,066
----------- -----------
----------- -----------
LIABILITIES, SURPLUS AND OTHER FUNDS
Liabilities:
Policy liabilities:
Life reserves $ 856,239 $ 890,880
Annuity and other fund reserves 865,216 928,325
Accident and health reserves 167,246 121,580
Claims payable 11,047 11,720
----------- -----------
Total policy liabilities 1,899,748 1,952,505
Expenses and taxes payable 20,824 17,484
Other liabilities 27,499 36,466
Asset valuation reserve 31,556 20,786
Obligations related to separate account business 2,967,547 1,859,502
----------- -----------
Total liabilities 4,947,174 3,886,743
----------- -----------
Surplus and Other Funds:
Common stock, $1,000 par value
Authorized - 10,000 shares
Issued and outstanding - 2,517 shares 2,517 2,517
Paid-in surplus 199,307 199,307
Unassigned surplus (deficit) 4,282 (13,621)
Special contingency reserves 750 1,120
----------- -----------
Total surplus and other funds 206,856 189,323
----------- -----------
$ 5,154,030 $ 4,076,066
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF OPERATIONS AND
CHANGES IN CAPITAL AND SURPLUS
for the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
REVENUE 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums and other considerations:
Life $ 156,864 $ 195,633 $ 189,285
Annuities 729,222 707,172 660,143
Accident and health 31,790 31,927 35,718
Reinsurance commissions and reserve adjustments 20,198 4,195 2,309
---------- ---------- ----------
Total premiums and other considerations 938,074 938,927 887,455
Net investment income 167,470 170,430 177,612
Realized capital losses, net of tax (2,295) (17,172) (7,225)
Other revenue 37,466 26,065 19,055
---------- ---------- ----------
Total revenue 1,140,715 1,118,250 1,076,897
---------- ---------- ----------
POLICY BENEFITS AND OPERATING EXPENSES
Policy benefits:
Claims, surrenders and other benefits 391,254 331,418 275,290
Increase (decrease) in policy reserves (22,669) 40,113 15,292
---------- ---------- ----------
Total policy benefits 368,585 371,531 290,582
Operating and selling expenses 150,215 164,175 160,928
Taxes, except capital gains tax 26,536 22,846 19,066
Net transfers to separate accounts 556,856 553,295 586,539
---------- ---------- ----------
Total policy benefits and operating expenses 1,102,192 1,111,847 1,057,115
---------- ---------- ----------
NET INCOME 38,523 6,403 19,782
CAPITAL AND SURPLUS, BEGINNING OF YEAR 189,323 182,216 171,941
Unrealized capital gains (losses) on investments 8,279 12,170 (9,052)
Transfer from (to) asset valuation reserve (10,770) (9,822) 1,974
Other adjustments (18,499) (1,644) (2,429)
---------- ---------- ----------
CAPITAL AND SURPLUS, END OF YEAR $ 206,856 $ 189,323 $ 182,216
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF CASH FLOWS
for the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums, deposits and other income $ 964,129 $ 962,147 $ 902,725
Allowances and reserve adjustments on
reinsurance ceded 20,693 3,279 22,185
Net investment income 170,949 173,294 182,843
Net increase in policy loans (6,096) (7,585) (7,812)
Benefits to policyholders and beneficiaries (393,472) (330,900) (298,612)
Operating and selling expenses and taxes (153,504) (193,796) (171,533)
Net transfers to separate accounts (608,480) (600,760) (634,021)
Federal income tax (excluding tax on capital gains) (6,771) (19,603) (4828)
Other sources (applications) (13,642) 19,868 7,757
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (26,194) 5,944 (1,296)
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sales and maturities of long term investments:
Bonds 572,640 478,512 386,414
Stocks 481 63 64
Real estate and other invested assets 13,008 3,008 11,094
Repayment of mortgage principal 55,202 65,334 79,844
Capital gains tax (400) (968) (3,296)
Acquisition of long term investments:
Bonds (640,339) (508,603) (466,086)
Stocks (44) - -
Real estate and other invested assets (11,929) (24,544) (2,392)
Mortgage loans (415) (364) (2,266)
Other investing activities (3,206) 18,934 (27,254)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (15,002) 31,372 (23,878)
---------- ---------- ----------
Net change in cash and short term investments (41,196) 37,316 (25,174)
CASH AND SHORT TERM INVESTMENTS
Beginning of the year 52,487 15,171 40,345
---------- ---------- ----------
End of the year $ 11,291 $ 52,487 $ 15,171
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTES TO STATUTORY FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Financial" or the "Company", formerly SMA Life
Assurance Company) is a wholly owned subsidiary of SMA Financial Corp., which is
wholly owned by First Allmerica Financial Life Insurance Company ("First
Allmerica", formerly, State Mutual Life Assurance Company of America), a stock
life insurance company. On October 16, 1995, First Allmerica converted from a
mutual life insurance company to a stock life insurance company. Concurrent
with this transaction, First Allmerica became a wholly owned subsidiary of
Allmerica Financial Corporation ("AFC").
The stockholder's equity of the Company is being maintained at a minimum level
of 5% of general account assets by First Allmerica in accordance with a policy
established by vote of First Allmerica'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 while common in the industry, vary in
some respects from generally accepted accounting principles. Significant
differences include:
- Bonds considered to be "available-for-sale" or "trading" are not
carried at fair value and changes in fair value are not recognized
through surplus or the statement of operations, respectively;
- The Asset Valuation Reserve, represents a reserve against possible
losses on investments and is recorded as a liability through a charge
to surplus. The Interest Maintenance Reserve is designed to include
deferred realized gains and losses (net of applicable federal income
taxes) due to interest rate changes and is also recorded as a
liability, however, the deferred net realized investment gains and
losses are amortized into future income generally over the original
period to maturity of the assets sold. These liabilities are not
required under generally accepted accounting principles;
- Total premiums, deposits and benefits on certain investment-type
contracts are reflected in the statement of operations, instead of
using the deposit method of accounting;
- Policy acquisition costs, such as commissions, premium taxes and other
items, are not deferred and amortized in relation to the revenue/gross
profit streams from the related contracts;
- Benefit reserves are determined using statutorily prescribed interest,
morbidity and mortality assumptions instead of using more realistic
expense, interest, morbidity, mortality and voluntary withdrawal
assumptions with provision made for adverse deviation;
- Amounts recoverable from reinsurers for unpaid losses are not recorded
as assets, but as offsets against the respective liabilities;
- Deferred federal income taxes are not provided for temporary
differences between amounts reported in the financial statements and
those included in the tax returns;
- Certain adjustments related to prior years are recorded as direct
charges or credits to surplus;
- Certain assets, designated as "non-admitted" assets (principally
agents' balances), are not recorded as assets, but are charged to
surplus; and,
- Costs related to other postretirement benefits are recognized only for
employees that are fully vested.
6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The preparation of financial statements in accordance with practices prescribed
or permitted by the Insurance Department of the State of Delaware and in
conformity with practices prescribed by the NAIC requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
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. Depreciation is generally calculated using the straight-line
method.
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, stocks and mortgage loans 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 contract holders. Assets consist principally
of bonds, common stocks, mutual funds, and short term obligations at market
value. The investment income, gains, and losses of these accounts generally
accrue to the contract holders 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 capital and surplus.
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. Reserves are computed using interest rates ranging
from 3% to 6% for individual life insurance policies, 3% to 5 1/2% for
accident and health policies and 3 1/2% to 9 1/2% for annuity contracts.
Mortality, morbidity and withdrawal assumptions for all policies are based on
the Company's own 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. At December 31, 1995 and 1994, approximately 84% and 77%,
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.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, management
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
FEDERAL INCOME TAXES - AFC, its life insurance subsidiaries, First Allmerica and
Allmerica Financial and its non-insurance domestic subsidiaries file a
life-nonlife 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 allocation policies and procedures are subject to written
agreement between the companies. The federal income tax for all subsidiaries in
the consolidated return of AFC is calculated on a separate return basis. Any
current tax liability is paid to AFC. Tax benefits resulting from taxable
operating losses or credits of AFC's subsidiaries are not reimbursed to the
subsidiary until such losses or credits can be utilized by the subsidiary on a
separate return basis.
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 capital and surplus. 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. The Company uses the
seriatim method of amortization for interest related gains and losses arising
from the sale of mortgages, and uses the group method to amortize interest
related gains and losses arising from all other fixed income investments.
NOTE 2 - INVESTMENTS
BONDS - The carrying value and fair value of investments in bonds are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 67,039 $ 3,063 $ - $ 70,102
State, local and government agency bonds 13,607 2,290 23 15,874
Foreign government bonds 12,121 772 249 12,644
Corporate securities 1,471,422 55,836 6,275 1,520,983
Mortgage-backed securities 95,385 951 - 96,336
---------- ---------- ---------- ----------
Total $1,659,574 $ 62,912 $ 6,457 $1,715,939
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
December 31, 1995
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
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
---------- ---------- ---------- ----------
Total $1,595,275 $ 8,558 $ 62,245 $1,541,588
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The carrying value and fair value by contractual maturity at December 31, 1995,
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 $ 250,578 $ 258,436
Due after one year through five years 736,003 763,179
Due after five years through ten years 538,897 558,445
Due after ten years 134,097 135,880
---------- ----------
Total $1,659,575 $1,715,940
---------- ----------
---------- ----------
</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, 1995 and 1994, mortgage
loan and real estate investments were distributed by the following types and
geographic regions:
<TABLE>
<CAPTION>
(In thousands)
Property Type 1995 1994
- ------------- ---- ----
<S> <C> <C>
Office buildings $ 127,149 $ 140,292
Residential 59,934 57,061
Retail 29,578 72,787
Industrial/Warehouse 38,192 39,424
Other 25,636 37,256
----------- -----------
Total $ 280,489 $ 346,820
----------- -----------
----------- -----------
Geographic Region 1995 1994
- ----------------- ---- ----
South Atlantic $ 86,410 $ 92,934
East North Central 55,991 72,704
Middle Atlantic 38,666 48,688
Pacific 32,803 39,892
West North Central 21,486 27,377
Mountain 9,939 12,211
New England 24,886 26,613
East South Central 5,487 6,224
West South Central 4,821 20,177
---------- ----------
Total $ 280,489 $ 346,820
---------- ----------
---------- ----------
</TABLE>
Reserves for mortgage loans and real estate reflected in the above amounts were
$18.9 million and $21.0 million at December 31, 1995 and 1994, respectively.
9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NET INVESTMENT INCOME - The components of net investment income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 122,318 $ 123,495 $ 126,729
Stocks 1,653 1,799 953
Mortgage loans 26,356 31,945 40,823
Real estate 9,139 8,425 9,493
Policy loans 9,486 8,797 8,215
Other investments 3,951 1,651 674
Short term investments 2,252 1,378 840
---------- ---------- ----------
175,155 177,490 187,727
Less investment expenses 9,703 9,138 11,026
---------- ---------- ----------
Net investment income, before IMR amortization 165,452 168,352 176,701
IMR amortization 2,018 2,078 911
---------- ---------- ----------
Net investment income $ 167,470 $ 170,430 $ 177,612
---------- ---------- ----------
---------- ---------- ----------
</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) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 727 $ 645 $ 10,133
Stocks (263) (62) 16
Mortgage loans (1,083) (17,142) (83)
Real estate (1,892) 605 (2,044)
--------- --------- ---------
(2,511) (15,954) 8,022
Less income tax 400 968 3,296
--------- --------- ---------
Net realized capital gains (losses) before transfer to IMR (2,911) (16,922) 4,726
Net realized capital gains transferred to IMR 616 (250) (11,951)
--------- --------- ---------
Net realized capital gains (losses) $ (2,295) $(17,172) $ (7,225)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from voluntary sales of investments in bonds during 1995, 1994 and 1993
were $22.4 million, $17.9 million, and $13.2 million, respectively. Gross gains
of $4.3 million, $3.0 million, and $4.5 million and gross losses of $5.2
million, $4.6 million, and $ .5 million, 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.
10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
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 assets, liabilities, surplus and other funds 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 assets,
liabilities, surplus and other funds 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.
The estimated fair values of the financial instruments as of December 31 were as
follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 7,791 $ 7,791 $ 7,248 $ 7,248
Short term investments 3,500 3,500 45,239 45,239
Bonds 1,659,575 1,715,940 1,595,275 1,541,588
Stocks 18,132 18,414 12,283 12,590
Mortgage loans 239,522 250,196 295,532 291,704
Policy loans 122,696 122,696 116,600 116,600
Financial Liabilities:
Individual annuity contracts 803,099 797,024 869,230 862,662
Supplemental contracts without life
contingencies 16,796 16,796 16,673 16,673
Other contract deposit funds 632 632 1,105 1,105
</TABLE>
11
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTE 4 - FEDERAL INCOME TAXES
The federal income tax provisions for 1995, 1994 and 1993 were $17.4 million,
$13.1 million and $8.6 million, respectively, which include taxes applicable to
realized capital gains of $.4 million, $1.0 million and $3.3 million.
The effective federal income tax rates were 27%, 67% and 30% in 1995, 1994 and
1993, 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 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 IRS
has completed its examination of all of the consolidated federal income tax
returns through 1988. In management's opinion, adequate tax liabilities have
been established for all years. However, the amount of these liabilities could
be revised in the near term if estimates of the Company's ultimate liability are
revised.
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) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reinsurance premiums assumed $ 3,442 $ 3,788 $ 4,190
Reinsurance premiums ceded
42,914 17,430 14,798
Deduction from insurance
liability including
reinsurance recoverable on
unpaid claims 82,227 46,734 42,805
</TABLE>
Individual life premiums ceded to First Allmerica aggregated $6.8 million, $7.8
million and $9.0 million in 1995, 1994 and 1993, respectively. The Company has
also entered into various reinsurance agreements with First Allmerica under
which certain insurance risks related to individual accident and health
business, premium income and related expenses are assumed by the Company from
First Allmerica. Premiums assumed pursuant to these agreements aggregated $3.4
million, $3.8 million and $4.2 million in 1995, 1994 and 1993, respectively .
During the year Allmerica Financial entered into a coinsurance agreement to
reinsure substantially all of its yearly renewable term life insurance.
Premiums ceded and reinsurance credits taken under this agreement amounted to
$25.4 million and $20.7 million, respectively. At December 31, 1995, the
deduction from insurance liability, including reinsurance recoverable on unpaid
claims under this agreement was $12.7 million.
NOTE 6 - ACCIDENT AND HEALTH POLICY AND CLAIM LIABILITIES
The Company regularly updates its estimates of policy and claims liabilities as
new information becomes available and further events occur which may impact the
resolution of unsettled claims for its accident and health line of business.
Changes in prior estimates are generally reflected in results of operations in
the year such changes are determined to be needed and recorded.
The policy and claims liabilities related to the Company's accident and health
business were $169.7 million and $123.5 million at December 31, 1995 and 1994,
respectively. Accident and health policy and claims liabilities have been
re-estimated for all prior years and were increased by $42.5 million, $10.9
million and $13.2 million, in 1995, 1994 and 1993, respectively, including $21.9
million and $2.8 million recorded as an adjustment to surplus in 1995 and 1993,
respectively. The unfavorable development is primarily due to reserve
strengthening and adverse experience in the Company's individual accident and
health line of business.
12
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTE 7 - DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders 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 statutory earned surplus would also require the prior approval of the
Delaware Commissioner of Insurance. At January 1, 1996, the Company could pay
dividends of $4.3 million to First Allmerica, without prior approval.
NOTE 8 - OTHER RELATED PARTY TRANSACTIONS
First Allmerica provides management, operating personnel and facilities on a
cost reimbursement basis to the Company. Expenses for services received from
First Allmerica were $ 85.8 million, $102.5 million and $98.9 million in 1995,
1994 and 1993, respectively. The net amounts payable to First Allmerica and
affiliates for accrued expenses and various other liabilities and receivables
were $12.6 million and $8.3 million at December 31, 1995 and 1994, respectively.
NOTE 9 - FUNDS ON DEPOSIT
In March 1994, the Company voluntarily withdrew from being licensed in New York.
In connection with the withdrawal First Allmerica, which is licensed in New
York, became qualified to sell the products previously sold by Allmerica
Financial 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, 1995, the carrying
value and fair value of the assets or deposit was $295.0 million and $303.6
million, respectively, which is in excess of the required amount.
Additional securities with a carrying value of $4.2 million and $3.9 million
were on deposit with various other state and governmental authorities as of
December 31, 1995 and 1994, respectively.
NOTE 10 - 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.
13
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
GROWTH INVESTMENT GRADE INCOME MONEY MARKET
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust . . . . . . . . . . $ 185,529,526 $ 96,120,240 $ 79,118,471
Receivable from Allmerica Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . -- 10,438 --
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,529,526 96,130,678 79,118,471
------------- ------------- -------------
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . . . . . . . . . . . . . . 57,572 -- 1,187,055
------------- ------------- -------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 185,471,954 $ 96,130,678 $ 77,931,416
------------- ------------- -------------
------------- ------------- -------------
Net asset distribution by category:
Qualified variable annuity policies . . . . . . . . . . . . . . . . . $ 128,119,949 $ 64,085,136 $ 55,044,982
Non-qualified variable annuity policies . . . . . . . . . . . . . . . 57,352,005 32,045,542 22,886,434
Value of investment by Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . -- -- --
------------- ------------- -------------
$ 185,471,954 $ 96,130,678 $ 77,931,416
------------- ------------- -------------
------------- ------------- -------------
Qualified units outstanding, December 31, 1995 80,135,470 46,110,850 48,956,506
Net asset value per qualified unit, December 31, 1995. . . . . . . . . $ 1.598792 $ 1.389806 $ 1.124365
Non-qualified units outstanding, December 31, 1995 . . . . . . . . . . 35,872,087 23,057,565 20,354,986
Net asset value per non-qualified unit, December 31, 1995. . . . . . . $ 1.598792 $ 1.389806 $ 1.124365
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY INDEX GOVERNMENT BOND SELECT AGGRESSIVE GROWTH SELECT GROWTH SELECT GROWTH AND INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
4 5 6 7 8
- -----------------------------------------------------------------------------------------------------------------------------------
<S>
ASSETS:
Investment in shares of Allmerica
Investment Trust . . . . . . $ 64,827,764 $ 40,152,592 $118,879,604 $ 59,259,322 $ 87,553,216
Receivable from Allmerica Financial
Life Insurance and Annuity Company
(Sponsor) . . . . . . . . . 24,497 584,923 -- -- --
------------ ------------ ------------ ------------ ------------
Total assets . . . . . . 64,852,261 40,737,515 118,879,604 59,259,322 87,553,216
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company
(Sponsor). . . . . . . . . -- -- 260,564 460 64,843
------------ ------------ ------------ ------------ ------------
Net assets . . . . . . . . . $ 64,852,261 $ 40,737,515 $118,619,040 $ 59,258,862 $ 87,488,373
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity
policies . . . . . . . . . .
Non-qualified variable annuity
policies . . . . . . . . . $ 44,765,267 $ 25,774,623 $ 82,433,324 $ 42,755,375 $ 59,090,713
Value of investment by Allmerica
Financial Life Insurance and 20,086,994 14,962,892 36,185,716 16,503,487 28,397,660
Annuity Company (Sponsor). .
-- -- -- -- --
------------ ------------ ------------ ------------ ------------
$ 64,852,261 $ 40,737,515 $118,619,040 $ 59,258,862 $ 87,488,373
Qualified units outstanding,
December 31, 1995 ------------ ------------ ------------ ------------ ------------
Net asset value per qualified unit,
December 31, 1995. . . . . . . ------------ ------------ ------------ ------------ ------------
Non-qualified units outstanding,
December 31, 1995 . . . . . . 27,289,222 20,062,912 48,888,111 33,967,155 43,119,003
Net asset value per non-qualified
unit, December 31, 1995. . . . $ 1.640401 $ 1.284690 $ 1.686163 $ 1.258727 $ 1.370410
12,245,173 11,647,084 21,460,390 13,111,252 20,722,018
$ 1.640401 $ 1.284690 $ 1.686163 $ 1.258727 $ 1.370410
</TABLE>
89
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SELECT SELECT DGPF
SMALL INTERNATIONAL CAPITAL INTERNATIONAL
CAP VALUE EQUITY APPRECIATION EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
9 11 12 20
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust . . . . . . $ 54,226,245 $ 42,401,781 $ 22,131,196 --
Investment in shares of Fidelity Variable
Insurance Products Fund . . . . . . . . . . . . . . . . . . -- -- -- --
Investment in shares of T. Rowe Price International Series, Inc. -- -- --
Investment in shares of Delaware Group Premium Fund, Inc. -- -- -- $ 44,527,422
Receivable from Allmerica Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . . . . . . . . . -- 80,770 122,386 5,738
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 54,226,245 42,482,551 22,253,582 44,533,160
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . . . . . . . . . 43,073 -- -- --
------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,183,172 $ 42,482,551 $ 22,253,582 $ 44,533,160
------------ ------------
Net asset distribution by category:
Qualified variable annuity policies . . . . . . . . . . . . . $ 38,499,980 $ 30,168,425 $ 15,271,152 $ 30,480,131
Non-qualified variable annuity policies . . . . . . . . . . . 15,683,192 12,314,013 6,982,154 14,053,029
------------ ------------ ------------
Value of investment by Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . -- 113 276 --
$ 54,183,172 $ 42,482,551 $ 22,253,582 $ 44,533,160
Qualified units outstanding, December 31, 1995 . . . . . . . . 30,861,312 26,758,271 11,046,041 23,744,726
Net asset value per qualified unit, December 31, 1995. . . . . $ 1.247516 $ 1.127443 $ 1.382500 $ 1.283659
Non-qualified units outstanding, December 31, 1995 . . . . . . 12,571,536 10,922,171 5,050,583 10,947,634
Net asset value per non-qualified unit, December 31, 1995. . . $ 1.247516 $ 1.127443 $ 1.382500 $ 1.283659
The accompanying notes are an integral part of these financial statements.
- -----------------------------------------------------------------------------------------------------------------------------------
VIPF VIPF VIPF VIPF VIPF II T. ROWE
HIGH INCOME EQUITY INCOME GROWTH OVERSEAS ASSET MANAGER INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
102 103 104 105 106 150
- -----------------------------------------------------------------------------------------------------------------------------------
<S>
ASSETS:
Investment in shares of Allmerica
Investment Trust . . . . . . . -- -- -- -- -- --
Investment in shares of Fidelity Variable
Insurance Products Fund . . . . $ 66,256,618 $ 276,683,707 $ 220,673,065 $ 86,933,851 $ 37,696,177 --
Investment in shares of T. Rowe Price
International Series, Inc -- -- -- -- -- $ 11,511,619
Investment in shares of Delaware Group
Premium Fund, Inc. -- -- -- -- -- --
Receivable from Allmerica Financial
Life Insurance and Annuity Company
(Sponsor) . . . . . . . . . . 37,021 -- 87,335 -- -- 69,199
------------- ------------- ------------- ------------- -------------- ------------
Total assets . . . . . . . . . . . ------------- ------------- ------------- ------------- -------------- ------------
LIABILITIES: 66,293,639 276,683,707 220,760,400 86,933,851 37,696,177 11,580,818
Payable to Allmerica Financial Life
Insurance and
Annuity Company (Sponsor) . . . -- 451,532 -- 122,273 16,579 --
Net assets . . . . . . . . . . . . $ 66,293,639 $ 276,232,175 $ 220,760,400 $ 86,811,578 $ 37,679,598 $ 11,580,818
------------- ------------- ------------- ------------- -------------- ------------
------------- ------------- ------------- ------------- -------------- ------------
Net asset distribution by category:
Qualified variable annuity policies $ 44,554,065 $ 184,544,018 $ 152,309,663 $ 60,816,339 $ 26,238,321 $ 8,011,983
Non-qualified variable annuity
policies . . . . . . . . . . . 21,739,574 91,688,157 68,450,737 25,995,239 11,441,277 3,568,623
Value of investment by Allmerica
Financial Life Insurance and -- -- -- -- -- 212
Annuity Company (Sponsor) . $ 66,293,639 $ 276,232,175 $ 220,760,400 $ 86,811,578 $ 37,679,598 $ 11,580,818
Qualified units outstanding,
December 31, 1995 . . . . . . ------------- ------------- ------------- ------------- -------------- ------------
Net asset value per qualified unit,
December 31, 1995. . . . . . . ------------- ------------- ------------- ------------- -------------- ------------
Non-qualified units outstanding,
December 31, 1995 . . . . . .
Net asset value per non-qualified unit,
December 31, 1995. . . . . . 25,567,023 92,959,210 80,366,774 45,715,709 23,288,733 7,528,467
$ 1.742638 $ 1.985215 $ 1.895182 $ 1.330316 $ 1.126653 $ 1.064225
12,475,095 46,185,505 36,118,292 19,540,650 10,155,103 3,353,460
$ 1.742638 $ 1.985215 $ 1.895182 $ 1.330316 $ 1.126653 $ 1.064225
</TABLE>
90
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH INVESTMENT GRADE INCOME MONEY MARKET
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 17,601,664 $ 5,519,525 $ 3,977,199
------------ ------------ ------------
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 1,929,527 1,005,147 862,914
Administrative expense charges . . . . . . . . . . . . . 308,724 160,824 138,066
------------ ------------ ------------
Total expenses . . . . . . . . . . . . . . . . . . . . 2,238,251 1,165,971 1,000,980
------------ ------------ ------------
Net investment income (loss) . . . . . . . . . . . . . . 15,363,413 4,353,554 2,976,219
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss). . . . . . . . . . . . . . . 471,117 (102,223) --
Net unrealized gain . . . . . . . . . . . . . . . . . 25,008,311 7,745,991 --
------------ ------------ ------------
Net realized and unrealized gain on investments . . . 25,479,428 7,643,768 --
------------ ------------ ------------
Net increase in net assets from operations. . . . . . $ 40,842,841 $ 11,997,322 $ 2,976,219
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SELECT
EQUITY INDEX GOVERNMENT BOND AGGRESSIVE GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
4 5 6
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 4,092,591 $ 2,191,167 --
------------ ------------ ------------
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 600,071 451,822 $ 1,158,141
Administrative expense charges . . . . . . . . . . . . . 96,011 72,292 185,302
------------ ------------ ------------
Total expenses . . . . . . . . . . . . . . . . . . . . 696,082 524,114 1,343,443
------------ ------------ ------------
Net investment income (loss) . . . . . . . . . . . . . . 3,396,509 1,667,053 (1,343,443)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss). . . . . . . . . . . . . . . 131,325 (277,027) 407,947
Net unrealized gain . . . . . . . . . . . . . . . . . 10,323,131 2,609,018 25,617,337
------------ ------------ ------------
Net realized and unrealized gain on investments . . . 10,454,456 2,331,991 26,025,284
------------ ------------ ------------
Net increase in net assets from operations. . . . . . $ 13,850,965 $ 3,999,044 $ 24,681,841
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SELECT SMALL CAP
SELECT GROWTH GROWTH AND INCOME VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
7 8 9
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 8,656 $ 4,446,299 $ 1,807,965
------------ ------------ ------------
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 621,128 887,117 557,120
Administrative expense charges . . . . . . . . . . . . . 99,380 141,939 89,139
------------ ------------ ------------
Total expenses . . . . . . . . . . . . . . . . . . . . 720,508 1,029,056 646,259
------------ ------------ ------------
Net investment income (loss) . . . . . . . . . . . . . . (711,852) 3,417,243 1,161,706
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss). . . . . . . . . . . . . . . 366,903 179,764 172,520
Net unrealized gain . . . . . . . . . . . . . . . . . 9,903,003 14,000,181 5,419,123
------------ ------------ ------------
Net realized and unrealized gain on investments . . . 10,269,906 14,179,945 5,591,643
------------ ------------ ------------
Net increase in net assets from operations. . . . . . $ 9,558,054 $ 17,597,188 $ 6,753,349
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
91
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SELECT SELECT DGPF
INTERNATIONAL EQUITY CAPITAL APPRECIATION INTERNATIONAL EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
11 12 (a) 20
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . $ 562,531 $ 421,819 $ 884,413
----------- ------------ ------------
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . 308,549 78,904 466,796
Administrative expense charges . . . . . . . . . . 49,368 12,625 74,688
----------- ------------ ------------
Total expenses. . . . . . . . . . . . . . . . 357,917 91,529 541,484
----------- ------------ ------------
Net investment income (loss) . . . . . . . . . . . 204,614 330,290 342,929
----------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . 9,938 (25) 94,997
Net unrealized gain . . . . . . . . . . . . . . . 3,850,684 2,095,451 4,026,445
----------- ------------ ------------
Net realized and unrealized gain on investments. . 3,860,622 2,095,426 4,121,442
----------- ------------ ------------
Net increase in net assets from operations . . . . $ 4,065,236 $ 2,425,716 $ 4,464,371
----------- ------------ ------------
----------- ------------ ------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
VIPF VIPF VIPF
HIGH INCOME EQUITY INCOME GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
102 103 104
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . $ 2,946,791 $ 13,215,481 $ 729,257
----------- ------------ ------------
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . 633,884 2,625,621 2,212,142
Administrative expense charges . . . . . . . . . . 101,421 420,099 353,943
----------- ------------ ------------
Total expenses. . . . . . . . . . . . . . . . 735,305 3,045,720 2,566,085
----------- ------------ ------------
Net investment income (loss) . . . . . . . . . . . 2,211,486 10,169,761 (1,836,828)
----------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . (20,657) 70,339 326,751
Net unrealized gain . . . . . . . . . . . . . . . 6,271,173 49,887,571 48,672,346
----------- ------------ ------------
Net realized and unrealized gain on investments. . 6,250,516 49,957,910 48,999,097
----------- ------------ ------------
Net increase in net assets from operations . . . . $ 8,462,002 $ 60,127,671 $ 47,162,269
----------- ------------ ------------
----------- ------------ ------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
VIPF VIPF II T. ROWE
OVERSEAS ASSET MANAGER INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
105 106 150 (b)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . $ 577,802 $ 484,216 --
------------ ------------ ------------
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . 998,452 379,978 $ 42,407
Administrative expense charges . . . . . . . . . . 159,753 60,796 6,785
------------ ------------ ------------
Total expenses. . . . . . . . . . . . . . . . 1,158,205 440,774 49,192
------------ ------------ ------------
Net investment income (loss) . . . . . . . . . . . (580,403) 43,442 (49,192)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . 425,086 97,545 949
Net unrealized gain . . . . . . . . . . . . . . . 6,735,500 4,455,138 400,200
------------ ------------ ------------
Net realized and unrealized gain on investments. . 7,160,586 4,552,683 401,149
------------ ------------ ------------
Net increase in net assets from operations . . . . $ 6,580,183 $ 4,596,125 $ 351,957
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(a) For the period April 28, 1995 (date of initial investment) to
December 31, 1995.
(b) For the period May 1, 1995 (date of initial investment) to
December 31, 1995.
The accompanying notes are an integral part of these financial statements.
92
<PAGE>
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
GROWTH INVESTMENT GRADE INCOME
SUB-ACCOUNT 1 SUB-ACCOUNT 2
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . . . . $ 15,363,413 $ 6,532,105 $ 4,353,554 $ 3,276,375
Net realized gain (loss) from
security transactions . . . . . . . . . . . . 471,117 (77,605) (102,223) (302,026)
Net unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . 25,008,311 (7,654,867) 7,745,991 (5,876,366)
----------- ------------ ----------- -----------
Net increase (decrease) in net
assets from operations . . . . . . . . . . . 40,842,841 (1,200,367) 11,997,322 (2,902,017)
----------- ------------ ----------- -----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . 13,742,118 13,685,616 9,491,335 11,144,255
Terminations . . . . . . . . . . . . . . . . (4,542,987) (2,871,353) (3,235,445) (2,017,720)
Annuity benefits . . . . . . . . . . . . . . (1,243,289) (713,084) (579,139) (181,865)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and Annuity
Company (Sponsor). . . . . . . . . . . . . . 11,635,582 26,340,545 9,729,761 2,053,302
Net increase (decrease) in investment by
Allmerica Financial Life
Insurance and Annuity Company (Sponsor). . . -- -- -- --
----------- ------------ ----------- -----------
Net increase (decrease) in net assets
from capital transactions. . . . . . . . . . 19,591,424 36,441,724 15,406,512 10,997,972
----------- ------------ ----------- -----------
Net increase (decrease) in net assets. . . . . . 60,434,265 35,241,357 27,403,834 8,095,955
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 125,037,689 89,796,332 68,726,844 60,630,889
----------- ------------ ----------- -----------
End of year. . . . . . . . . . . . . . . . . . . $185,471,954 $125,037,689 $96,130,678 $68,726,844
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MONEY MARKET EQUITY INDEX
SUB-ACCOUNT 3 SUB-ACCOUNT 4
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . . $ 2,976,219 $ 913,719 $ 3,396,509 727,096
Net realized gain (loss) from
security transactions . . . . . . . . . -- -- 131,325 50,049
Net unrealized gain (loss) on
investments . . . . . . . . . . . . . . -- -- 10,323,131 (875,249)
------------- ------------- ------------ -----------
Net increase (decrease) in net
assets from operations . . . . . . . . 2,976,219 913,719 13,850,965 (98,104)
------------- ------------- ------------ -----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . . 201,473,549 131,434,295 4,829,857 4,219,396
Terminations . . . . . . . . . . . . . . (4,345,244) (3,415,762) (1,667,459) (839,746)
Annuity benefits . . . . . . . . . . . . (610,861) (163,546) (489,017) (288,980)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and Annuity
Company (Sponsor). . . . . . . . . . . (162,154,545) (120,587,957) 12,683,245 5,098,512
Net increase (decrease) in investment by
Allmerica Financial Life
Insurance and Annuity Company (Sponsor). -- -- -- --
------------- ------------- ------------ -----------
Net increase (decrease) in net assets
from capital transactions. . . . . . . . 34,362,899 7,267,030 15,356,626 8,189,182
------------- ------------- ------------ -----------
Net increase (decrease) in net assets. . . 37,339,118 8,180,749 29,207,591 8,091,078
NET ASSETS:
Beginning of year. . . . . . . . . . . . . 40,592,298 32,411,549 35,644,670 27,553,592
------------- ------------- ------------ -----------
End of year. . . . . . . . . . . . . . . . $ 77,931,416 $ 40,592,298 $ 64,852,261 $35,644,670
------------- ------------- ------------ -----------
------------- ------------- ------------ -----------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
GOVERNMENT BOND
SUB-ACCOUNT 5
YEAR ENDED DECEMBER 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income. . . . . . . . . $ 1,667,053 $ 2,237,684
Net realized gain (loss) from security
transactions . . . . . . . . . . (277,027) (1,184,661)
Net unrealized gain (loss) on investments 2,609,018 (2,499,037)
----------- ------------
Net increase (decrease) in net
assets from operations . . . . . . . 3,999,044 (1,446,014)
----------- ------------
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . . 5,523,208 15,611,540
Terminations . . . . . . . . . . . (1,890,896) (2,251,338)
Annuity benefits . . . . . . . . . . . (181,706) (260,130)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and Annuity
Company (Sponsor) . . . . . . . . . . (4,192,092) (45,260,308)
Net increase (decrease) in investment by
Allmerica Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . -- --
----------- ------------
Net increase (decrease) in net assets. . (741,486) (32,160,236)
----------- ------------
Net increase (decrease) in net assets. . 3,257,558 (33,606,250)
NET ASSETS:
Beginning of period . . . . . . . . . . 37,479,957 71,086,207
----------- ------------
End of period . . . . . . . . . . . . . $40,737,515 $ 37,479,957
----------- ------------
----------- ------------
</TABLE>
93
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SELECT AGGRESSIVE GROWTH SELECT GROWTH
SUB-ACCOUNT 6 SUB-ACCOUNT 7
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . . . $ (1,343,443) $ (744,163) $ (711,852) $ (367,563)
Net realized gain (loss) from security
transactions . . . . . . . . . . . . . 407,947 16,407 366,903 31,408
Net unrealized gain (loss) on
investments. . . . . . . . . . . . . 25,617,337 (1,367,963) 9,903,003 (643,425)
------------- ---------- ----------- -----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . 24,681,841 (2,095,719) 9,558,054 (979,580)
------------- ---------- ----------- ----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . 11,583,326 13,822,023 4,331,083 5,402,873
Terminations . . . . . . . . . . . . . (2,739,644) (1,250,083) (1,431,104) (930,447)
Annuity benefits . . . . . . . . . . . (539,012) (122,670) (176,573) (62,781)
Other transfers from the General Account of
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . 15,452,200 24,712,223 7,611,742 8,431,181
Net increase (decrease) in investment by
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . -- -- -- --
------------- ---------- ----------- -----------
Net increase in net assets from capital
transactions. . . . . . . . . . . . 23,756,870 37,161,493 10,335,148 12,840,826
------------- ---------- ----------- -----------
Net increase in net assets . . . . . . 48,438,711 35,065,774 19,893,202 11,861,246
NET ASSETS:
Beginning of year. . . . . . . . . . . 70,180,329 35,114,555 39,365,660 27,504,414
------------- ---------- ----------- -----------
End of year. . . . . . . . . . . . . . $ 118,619,040 $ 70,180,329 $ 59,258,862 $ 39,365,660
------------- ---------- ----------- -----------
------------- ---------- ----------- -----------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
SELECT GROWTH AND INCOME SMALL CAP VALUE
SUB-ACCOUNT 8 SUB-ACCOUNT 9
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . . . $ 3,417,243 $ 1,732,268 $1,161,706 $ (205,085)
Net realized gain (loss) from security
transactions . . . . . . . . . . . . . 179,764 12,425 172,520 734
Net unrealized gain (loss) on
investments. . . . . . . . . . . . . 14,000,181 (2,133,455) 5,419,123 (1,850,142)
------------ ------------ ------------ -------------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . 17,597,188 (388,762) 6,753,349 (2,054,493)
------------ ------------ ------------ -------------
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . 6,393,379 7,596,689 5,284,030 7,025,166
Terminations . . . . . . . . . . . . . (1,945,264) (1,342,773) (984,390) (367,595)
Annuity benefits . . . . . . . . . . . (686,151) (186,271) (205,991) (48,695)
Other transfers from the General Account of
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . 11,633,921 14,600,125 10,049,138 19,442,674
Net increase (decrease) in investment by
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . -- -- (2,271,360) --
------------ ------------ ------------ -------------
Net increase in net assets from capital
transactions. . . . . . . . . . . . 15,395,885 20,667,770 11,871,427 26,051,550
------------ ------------ ------------ -------------
Net increase in net assets . . . . . . 32,993,073 20,279,008 18,624,776 23,997,057
NET ASSETS:
Beginning of year. . . . . . . . . . . 54,495,300 34,216,292 35,558,396 11,561,339
------------ ------------ ------------ -------------
End of year. . . . . . . . . . . . . . $ 87,488,373 $ 54,495,300 $ 54,183,172 $ 35,558,396
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Select International Equity Select Capital Appreciation
Sub-Account 11 Sub Account 12 (a)
Year Ended Period from Period from
12/31/95 5/5/94* to 12/31/94 4/28/95* to 12/31/95
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . . . $ 204,614 $ (14,836) $ 330,290
Net realized gain (loss) from security
transactions . . . . . . . . . . . . . 9,938 12 (25)
Net unrealized gain (loss) on
investments. . . . . . . . . . . . . 3,850,684 (376,972) 2,095,451
----------- ------------ -----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . 4,065,236 (391,796) 2,425,716
----------- ------------ -----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . 5,626,878 2,273,069 2,923,430
Terminations . . . . . . . . . . . . . (568,996) (49,517) (73,682)
Annuity benefits . . . . . . . . . . . (114,312) -- (16,743)
Other transfers from the General Account of
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . 21,496,077 10,145,812 16,994,661
Net increase (decrease) in investment by
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . -- 100 200
----------- ------------ -----------
Net increase in net assets from capital
transactions. . . . . . . . . . . . 26,439,647 12,369,464 19,827,866
----------- ------------ -----------
Net increase in net assets . . . . . . 30,504,883 11,977,668 22,253,582
NET ASSETS:
Beginning of period . . . . . . . . . 11,977,668 -- --
----------- ------------ -----------
End of period . . . . . . . . . . . . $42,482,551 $ 11,977,668 $ 22,253,582
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
* DATE OF INITIAL INVESTMENT.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
94
<PAGE>
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
STATEMENTS OF CHANGES IN NET ASSETS, Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DGPF INTERNATIONAL EQUITY VIPF HIGH INCOME
SUB-ACCOUNT 20 SUB-ACCOUNT 102
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ 342,929 $ (232,128) $ 2,211,486 $ 1,678,573
Net realized gain (loss) from
security transactions. . . . . . . . . . . . . . 94,997 9,950 (20,657) (21,988)
Net unrealized gain (loss) on investments. . . . 4,026,445 (105,524) 6,271,173 (2,819,325)
----------- ----------- ------------- ------------
Net increase (decrease) in net assets
from operations. . . . . . . . . . . . . . . . . 4,464,371 (327,702) 8,462,002 (1,162,740)
----------- ----------- ------------- ------------
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . 3,724,846 5,570,896 8,175,783 8,308,614
Terminations . . . . . . . . . . . . . . . . . (1,170,699) (372,420) (1,842,667) (983,151)
Annuity benefits . . . . . . . . . . . . . . . (253,818) (40,673) (244,876) (159,685)
Other transfers from (to) the General
Account of Allmerica
Life Insurance and Annuity Company
(Sponsor) . . . . . . . . . . . . . . . . . . . 6,984,991 17,275,101 12,112,647 13,115,151
----------- ----------- ------------- ------------
Net increase in net assets from
capital transactions . . . . . . . . . . . . . . 9,285,320 22,432,904 18,200,887 20,280,929
----------- ----------- ------------- ------------
Net increase in net assets . . . . . . . . . . . 13,749,691 22,105,202 26,662,889 19,118,189
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 30,783,469 8,678,267 39,630,750 20,512,561
----------- ----------- ------------- ------------
End of year. . . . . . . . . . . . . . . . . . . $ 44,533,160 $ 30,783,469 $ 66,293,639 $ 39,630,750
----------- ----------- ------------- ------------
----------- ----------- ------------- ------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
VIPF EQUITY INCOME VIPF GROWTH
SUB-ACCOUNT 103 SUB-ACCOUNT 104
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . . . . . . . . $ 10,169,761 $ 6,042,379 $ (1,836,828) $ 3,143,427
Net realized gain (loss) from
security transactions. . . . . . . . . . . . . 70,339 9,016 326,751 1,795
Net unrealized gain (loss) on investments. . . 49,887,571 361,647 48,672,346 (3,302,501)
-------------- ------------- -------------- -----------
Net increase (decrease) in net assets
from operations. . . . . . . . . . . . . . . . 60,127,671 6,413,042 47,162,269 (157,279)
-------------- ------------- -------------- -----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . 24,781,019 24,027,022 20,641,427 22,593,395
Terminations . . . . . . . . . . . . . . . . . . (5,939,348) (2,638,047) (5,159,445) (2,346,385)
Annuity benefits . . . . . . . . . . . . . . (1,107,657) (363,485) (877,038) (351,166)
Other transfers from (to) the General
Account of Allmerica Life Insurance and Annuity Company
(Sponsor) . . . . . . . . . . . . . . . . . . 42,833,647 41,585,953 30,177,077 38,287,326
-------------- ------------- -------------- -----------
Net increase in net assets from
capital transactions . . . . . . . . . . . . . . 60,567,661 62,611,443 44,782,021 58,183,170
-------------- ------------- -------------- -----------
Net increase in net assets . . . . . . . . . . 120,695,332 69,024,485 91,944,290 58,025,891
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . 155,536,843 86,512,358 128,816,110 70,790,219
-------------- ------------- -------------- -----------
End of year. . . . . . . . . . . . . . . . . . $ 276,232,175 $ 155,536,843 $ 220,760,400 $ 128,816,110
-------------- ------------- -------------- -----------
-------------- ------------- -------------- -----------
<CAPTION>
- --------------------------------------------------------------------------------------
VIPF OVERSEAS
SUB-ACCOUNT 105
YEAR ENDED DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income (loss) . . . . . . . . . . . $ (580,403) $ (635,040)
Net realized gain (loss) from
security transactions. . . . . . . . . . . . . . 425,086 22,313
Net unrealized gain (loss) on investments. . . . 6,735,500 (642,765)
---------- -------------
Net increase (decrease) in net assets
from operations. . . . . . . . . . . . . . . . 6,580,183 (1,255,492)
---------- -------------
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . . 8,126,741 13,636,170
Terminations . . . . . . . . . . . . . . . . . . (2,796,746) (1,254,517)
Annuity benefits . . . . . . . . . . . . . . . (459,579) (223,156)
Other transfers from (to) the General
Account of Allmerica Life Insurance and Annuity Company
(Sponsor) . . . . . . . . . . . . . . . . . 1,817,312 31,481,584
---------- -------------
Net increase in net assets from
capital transactions . . . . . . . . . . . . . . 6,687,728 43,640,081
---------- -------------
Net increase in net assets . . . . . . . . . . . 13,267,911 42,384,589
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . 73,543,667 31,159,078
---------- -------------
End of year. . . . . . . . . . . . . . . . . . . $ 86,811,578 $ 73,543,667
---------- -------------
---------- -------------
</TABLE>
95
<PAGE>
- -------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
VIPF II ASSET MANAGER T. ROWE INTERNATIONAL STOCK
SUB-ACCOUNT 106 SUB-ACCOUNT 150
YEAR ENDED PERIOD FROM PERIOD FROM
12/31/95 5/3/94* TO 12/31/94 5/1/95* TO 12/31/95
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . . . . . . . $ 43,442 $ (86,968) $ (49,192)
Net realized gain (loss) from security
transactions. . . . . . . . . . . . . . . . . 97,545 (3,667) 949
Net unrealized gain (loss) on investments. . . 4,455,138 (494,758) 400,200
------------- ------------ ------------
Net increase (decrease) in net assets from operations 4,596,125 (585,393) 351,957
------------- ------------ ------------
FROM CAPITAL TRANSACTIONS:
Net purchase payments. . . . . . . . . . . . . 5,020,963 5,109,950 1,443,988
Terminations . . . . . . . . . . . . . . . . . (1,077,562) (154,999) (52,127)
Annuity benefits . . . . . . . . . . . . . . . (88,135) -- --
Other transfers from (to) the General Account of
Allmerica Life Insurance and Annuity
Company (Sponsor). . . . . . . . . . . . . . . 8,982,562 15,876,087 9,836,800
Net increase in investment by Allmerica
Financial Life Insurance and Annuity
Company (Sponsor). . . . . . . . . . . . . . . -- -- 200
------------- ------------ ------------
Net increase in net assets from capital
transactions. . . . . . . . . . . . . . . . 12,837,828 20,831,038 11,228,861
------------- ------------ ------------
Net increase in net assets . . . . . . . . . . 17,433,953 20,245,645 11,580,818
NET ASSETS:
Beginning of period . . . . . . . . . . . . 20,245,645 -- --
------------- ------------ ------------
End of period . . . . . . . . . . . . . . . $ 37,679,598 $ 20,245,645 $ 11,580,818
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
* DATE OF INITIAL INVESTMENT.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
96
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - December 31, 1995
NOTE 1 - ORGANIZATION
Separate Account VA-K - ExecAnnuity Plus (VA-K) is a separate investment
account of Allmerica Financial Life Insurance and Annuity Company (formerly
named SMA Life Assurance Company) (the Company), 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.
Effective October 16, 1995, concurrent with the demutualization, State Mutual
Life Assurance Company of America changed their name to First Allmerica
Financial Life Insurance Company (First Allmerica). The Company is a wholly-
owned subsidiary of First Allmerica. 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 eighteen 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 First Allmerica, of the Variable Insurance Products
Fund (VIPF) or the Variable Insurance Products Fund II (VIPF II) managed by
Fidelity Management & Research Company (Fidelity Management), of T. Rowe Price
International Series, Inc. (T. Rowe) managed by Price-Fleming, or of the
Delaware Group Premium Fund, Inc. (DGPF) managed by Delaware International
Advisors, LTD. The Trust, VIPF, VIPFII, T. Rowe, and DGPF (the Funds) 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, T. Rowe, 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, T. Rowe, or DGPF at net
asset value.
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 First Allmerica. 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.
97
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1995, CONTINUED
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, T. Rowe, and DGPF
at December 31, 1995 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. . . . . . . . . . . . . . . . . 85,261,731 $ 170,556,594 $ 2.176
2 Investment Grade Income . . . . . . . . 86,052,139 94,825,304 1.117
3 Money Market. . . . . . . . . . . . . . 79,118,471 79,118,471 1.000
4 Equity Index. . . . . . . . . . . . . . 35,483,177 53,855,973 1.827
5 Government Bond . . . . . . . . . . . . 37,808,467 40,189,247 1.062
6 Select Aggressive Growth. . . . . . . . 64,328,790 91,759,321 1.848
7 Select Growth . . . . . . . . . . . . . 43,286,576 49,089,951 1.369
8 Select Growth and Income. . . . . . . . 69,048,278 74,519,840 1.268
9 Small Cap Value . . . . . . . . . . . . 43,801,490 49,611,334 1.238
11 Select International Equity . . . . . . 37,325,511 38,928,070 1.136
12 Select Capital Appreciation . . . . . . 16,165,958 20,035,745 1.369
Delaware Group Premium Fund:
20 International Equity. . . . . . . . . . 3,396,447 40,039,109 13.110
Fidelity Variable Insurance Products Fund:
102 High Income . . . . . . . . . . . . . . 5,498,475 61,208,355 12.050
103 Equity Income . . . . . . . . . . . . . 14,358,262 219,529,491 19.270
104 Growth. . . . . . . . . . . . . . . . . 7,557,297 166,964,305 29.200
105 Overseas. . . . . . . . . . . . . . . . 5,098,760 77,484,802 17.050
Fidelity Variable Insurance Products Fund II:
106 Asset Manager . . . . . . . . . . . . . 2,387,345 33,735,796 15.790
T. Rowe Price International Series, Inc.:
150 International Stock . . . . . . . . . . 1,022,346 11,111,419 11.260
</TABLE>
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.
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, 1995, policy fees deducted from accumulated value in VA-K amounted to
$755,283.
Allmerica Investments, Inc. (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, 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 year ended December 31, 1995, the Company
received $1,224,187 for contingent deferred sales charges applicable to VA-K.
98
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1995, CONTINUED
NOTE 5 - POLICYOWNERS AND SPONSOR TRANSACTIONS
Transactions from policyowners and sponsor were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
UNITS AMOUNT UNITS AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sub-Account 1 - Growth
Issuance of units. . . . . . . . . . . 35,304,977 $ 51,743,998 46,063,704 $ 56,411,913
Redemption of units. . . . . . . . . . (21,696,178) (32,152,574) (16,274,755) (19,970,189)
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 13,608,799 $ 19,591,424 29,788,949 $ 36,441,724
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 2 - Investment Grade Income
Issuance of units. . . . . . . . . . . 22,251,158 $ 29,805,978 28,436,274 $ 34,607,095
Redemption of units. . . . . . . . . . (10,536,284) (14,399,466) (19,471,269) (23,609,123)
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 11,714,874 $ 15,406,512 8,965,005 $ 10,997,972
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 3 - Money Market
Issuance of units . . . . . . . . . . 282,297,450 $ 311,415,988 212,264,596 $ 225,211,406
Redemption of units. . . . . . . . . . (250,653,905) (277,053,089) (205,412,111) (217,944,376)
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 31,643,545 $ 34,362,899 6,852,485 $ 7,267,030
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 4 - Equity Index
Issuance of units. . . . . . . . . . . 15,684,631 $ 23,678,043 12,155,970 $ 14,784,662
Redemption of units. . . . . . . . . . (5,326,619) (8,321,417) (5,446,364) (6,595,480)
-------------- -------------- -------------- --------------
Net increase.. . . . . . . . . . . . . 10,358,012 $ 15,356,626 6,709,606 $ 8,189,182
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 5 - Government Bond
Issuance of units . . . . . . . . . . 14,112,537 $ 17,853,327 31,608,706 $ 36,579,014
Redemption of units. . . . . . . . . . (14,921,644) (18,594,813) (59,356,156) (68,739,250)
-------------- -------------- -------------- --------------
Net decrease . . . . . . . . . . . . . (809,107) $ (741,486) (27,747,450) $ (32,160,236)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 6 - Select Aggressive Growth
Issuance of units . . . . . . . . . . 27,081,256 $ 41,466,865 34,959,973 $ 46,070,940
Redemption of units. . . . . . . . . . (11,020,255) (17,709,995) (6,831,859) (8,909,447)
-------------- -------------- -------------- --------------
Net Increase.. . . . . . . . . . . . . 16,061,001 $ 23,756,870 28,128,114 $ 37,161,493
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 7 - Select Growth
Issuance of units. . . . . . . . . . . 17,304,437 $ 21,604,967 19,383,925 $ 20,134,410
Redemption of units. . . . . . . . . . (8,640,922) (11,269,819) (7,033,935) (7,293,584)
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 8,663,515 $ 10,335,148 12,349,990 $ 12,840,826
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 8 - Select Growth and Income
Issuance of units. . . . . . . . . . . 21,862,840 $ 27,624,594 26,341,980 $ 28,018,303
Redemption of units. . . . . . . . . . (9,119,386) (12,228,709) (7,101,289) (7,350,533)
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 12,743,454 $ 15,395,885 19,240,691 $ 20,667,770
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 9 - Small Cap Value
Issuance of units. . . . . . . . . . . 17,986,247 $ 23,543,827 26,332,033 $ 29,543,920
Redemption of units. . . . . . . . . . (7,602,047) (11,672,400) (3,186,200) (3,492,370)
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 10,384,200 $ 11,871,427 23,145,833 $ 26,051,550
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 11- Select International Equity
Issuance of units. . . . . . . . . . . 29,103,954 $ 31,035,726 12,980,066 $ 12,813,208
Redemption of units. . . . . . . . . . (3,953,031) (4,596,079) (450,647) (443,744)
-------------- -------------- -------------- --------------
Net increase.. . . . . . . . . . . . . 25,150,923 $ 26,439,647 12,529,419 $ 12,369,464
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 12 - Select Capital Appreciation
Issuance of units. . . . . . . . . . . 17,501,260 $ 21,615,995 -- --
Redemption of units. . . . . . . . . . (1,404,636) (1,788,329) -- --
-------------- -------------- -------------- --------------
Net increase.. . . . . . . . . . . . . 16,096,624 $ 19,827,666 -- --
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
99
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1995, CONTINUED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
UNITS AMOUNT UNITS AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sub-Account 20 - DGPF International Equity
Issuance of units. . . . . . . . . . . 14,117,462 $ 18,997,169 21,740,902 $ 25,341,308
Redemption of units. . . . . . . . . . (6,349,120) (9,711,849) (2,498,472) (2,908,404)
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 7,768,342 $ 9,285,320 19,242,430 $ 22,432,904
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 102 - VIPFHigh Income
Issuance of units. . . . . . . . . . . 16,043,384 $ 26,770,767 18,018,437 $ 27,053,209
Redemption of units. . . . . . . . . . (5,042,507) (8,569,880) (4,561,134) (6,772,280)
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 11,000,877 $ 18,200,887 13,457,303 $ 20,280,929
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 103 - VIPF Equity Income
Issuance of units. . . . . . . . . . . 47,872,325 $ 85,011,509 53,572,519 $ 77,790,347
Redemption of units. . . . . . . . . . (13,083,657) (24,443,848) (10,481,162) (15,178,904)
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 34,788,668 $ 60,567,661 43,091,357 $ 62,611,443
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 104 - VIPF Growth
Issuance of units. . . . . . . . . . . 41,188,868 $ 73,809,217 50,517,101 $ 70,547,270
Redemption of units. . . . . . . . . . (15,420,587) (29,027,196) (8,937,909) (12,364,100)
-------------- -------------- -------------- --------------
Net increase. . . . . . . . . . . . . 25,768,281 $ 44,782,021 41,579,192 $ 58,183,170
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 105 - VIPFOverseas
Issuance of units. . . . . . . . . . . 28,543,819 $ 30,215,321 40,661,583 $ 51,583,751
Redemption of units. . . . . . . . . . (23,061,224) (23,527,593) (6,284,286) (7,943,670)
-------------- -------------- -------------- --------------
Net increase.. . . . . . . . . . . . . 5,482,595 $ 6,687,728 34,377,297 $ 43,640,081
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 106 - VIPFII Asset Manager
Issuance of units. . . . . . . . . . . 22,403,083 $ 21,445,027 22,347,557 $ 22,432,857
Redemption of units. . . . . . . . . . (9,679,616) (8,607,199) (1,627,188) (1,601,819)
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 12,723,467 $ 12,837,828 20,720,369 $ 20,831,038
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Sub-Account 150 - T. Rowe International Stock
Issuance of units. . . . . . . . . . . 12,128,441 $ 12,563,739 -- --
Redemption of units. . . . . . . . . . (1,246,514) (1,334,878) -- --
-------------- -------------- -------------- --------------
Net increase . . . . . . . . . . . . . 10,881,927 $ 11,228,861 -- --
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
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.
100
<PAGE>
SEPARATE ACCOUNT VA-K - EXECANNUITY PLUS
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1995, CONTINUED
NOTE 7 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust, VIPF, VIPF II, T.
Rowe, and DGPF shares by VA-K during the year ended December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUB-
ACCOUNT INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allmerica Investment Trust:
1 Growth . . . . . . . . . . . . . . . . . $ 43,951,425 $ 9,126,107
2 Investment Grade Income. . . . . . . . . 23,186,150 3,443,996
3 Money Market . . . . . . . . . . . . . . 92,621,336 53,873,486
4 Equity Index . . . . . . . . . . . . . . 20,263,802 1,410,507
5 Government Bond. . . . . . . . . . . . . 9,905,747 9,798,315
6 Select Aggressive Growth . . . . . . . . 24,916,807 2,250,996
7 Select Growth. . . . . . . . . . . . . . 12,190,468 2,529,777
8 Select Growth and Income . . . . . . . . 20,392,724 1,494,645
9 Small Cap Value. . . . . . . . . . . . . 16,636,974 3,498,008
11 Select International Equity. . . . . . . 26,840,513 258,426
12 Select Capital Appreciation. . . . . . . 20,053,397 17,627
Delaware Group Premium Fund:
20 International Equity . . . . . . . . . . 11,404,144 1,746,815
Fidelity Variable Insurance Products Fund:
102 High Income. . . . . . . . . . . . . . . 21,792,864 1,486,246
103 Equity Income. . . . . . . . . . . . . . 72,193,198 931,463
104 Growth . . . . . . . . . . . . . . . . . 44,410,759 1,508,735
105 Overseas.. . . . . . . . . . . . . . . . 12,887,085 6,634,337
Fidelity Variable Insurance Products Fund II:
106 Asset Manager. . . . . . . . . . . . . . 15,013,168 2,033,181
T. Rowe Price International Series Inc.:
150 International Stock. . . . . . . . . . . 11,328,381 217,911
-------------- --------------
Totals . . . . . . . . . . . . . . . . . $499,988,942 $102,260,578
-------------- --------------
-------------- --------------
</TABLE>
101
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance
and Annuity Company and Policyowners of Separate Account
VA-K - ExecAnnuity Plus of Allmerica Financial Life Insurance
and Annuity 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 each of the Sub-Accounts (1, 2,
3, 4, 5, 6, 7, 8, 9, 11, 12, 20, 102, 103, 104, 105, 106 and 150) constituting
the Separate Account VA-K - ExecAnnuity Plus of Allmerica Financial Life
Insurance and Annuity Company at December 31, 1995, 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 Allmerica Financial Life
Insurance and Annuity Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial 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 investments owned at December 31, 1995 by
correspondence with the Funds, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 23, 1996
102
