<PAGE>
File Number 33-39702
811-6293
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 11
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23
Separate Account VA-K of Allmerica Financial Life Insurance and Annuity Company
(Exact Name of Trust)
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
(508) 855-1000
(Registrant's telephone number including area code)
Abigail M. Armstrong Secretary and Counsel
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
(Name and complete address of agent for service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
---
X on April 30, 1996 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)(1)
---
on _________________ pursuant to paragraph (a)(1)
---
on (date) pursuant to paragraph (a)(2) of Rule 485
---
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is being
registered under the Securities Act of 1933. The Rule 24f-2 Notice for the
issuer's fiscal year ended December 31, 1995 was filed on February 29, 1996.
<PAGE>
Cross Reference Sheet Showing Location in Prospectus of
Items Called for by Form N-4
<TABLE>
<CAPTION>
Form N-4 Item No. Caption in Prospectus
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<S> <C>
1................................................. Cover Page
2................................................. "Special Terms"
3................................................. "Summary"; "Annual and Transaction Expenses"
4................................................. "Condensed Financial Information"
5................................................. "Description of the Company, the Separate Account, the
Trust, Variable Insurance Products Fund, Variable Insurance
Products Fund II, T. Rowe Price International Series, Inc. and
Delaware Group Premium Fund, Inc."
6................................................. "Charges and Deductions"
7................................................. "The Variable Annuity Policies"
8................................................. "The Variable Annuity Policies"
9................................................. "Death Benefit"
10................................................ "Purchase Payments"; "Computation of Policy Values and
Annuity Payments"
11................................................ "Surrender"; "Partial Redemption"
12................................................ "Federal Tax Considerations"
13................................................ "Legal Matters"
14................................................ "Table of Contents of the Statement of Additional
Information"
Form N-4 Item No. Caption in Statement of Additional Information
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15................................................ "Cover Page"
16................................................ "Table of Contents"
17................................................ "General Information and History"
18................................................ "Services"
19................................................ "Underwriters"
20................................................ "Underwriters"
21................................................ "Performance Information"
22................................................ "Annuity Payments"
23................................................ "Financial Statements"
</TABLE>
<PAGE>
PROSPECTUS A
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
Individual Variable Annuity Policies Funded through Subaccounts of
Separate Account VA-K Investing in Shares of
Allmerica Investment Trust, Variable Insurance Products Fund,
Variable Insurance Products Fund II, T. Rowe Price International Series, Inc.
and Delaware Group Premium Fund, Inc.
This Prospectus describes individual variable annuity policies ("Policies")
offered by Allmerica Financial life Insurance and Annuity Company ("Company") to
individuals and businesses in connection with retirement plans which may or may
not qualify for special federal income tax treatment. (For information about the
tax status when used with a particular type of plan, see "FEDERAL TAX
CONSIDERATIONS.") The following is a summary of information about these
Policies. More detailed information can be found under the referenced captions
in this Prospectus.
This Prospectus generally describes only the variable accumulation and variable
annuity aspects of the Policies, except where fixed values or fixed annuity
payments are specifically mentioned. Allocations to and transfers to and from
the General Account of the Company are not permitted in certain states. Certain
additional information about the Policies is contained in a Statement of
Additional Information, dated April 30, 1996 as may be amended from time to
time, which has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Table of Contents for the Statement of
Additional Information is listed on page 3 of this Prospectus. The Statement of
Additional Information is available upon request and without charge. To obtain
the Statement of Additional Information, fill out and return the attached
request card or contact Allmerica Financial Customer Services, Allmerica
Financial Life Insurance and Annuity Company, 440 Lincoln Street, Worcester,
Massachusetts 01653.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE
PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC. AND DELAWARE GROUP
PREMIUM FUND, INC. THE HIGH INCOME PORTFOLIO OF VARIABLE INSURANCE PRODUCTS FUND
INVESTS IN HIGHER YIELDING, LOWER RATED DEBT SECURITIES (SEE "INVESTMENT
OBJECTIVES AND POLICIES" IN THIS PROSPECTUS).
INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE POLICIES ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE POLICIES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR
CREDIT UNION. THE POLICIES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL
AGENCY. INVESTMENTS IN THE CONTRACTS ARE SUBJECT TO VARIOUS RISKS,
INCLUDING THE FLUCTUATION OF VALUE AND POSSIBLE LOSS OF PRINCIPAL.
DATED April 30, 1996
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<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................3
SPECIAL TERMS...............................................................4
SUMMARY.....................................................................5
ANNUAL AND TRANSACTION EXPENSES.............................................7
CONDENSED FINANCIAL INFORMATION............................................11
PERFORMANCE INFORMATION....................................................14
WHAT IS AN ANNUITY?........................................................16
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY .............................16
RIGHT TO REVOKE OR SURRENDER IN SOME STATES ...............................16
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, THE TRUST, VIP,
VIP II, T. ROWE PRICE AND DGPF.............................................17
VOTING RIGHTS..............................................................24
CHARGES AND DEDUCTIONS.....................................................25
A. Contingent Deferred Sales Charge................................25
B. Premium Taxes...................................................28
C. Policy Fee......................................................28
D. Annual Charge Against Separate Account Assets ..................28
THE VARIABLE ANNUITY POLICIES..............................................29
A. Purchase Payments...............................................29
B. Transfer Privilege..............................................30
C. Surrender.......................................................31
D. Partial Redemption..............................................31
E. Death Benefit...................................................32
F. The Spouse of the Policy Owner as Beneficiary...................33
G. Assignment......................................................33
H. Electing the Form of Annuity and Annuity Date ..................33
I. Description of Variable Annuity Options.........................34
J. Norris Decision.................................................35
K. Computation of Policy Values and Annuity Payments...............35
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<PAGE>
TABLE OF CONTENTS (continued)
FEDERAL TAX CONSIDERATIONS...................................................36
A. Qualified and Non-Qualified Policies............................37
B. Taxation of the Policies in General.............................37
C. Tax Withholding and Penalties...................................38
D. Provisions Applicable to Qualified Employee Benefit Plans.......38
E. Qualified Employee Pension and Profit Sharing Trusts
and Qualified Annuity Plans ..................................39
F. Self-Employed Individuals.......................................39
G. Individual Retirement Account Plans.............................39
H. Simplified Employee Pensions....................................40
I. Public School Systems and Certain Tax-Exempt Organizations .....40
J. Texas Optional Retirement Program...............................40
K. Section 457 Plans for State Governments
and Tax-Exempt Entities ......................................41
L. Non-individual Owners...........................................41
REPORTS. . . . . . ..................................................41
CHANGES IN OPERATION OF THE SEPARATE ACCOUNTS................................41
LEGAL MATTERS........................................................41
FURTHER INFORMATION..................................................41
APPENDIX A - MORE INFORMATION ABOUT THE GENERAL ACCOUNT..............42
APPENDIX B-INFORMATION APPLICABLE ONLY TO POLICY NO. A3018-91
(AND STATE VARIATIONS)..........................................42
APPENDIX C - EXCHANGE OFFER..........................................43
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY...............................................2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY..............................3
SERVICES......................................................................3
UNDERWRITERS..................................................................3
ANNUITY PAYMENTS..............................................................4
PERFORMANCE INFORMATION.......................................................5
FINANCIAL STATEMENTS..........................................................9
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<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
Accumulated Value: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the General Account of the
Company then credited to the Policy, on any date before the date annuity
payments are to begin.
Accumulation Unit: a measure of the Policy Owner's interest in a Subaccount
before annuity payments begin.
Annuitant: the person designated in the Policy to whom the Annuity is to be
paid.
Annuity Date: the date on which annuity payments begin.
Annuity Unit: a measure of the value of the periodic annuity payments under the
Policy.
Fixed Amount Annuity: an Annuity providing for payments which remain fixed in
amount throughout the annuity payment period.
General Account: all the assets of the Company other than those held in a
Separate Account.
Separate Account: Separate Account VA-K of the Company. Separate Account VA-K
consists of assets segregated from other assets of the Company. The investment
performance of the assets of the Separate Account is determined separately from
the other assets of the Company. The assets of the Separate Account are not
chargeable with liabilities arising out of any other business which the Company
may conduct.
Subaccount: a subdivision of Separate Account VA-K. Each Subaccount available
under the Policies invests exclusively in the shares of a corresponding fund of
Allmerica Investment Trust, a corresponding portfolio of the Variable Insurance
Products Fund or Variable Insurance Products Fund II, a corresponding portfolio
of T. Rowe Price International Series, Inc. or a corresponding series of
Delaware Group Premium Fund, Inc.
Surrender Value: the Accumulated Value of the Policy minus any Policy fee and
contingent deferred sales charge applicable upon surrender.
Underlying Funds: the Growth Fund, Investment Grade Income Fund, Money Market
Fund, Equity Index Fund, Government Bond Fund, Select International Equity Fund,
Select Aggressive Growth Fund, Select Growth Fund, Select Growth and Income Fund
and Small Cap Value Fund of Allmerica Investment Trust; High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio of Variable
Insurance Products Fund; the Asset Manager Portfolio of Variable Insurance
Products Fund II; the International Stock Portfolio of T. Rowe Price
International Series, Inc.; and the International Equity Series of Delaware
Group Premium Fund, Inc.
Underlying Investment Companies: Allmerica Investment Trust, Variable Insurance
Products Fund, Variable Insurance Products Fund II, T. Rowe Price International
Series, Inc. and Delaware Group Premium Fund, Inc.
Valuation Date: a day on which the net asset value of the shares of any of the
Underlying Funds is determined and Unit values of the Subaccounts are
determined. Valuation dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Policy was
received) when there is a sufficient degree of trading in an Underlying Fund's
portfolio securities such that the current net asset value of the Subaccounts
may be materially affected.
Valuation Period: the interval between two consecutive Valuation Dates.
Variable Annuity: an Annuity providing for payments varying in amount in
accordance with the investment experience of the Growth Fund, Money Market Fund,
Equity Index Fund or Select Growth and Income Fund of Allmerica Investment
Trust.
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<PAGE>
SUMMARY
Investment Options. The Policies permit net purchase payments to be allocated
among the Subaccounts available under the Policies, which are subdivisions of
Separate Account VA-K ("Separate Account"), a separate account of the Company,
and, where available, a fixed interest account ("General Account") of the
Company (together "accounts"). The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act"), but such
registration does not involve the supervision of the management or investment
practices or policies of the Separate Account by the Securities and Exchange
Commission (the "SEC"). For information about the Separate Account and the
Company, see "DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, THE TRUST, VIP,
VIP II, T. ROWE AND DGPF." For more information about the General Account, see
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Each Subaccount available under the Policies invests its assets without sales
charge in a corresponding investment series of the Allmerica Investment Trust
(the "Trust"), Variable Insurance Products Fund ("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, VIP,
VIP II, T. Rowe and DGPF are open-end, diversified series investment companies.
Eleven different funds of the Trust are available under the Policies: the Growth
Fund, Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, Select International Equity Fund, Select Aggressive Growth
Fund, Select Capital Appreciation Fund, Select Growth Fund, Select Growth and
Income Fund and Small Cap Value Fund of Allmerica Investment Trust. Four of the
portfolios of VIP are available under the Policies: the High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio. One of the
portfolios of VIP II is available under the Policies: the Asset Manager
Portfolio. One of the portfolios of T. Rowe is available under the Policies: the
International Stock Portfolio. One of the series of DGPF is available under the
Policies: the International Equity Series. Each of the Funds, Portfolios and
Series available under the Policies (together, the "Underlying Funds") operates
pursuant to different investment objectives, discussed below.
Investment in the Subaccount. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Funds.
There can be no assurance that the investment objectives of the Underlying Funds
can be achieved or that the value of a Policy will equal or exceed the aggregate
amount of the purchase payments made under the Policy. For more information
about the investments of the Underlying Funds, see "DESCRIPTION OF THE COMPANY,
THE SEPARATE ACCOUNT, THE TRUST, VIP, VIP II, T. ROWE PRICE AND DGPF." The
accompanying prospectuses of the Trust, VIP, VIP II, T. Rowe Price and DGPF
describe the investment objectives and risks of each of the Underlying Funds.
Dividends or capital gains distributions received from an Underlying Fund are
reinvested in additional shares of that Underlying Fund, which are retained as
assets of the Subaccount.
Transfers Between Accounts. Prior to the Annuity Date, the Policies permit
amounts to be transferred among the Subaccounts and between the Subaccounts and
the General Account, where available, subject to certain limitations described
under "Transfer Privilege."
Annuity Payments. The owner of a Policy ("Policy Owner") may select variable
annuity payments based on one or more of certain Subaccounts, fixed-amount
annuity payments, or a combination of fixed-amount and variable annuity
payments. Fixed-amount annuity payments are guaranteed by the Company.
See "THE VARIABLE ANNUITY POLICIES" for information about annuity payment
options, selecting the Annuity Date, and how annuity payments are calculated.
Revocation Rights. An individual purchasing a Policy intended to qualify as an
Individual Retirement Annuity ("IRA") may revoke the Policy at any time between
the date of the application and the date 10 days after receipt of the Policy. In
certain states any Policy owner may have special revocation rights. For more
information about revocation rights, see "RIGHT TO REVOKE INDIVIDUAL RETIREMENT
ANNUITY" and "RIGHT TO REVOKE OR SURRENDER IN SOME STATES."
Payment Minimums and Maximums. Under the Policies, purchase payments are not
limited as to frequency and number, but no payments may be submitted within one
month of the Annuity Date. Generally, the initial purchase payment must be at
least $600 and subsequent payments must be at least $50. Under a monthly
automatic payment plan or a payroll deduction plan, each purchase payment must
be at least $50. However, in cases where the contribution on behalf of an
employee under an employer-sponsored retirement plan is less than $600 but more
than $300 annually, the Company may issue a Policy on the employee, if the
plan's average annual contribution per eligible plan participant is at least
$600.
The Company reserves the right to set maximum limits on the aggregate purchase
payments made under the Policy. In addition,
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<PAGE>
the Internal Revenue Code imposes maximum limits on contributions under
qualified annuity plans.
Charges and Deductions. For a complete discussion of charges, see "CHARGES AND
DEDUCTIONS."
A. Contingent Deferred Sales Charge. No sales charge is deducted from purchase
payments at the time the payments are made. However, depending on the length of
time that the payments to which the withdrawal is attributed have remained
credited under the Policy a contingent deferred sales charge of up to 8% may be
assessed for a surrender, partial redemption, or election of any commutable
period certain option or a noncommutable period certain for less than 10 years.
B. Annual Policy Fee. A Policy Fee equal to the lesser of $30 or 3% of
Accumulated Value will be deducted from the Accumulated Value under the Policy
for administrative expense on the policy anniversary, or upon full surrender of
the Policy during the year, when the Accumulated Value is $50,000 or less. The
Policy Fee is waived for policies issued to and maintained by the trustee of a
401(k) plan.
C. Premium Taxes. A deduction for State and local premium taxes, if any, may be
made as described under "Premium Taxes." Premium taxes range from 0 to 3.5%.
D. Separate Account Asset Charges. A daily charge, equivalent to 1.25% per
annum, is made on the value of each Subaccount at each Valuation Date. The
charge is retained for the mortality and expense risks the Company assumes. In
addition, to cover administrative expenses, the Company deducts a daily charge
of 0.20% per annum of the value of the average net assets in the Subaccounts.
E. Transfer Charge. The Company currently makes no charge for transfers. The
Company guarantees that the first six transfers in a Policy year will be free of
charge. For the seventh and each subsequent transfer, the Company reserves the
right to assess a charge, guaranteed never to exceed $25, to reimburse the
Company for the costs of processing the transfer.
F. Charges of the Underlying Fund. In addition to the charges described above,
certain fees and expenses are deducted from the assets of the Underlying Funds.
These charges vary among the Underlying Funds.
Surrender or Partial Redemption. At any time before the Annuity Date, the Policy
Owner has the right either to surrender the Policy in full and receive its
current value, minus the Policy Fee and any applicable contingent deferred sales
charge, or to redeem a portion of the Policy's value subject to certain limits
and any applicable contingent deferred sales charge. There may be tax
consequences for surrender or redemptions. For further information, see
"Surrender" and "Partial Redemption," "Contingent Deferred Sales Charge," and
"FEDERAL TAX CONSIDERATIONS."
Death Benefit. If the Annuitant or Policy Owner should die before the Annuity
Date, a death benefit will be paid to the beneficiary. Upon death of the
Annuitant, the death benefit is equal to the greatest of (a) the Accumulated
Value under the Policy, or (b) the sum of the gross payment(s) made under the
Policy reduced proportionally to reflect the amount of all partial redemptions,
or (c) the death benefit that would have been payable on the most recent fifth
year Policy Anniversary, increased for subsequent purchase payments and reduced
proportionally to reflect withdrawals after that date. Upon death of a Policy
Owner, the death benefit will equal the Accumulated Value of the Policy next
determined following receipt of due proof of death at the Principal Office. See
"Death Benefit."
Sales of Policies. The Policies are sold by agents of the Company who are
registered representatives of Allmerica Investments, Inc., a broker-dealer
affiliate of the Company. The Policies also may be purchased from certain other
broker-dealers which are members of the National Association of Securities
Dealers, Inc., and whose representatives are authorized by applicable law to
sell variable annuity policies. See "Sales Expense."
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Policy Owner in
understanding the various costs and expenses that a Policy Owner will bear
directly or indirectly under the Policies. The tables reflect charges under the
Policies, expenses of the Subaccounts, and expenses of the Underlying Funds. In
addition to the charges and expenses described below, in some states premium
taxes may be applicable.
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<PAGE>
<TABLE>
<CAPTION>
Policy Owner Transaction Expenses
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<S> <C> <C>
Contingent Deferred Sales Charge Policy Year after date of Charge
The charge (as a percentage of payments, Purchase Payment
applied to the amount surrendered in 0-2 8%
excess of the amount, if any, which may 3 7%
be surrendered free of charge) will be 4 6%
assessed upon surrender, redemption, or 5 5%
annuitization under any commutable 6 4%
period certain option or a noncommutable 7 3%
period certain less than 10 years. 8 2%
9 1%
Transfer Charge None
Annual Policy Fee $30
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An annual Policy Fee, equal to the lesser
of $30 or 3% of Accumulated Value, is
deducted when Accumulated Value is
$50,000 or less. The Policy Fee is
waived for policies issued to and
maintained by the trustee of a 401(k)
plan.
Separate Account Annual Expenses
- --------------------------------
as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Separate Account Administrative Charge 0.20%
-----
Total Annual Expenses 1.45%
</TABLE>
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<PAGE>
Allmerica Investment Trust
<TABLE>
<CAPTION>
Invest-
ment Govern- Select
Grade Money Equity ment Int'l
Income Market Index Bond Equity
Fund Annual Expenses Growth Fund Fund Fund Fund Fund Fund
- -------------------- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.46% 0.41% 0.29% 0.34% 0.50% 1.00%
Other Fund Expenses 0.08% 0.12% 0.07% 0.21% 0.19% 0.24%
Total Fund Annual Expenses 0.54% 0.53% 0.36% 0.55% 0.69% 1.24%
Select Select
Select Capital Growth Small
Aggres- Apprecia- Select and Cap
sive tion Growth Income Value
Fund Annual Expenses Growth Fund Fund Fund Fund Fund
- -------------------- ----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Management Fees 1.00% 0.93% 0.85% 0.75% 0.85%
Other Fund Expenses 0.09% 0.42% 0.12% 0.10% 0.16%
Total Fund Annual Expenses 1.09% 1.35% 0.97% 0.85% 1.01%
</TABLE>
Under the Management Agreement with the Trust, Allmerica Investment Management
Company, Inc. ("Allmerica Investment") has declared a voluntary expense
limitation of 1.50% of average net assets for the Select International Equity
Fund, 1.35% for the Select Aggressive Growth Fund and Select Capital
Appreciation Fund, 1.25% for the Small Cap Value Fund, 1.20% for the Growth Fund
and Select Growth Fund, 1.10% for the Select Growth and Income Fund, 1.00% for
the Investment Grade Income Fund and Government Bond Fund, and 0.60% for the
Money Market Fund and Equity Index Fund. Without the effect of the expense
limitation, in 1995 the total operation expenses of the Select Capital
Appreciation Fund would have been 1.42% of average net assets. The total
operating expenses of the Growth Fund, Investment Grade Income Fund, Money
Market Fund and Government Bond Fund were less than their respective
expense limitations throughout 1995. The declaration of a voluntary
expense limitation in any year does not bind Allmerica Investment to
declare future expense limitations with respect to any Fund.
Variable Insurance Products Fund
<TABLE>
<CAPTION>
High Income Equity-Income Growth Portfolio Overseas Portfolio
Portfolio Annual Expenses Portfolio Portfolio
- -------------------------
<S> <C> <C> <C> <C>
Management Fees 0.60% 0.51% 0.61% 0.76%
Other Portfolio Expenses 0.11% 0.10% 0.09% 0.15%
----- ----- ----- -----
Total Portfolio Annual Expenses 0.71% 0.61% 0.70% 0.91%
</TABLE>
*A portion of the brokerage commissions the Portfolio paid was used to reduce
the expenses. Without this reduction, total operating expenses would have been
0.60% for the Equity-Income Portfolio and 0.70% for the Growth Portfolio.
Fidelity Management has voluntarily agreed to temporarily limit total operating
expenses (excluding interest, taxes, brokerage commissions and extraordinary
expenses) of the Equity Income Portfolio, Growth Portfolio and Overseas
Portfolio to an annual rate of 1.50%, and the High Income Portfolio to an annual
rate of 1.00%, of each of the Portfolio's net assets. The total operating
expenses of the Portfolios were less than their respective caps in 1995.
-8-
<PAGE>
Variable Insurance Products Fund II
Asset
Manager
Portfolio Annual Expenses Portfolio
- ------------------------- ---------
Management Fees 0.71%
Other Portfolio Expenses 0.08%
Total Portfolio Annual Expenses 0.79%*
*A portion of the brokerage commissions the Portfolio paid was used to reduce
its expenses. Without this reduction, total operating expenses would have been
0.81% for the Asset Manager Portfolio.
Fidelity Management has voluntarily agreed to temporarily limit total operating
expenses (excluding interest, taxes, brokerage commissions and extraordinary
expenses) of the Asset Manager Portfolio to an annual rate of 1.25% of the
Portfolio's net assets. The total operating expenses of the Asset Manager
Portfolio were less than its cap in 1995.
T. Rowe Price International Series, Inc.
T. Rowe Price
International
Stock
Fund Annual Expenses Portfolio
- -------------------- ---------
Management Fees 1.05%
Other Portfolio Expenses 0.00%
Total Fund Annual Expenses 1.05%
Price-Fleming has voluntarily agreed to limit the total operating expenses
(except interest, taxes, brokerage commissions, directors' fees and expenses and
extraordinary expenses) of the International Stock Portfolio to 1.05% of its
average daily net assets.
Delaware Group Premium Fund
International
Equity
Fund Annual Expenses Series
- -------------------- ------
Management Fees 0.66%
Other Series Expenses 0.14%
Total Fund Annual Expenses 0.80%
Delaware International Advisers Ltd., the investment adviser for the
International Equity Series, has agreed to waive its management fee and
reimburse the International Equity Series to limit certain expenses to 8/10 of
1% of the corresponding net assets. This waiver has been in effect from the
commencement of the Public offering for the Series and has been extended through
June 30, 1996. Without the expense limitation, in 1995 the total annual expenses
of the International Equity Series would have been 0.89%.
The following Examples demonstrate the cumulative expenses which would be paid
by the Policy Owner at 1-year, 3-year, 5-year, and 10-year intervals under
certain contingencies. Each Example assumes a $1,000 investment in a Subaccount
and a 5% annual return on assets. Because the expenses of the Underlying Funds
differ, separate Examples are used to illustrate the expenses incurred by a
Policy Owner on an investment in the various Subaccounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
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<PAGE>
(a) If you surrender your policy or annuitize* under a commutable period
certain option or a noncommutable period certain option of less than 10
years at the end of the applicable period, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on assets:
1 year 3 years 5 years 10 years
Growth Fund ............................... $94 $129 $159 $246
Investment Grade Income Fund .............. $94 $130 $160 $248
Money Market Fund ......................... $93 $126 $153 $235
Equity Index Fund ......................... $94 $130 $159 $247
Government Bond Fund ...................... $95 $134 $166 $261
Select International Equity Fund .......... $103 $158 $206 $338
International Stock Portfolio ............. $99 $144 $184 $295
Select Aggressive Growth Fund ............. $100 $147 $189 $306
Select Capital Appreciation Fund .......... $102 $153 $198 $324
Select Growth Fund ........................ $98 $144 $183 $293
Select Growth and Income Fund ............. $97 $140 $177 $282
Small Cap Value Fund ...................... $99 $145 $185 $298
High Income Portfolio ..................... $95 $134 $166 $262
Equity-Income Portfolio ................... $94 $130 $160 $248
Growth Portfolio .......................... $95 $133 $165 $260
Overseas Portfolio ........................ $97 $140 $177 $283
Asset Manager Portfolio ................... $96 $137 $171 $271
International Equity Series ............... $96 $137 $171 $271
(b) If you annuitize* under a life option or any noncommutble peeriod certain
option of 10 years or more at the end of the applicable time period or if
you do not surrender or annuitize your policy, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on assets:
1 year 3 years 5 years 10 years
Growth Fund ............................... $22 $67 $114 $246
Investment Grade Income Fund .............. $22 $67 $115 $248
Money Market Fund ......................... $21 $63 $109 $235
Equity Index Fund ......................... $22 $67 $115 $247
Government Bond Fund ...................... $23 $71 $122 $261
Select International Equity Fund .......... $31 $95 $161 $338
International Stock Portfolio ............. $27 $81 $139 $295
Select Aggressive Growth Fund ............. $28 $85 $144 $306
Select Capital Appreciation Fund .......... $30 $90 $154 $324
Select Growth Fund ........................ $26 $81 $138 $293
Select Growth and Income Fund ............. $25 $77 $132 $282
Small Cap Value Fund ...................... $27 $82 $141 $298
High Income Portfolio ..................... $23 $71 $122 $262
Equity-Income Portfolio ................... $22 $67 $115 $248
Growth Portfolio .......................... $23 $71 $121 $260
Overseas Portfolio ........................ $25 $78 $133 $283
Asset Manager Portfolio ................... $24 $74 $127 $271
International Equity Series ............... $24 $74 $127 $271
- ----------
Pursuant to requirements of the 1940 Act, the policy fee has been reflected in
the Examples by a method intended to show the "average" impact of the policy fee
on an investment in the Separate Account. The total policy fees collected under
the Policies by the Company are divided by the total average net assets
attributable to the Policies. The resulting percentage is 0.12%, and the amount
of the policy fee is assumed to be $1.20 in the Examples. The Policy Fee is
deducted only when the accumulated value is $50,000 or less. Lower costs apply
to policies originally issued as part of a 401(k) plan.
* The policy fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any policy year under
an option including a life contingency or under any noncommutable period certain
option of 10 years or more.
-10-
<PAGE>
CONDENSED FINANCIAL INFORMATION
Allmerica Financial Life Insurance and Annuity Company
Separate Account VA-K
<TABLE>
<CAPTION>
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Subaccount 1
Unit Value:
Beginning of Period ............................... 1.221 1.236 1.175 1.111
End of Period ..................................... 1.599 1.221 1.236 1.175
Number of Units Outstanding at End of ............. 116,008 102,399 72,609 34,373
Period (in thousands)
Subaccount 2
Unit Value:
Beginning of Period ................... 1.196 1.250 1.145 1.073
End of Period ......................... 1.390 1.196 1.250 1.145
Number of Units Outstanding at End of ............. 69,168 57,454 48,488 15,428
Period (in thousands)
Subaccount 3
Unit Value:
Beginning of Period ................... 1.077 1.051 1.035 1.013
End of Period ......................... 1.124 1.077 1.051 1.035
Number of Units Outstanding at End of ............. 69,311 37,668 30,815 30,778
Period (in thousands)
Subaccount 4
Unit Value:
Beginning of Period ................... 1.221 1.226 1.135 1.074
End of Period ......................... 1.640 1.221 1.226 1.135
Number of Units Outstanding at End of ............. 39,534 29,176 22,466 9,535
Period (in thousands)
Subaccount 5
Unit Value:
Beginning of Period ................... 1.152 1.179 1.112 1.075
End of Period ......................... 1.280 1.152 1.179 1.112
Number of Units Outstanding at End of ............. 31,710 32,519 60,265 29,844
Period (in thousands)
Subaccount 6
Unit Value:
Beginning of Period ................... 1.292 1.342 1.139 1.000
End of Period ......................... 1.686 1.292 1.342 1.139
Number of Units Outstanding at End of ............. 70,349 54,288 26,158 2,019
Period (in thousands)
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992
---- ---- ---- ----
Subaccount 7
<S> <C> <C> <C> <C>
Unit Value:
Beginning of Period 1.024 1.055 1.058 1.000
End of Period 1.259 1.024 1.055 1.058
Number of Units Outstanding at End of 47,078 38,415 26,064 3,039
Period (in thousands)
Subaccount 8
Unit Value:
Beginning of Period 1.066 1.074 0.987 1.000
End of Period 1.370 1.066 1.074 0.987
Number of Units Outstanding at End of 63,841 51,098 31,846 4,711
Period (in thousands)
Subaccount 9
Unit Value:
Beginning of Period 1.075 1.167 1.000 ---
End of Period 1.249 1.075 1.167 ---
Number of Units Outstanding at End of 43,433 33,049 9,902 ---
Period (in thousands)
Subaccount 11
Unit Value:
Beginning of Period 0.956 1.000 --- ---
End of Period 1.127 0.956 --- ---
Number of Units Outstanding at End of 12,530 --- ---
Period (in thousands)
Subaccount 20
Unit Value:
Beginning of Period 1.143 1.129 1.000 ---
End of Period 1.284 1.143 1.129 ---
Number of Units Outstanding at End of 34,692 26,924 6,681 ---
Period (in thousands)
Subaccount 102
Unit Value:
Beginning of Period 1.465 1.510 1.270 1.047
End of Period 1.743 1.465 1.510 1.270
Number of Units Outstanding at End of 38,042 27,041 13,583 3,625
Period (in thousands)
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Subaccount 103 1995 1994 1993 1992
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Unit Value:
Beginning of Period ................................. 1.490 1.412 1.211 1.051
End of Period ....................................... 1.985 1.490 1.412 1.211
Number of Units Outstanding at End of ........................... 139,145 104,356 61,264 17,855
Period (in thousands)
Subaccount 104
Unit Value:
Beginning of Period ................................. 1.419 1.440 1.224 1.135
End of Period ....................................... 1.895 1.419 1.440 1.224
Number of Units Outstanding at End of ........................... 116,485 90,717 49,136 18,253
Period (in thousands)
Subaccount 105
Unit Value:
Beginning of Period ................................. 1.230 1.226 0.906 1.030
End of Period ....................................... 1.330 1.230 1.226 0.906
Number of Units Outstanding at End of ........................... 65,256 59,774 25,395 6,728
Period (in thousands)
Subaccount 106
Unit Value:
Beginning of Period ................................. 0.977 1.000 -- --
End of Period ....................................... 1.127 0.977 -- --
Number of Units Outstanding at End of ........................... 33,444 20,720 -- --
Period (in thousands)
Subaccount 12
Unit Value
Beginning of Period ................................. 1.000
End of Period ....................................... 1.383
Number of Units Outstanding at End of ........................... 16,096
Period (in thousands)
Subaccount 150
Unit Value
Beginning of Period ................................. 1.000
End of Period ....................................... 1.064
Number of Units Outstanding at End of ........................... 10,882
Period (in thousands)
</TABLE>
* The date of inception of Subaccounts 9 and 20 were 4/30/93 and 4/6/93,
respectively. Subaccounts 11 and 106 were 5/3/94, respectively.
Subaccounts 12 and 150 were 4/28/95 and respectively.
-13-
<PAGE>
PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1991. However, the Company
may advertise "Total Return" and "Average Total Return" performance information
based on the periods that the Underlying Funds have been in existence. The
results for any period prior to the Contracts being offered will be calculated
as if the Contracts had been offered during that period of time, with all
charges assumed to be those applicable to the Sub-Accounts and the Underlying
Funds. Both the total return and yield figures are based on historical
earnings and are not intended to indicate future performance.
The "total return" of a Subaccount refers to the total of the income generated
by an investment in the Subaccount and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Separate Account charges, and expressed as a
percentage of the investment.
The "yield" of the Subaccount investing in the Money Market Fund of the Trust
refers to the income generated by an investment in the Subaccount over a
seven-day period (which period will be specified in the advertisement). This
income is then "annualized" by assuming that the income generated in the
specific week is generated over a 52-week period. This annualized yield is shown
as a percentage of the investment. The "effective yield" calculation is similar,
but when annualized, the income earned by an investment in the Subaccount is
assumed to be reinvested. Thus the "effective yield" will be slightly higher
than the "yield" because of the compounding effect of this assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect the
Subaccount's asset charges. The total return figures also reflect the $30 annual
Policy Fee and the contingent deferred sales load which would be assessed if the
investment were completely redeemed at the end of the specified period.
The Company may also advertise supplemental total return performance
information. Supplemental total return refers to the total of the income
generated by an investment in the Subaccount and of the changes of value of the
principal invested (due to realized and unrealized capital gains or losses),
adjusted by the Subaccount's annual asset charges, and expressed as a percentage
of the investment. Because it is assumed that the investment is NOT redeemed at
the end of the specified period, the contingent deferred sales load is NOT
included in the calculation of supplemental total return.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Subaccount
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Subaccount. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of a
hypothetical investment in the Subaccount during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the portfolio of the Underlying Fund in which the Subaccount invests and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future.
-14-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(Assuming COMPLETE redemption of the investment)
<TABLE>
<CAPTION>
For year 10 years or
ended since
SUBACCOUNT NAME 12/31/95 3 Years 5 Years inception*
- ---------- ---- --------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Sub-Account 1 Growth 22.93% 8.85% 13.86% 13.12%
Sub-Account 2 Investment Grade 8.18% 4.58% 7.26% 7.51%
Sub-Account 3 Money Market -3.18% 0.57% 1.76% 4.38%
Sub-Account 4 Equity Index 26.27% 11.19% 7.45% 14.82%
Sub-Account 5 Government Bond 3.46% 2.75% N/A 5.21%
Sub-Account 6 Select Aggressive Growth 22.43% 12.14% N/A 17.22%
Sub-Account 7 Select Growth 14.83% 3.82% N/A 6.92%
Sub-Account 8 Select Growth and Income 20.50% 9.65% N/A 8.60%
Sub-Account 9 Small Cap Value 7.95% N/A N/A 6.22%
Sub-Account 11 Select Int'l. Equity 9.94% N/A N/A 2.79%
Sub-Account 12 Select Capital Appreciation N/A N/A N/A 30.19%
Sub-Account 102 High Income 10.91% 9.17% 16.44% 9.86%
Sub-Account 103 Equity-Income 25.20% 16.19% 18.86% 11.70%
Sub-Account 104 Growth 25.47% 13.92% 18.32% 13.18%
Sub-Account 105 Overseas 0.34% 11.80% 5.44% 5.69%
Sub-Account 106 Asset Manager 7.31% 6.39% 10.19% 9.34%
Sub-Account 150 International Stock 1.68% N/A N/A 0.89%
Sub-Account 20 International Equity 4.27% N/A N/A 5.48%
</TABLE>
ANNUAL AVERAGE TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(Assuming NO redemption of the investment)
<TABLE>
<CAPTION>
For year 10 years or
ended since
SUBACCOUNT NAME 12/31/95 3 Years 5 Years inception*
- ---------- ---- --------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Sub-Account 1 Growth 30.93% 10.79% 14.68% 13.12%
Sub-Account 2 Investment Grade 16.18% 6.67% 8.29% 7.51%
Sub-Account 3 Money Market 4.34% 2.77% 3.03% 4.38%
Sub-Account 4 Equity Index 34.27% 13.05% 8.48% 15.24%
Sub-Account 5 Government Bond 11.46% 4.91% N/A 6.16%
Sub-Account 6 Select Aggressive Growth 30.43% 13.97% N/A 18.43%
Sub-Account 7 Select Growth 22.83% 5.95% N/A 8.42%
Sub-Account 8 Select Growth and Income 28.50% 11.56% N/A 2.85%
Sub-Account 9 Small Cap Value 15.95% N/A N/A 8.55%
Sub-Account 11 Select Int'l. Equity 17.94% N/A N/A 7.44%
Sub-Account 12 Select Capital Appreciation N/A N/A N/A 38.19%
Sub-Account 102 High Income 18.91% 11.09% 17.19% 9.86%
Sub-Account 103 Equity-Income 33.20% 17.89% 19.56% 11.70%
Sub-Account 104 Growth 33.47% 15.69% 19.02% 13.18%
Sub-Account 105 Overseas 8.12% 13.64% 6.55% 5.76%
Sub-Account 106 Asset Manager 15.31% 8.41% 11.12% 9.64%
Sub-Account 150 International Stock 9.56% N/A N/A 5.76%
Sub-Account 20 International Equity 12.27% N/A N/A 7.14%
</TABLE>
* The inception dates of the Underlying Funds are: 4/29/85 for Growth,
Investment Grade and Money Market; 9/28/90 for Equity Index; 8/26/91 for
Government Bond; 8/21/92 for Select Aggressive Growth, Select Growth, Select
Growth and Income; 4/30/93 for Small Cap Value; 5/01/94 for Select International
Equity; 4/28/95 for Select Capital Appreciation, 10/09/86 for VIP Equity-Income
and VIP Growth; 9/19/85 for VIP High Income; 1/28/87 for VIP Overseas; 9/06/89
for VIP II Asset Manager; 10/29/92 for DGPF International Equity, 3/31/94 for
the T. Rowe Price International Stock.
-15-
<PAGE>
WHAT IS AN ANNUITY?
In general, an annuity is a policy designed to provide a retirement income in
the form of monthly payments for the lifetime of the purchaser or an individual
chosen by the purchaser. The retirement income payments are called "annuity
payments" and the individual receiving the payments is called the "Annuitant."
Annuity payments may begin immediately after a lump sum purchase is made or may
begin after an investment period during which the amount necessary to provide
the desired amount of retirement income is accumulated.
Under an annuity policy, the insurance company assumes a mortality risk and an
expense risk. The mortality risk arises from the insurance company's guarantee
that annuity payments will continue for the life of the Annuitant, regardless of
how long the Annuitant lives or how long all Annuitants as a group live. The
expense risk arises from the insurance company's guarantee that charges will not
be increased beyond the limits specified in the policy, regardless of actual
costs of operations.
The Policy Owner's purchase payments, less any applicable deductions, are
invested by the insurance company. After retirement, annuity payments are paid
to the Annuitant for life or for such other period chosen by the Policy Owner.
In the case of a "fixed" annuity, the value of these annuity payments is
guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more information
about fixed annuities see APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL
ACCOUNT."
With a variable annuity, the value of the Policy and the annuity payments are
not guaranteed but will vary depending on the investment performance of a
portfolio of securities. Any investment gains or losses are reflected in the
value of the Policy and in the annuity payments. If the portfolio increases in
value, the value of the Policy increases. If the portfolio decreases in value,
the value of the Policy decreases.
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Policy intended to qualify as an Individual
Retirement Annuity ("IRA") may revoke the Policy at any time between the date of
the application and the date 10 days after receipt of the Policy and receive a
refund of the entire purchase payment. In order to revoke the Policy, the Policy
Owner must mail or deliver the Policy (if it has already been received), to the
agent through whom the Policy was purchased, to the principal office of the
Company at 440 Lincoln Street, Worcester, Massachusetts 01653, or to any local
agency of the Company. Mailing or delivery must occur on or before 10 days after
receipt of the Policy for revocation to be effective.
Within seven days the Company will return the greater of (1) the entire purchase
payment, or (2) the Accumulated Value plus any amounts deducted under the Policy
or by the Underlying Investment Companies for taxes, charges or fees.
The liability of the Separate Accounts under this provision is limited to the
Policy Owner's Accumulated value in each Separate Account on the date of
cancellation. Any additional amounts refunded to the Policy Owner will be paid
by the Company.
RIGHT TO REVOKE OR SURRENDER IN SOME STATES
In Georgia, Indiana, Michigan, Missouri, New York, North Carolina, Oklahoma,
South Carolina, Texas, Utah, Washington and West Virginia any Policy Owner may
revoke the Policy at any time betwen the date of application and the date 10
days (20 days in Idaho) after receipt of the Policy and receive a refund, as
described under "RIGHT TO REVOKE INDIVIDIUAL RETIREMENT ANNUITY," above.
-16-
<PAGE>
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, THE TRUST,
VIP, VIP II, T. ROWE PRICE AND DGPF
THE COMPANY - The Company is a life insurance company organized under the laws
of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, Telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 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 indirect 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.
THE SEPARATE ACCOUNT - Separate Account VA-K (the "Separate Account") is a
separate investment account of the Company. The assets used to fund the variable
portions of the Policies are set aside in the Subaccounts of the Separate
Account, and are kept separate and apart from the general assets of the Company.
There are 18 Subaccounts available under the Policies. Each Subaccount is
administered and accounted for as part of the general business of the Company,
but the income, capital gains, or capital losses of each Subaccount are
allocated to such Subaccount, without regard to other income, capital gains, or
capital losses of the Company. Under Delaware law, the assets of the Separate
Account may not be charged with any liabilities arising out of any other
business of the Company.
The Separate Account was authorized by vote of the Board of Directors of the
Company on November 1, 1990. The Separate Account meets the definition of
"separate account" under federal securities law and is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). The registration of the
Separate Account and the Underlying Investment Companies does not involve the
supervision by the Commission of management or investment practices or policies
of the Separate Account, the Company, the Underlying Investment Companies or the
Underlying Funds.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account and the Subaccounts.
ALLMERICA INVESTMENT TRUST - Allmerica Investment Trust (the "Trust") is an
open-end, diversified management investment company registered with the
Commission under the 1940 Act.
The Trust was established by First Allmerica as a Massachusetts business trust
on October 11, 1984, for the purpose of providing a vehicle for the investment
of assets of various separate accounts established by State Mutual, the Company,
or other affiliated insurance companies. Eleven investment portfolios ("Funds")
are currently available under the Policies, each issuing a series of shares: the
Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, Select International Equity Fund, Select Aggressive Growth
Fund, Select Capital Appreciation Fund, Select Growth Fund, Select Growth and
Income Fund and Small Cap Value Fund of Allmerica Investment Trust. Certain of
the Funds may not be available in all states. The assets of each Fund are held
separate from the assets of the other Funds. Each Fund operates as a separate
investment vehicle and the income or losses of one Fund have no effect on the
investment performance of another Fund. Shares of the Trust are not offered to
the general public but solely to such separate accounts.
Allmerica Investment Management Company, Inc. ("Allmerica Investment") serves as
investment adviser of the Trust. Allmerica Investment has entered into
sub-advisory agreements with other investment managers ("Sub-Advisers") who
manage the investments of the Funds. See "INVESTMENT ADVISORY SERVICES TO THE
TRUST."
VARIABLE INSURANCE PRODUCTS FUND - Variable Insurance Products Fund ("VIP"),
managed by Fidelity Management, is an open-end, diversified, management
investment company organized as a Massachusetts business trust on November 13,
1981 and registered with the Commission under the 1940 Act. Four of its
investment portfolios are available under the Policies: High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio.
-17-
<PAGE>
Various Fidelity companies perform certain activities required to operate VIP.
Fidelity Management, a registered investment adviser under the Investment
Advisers Act of 1940, is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire Street,
Boston MA. It is composed of a number of different companies, which provide a
variety of financial services and products. Fidelity Management is the original
Fidelity company, founded in 1946. It provides a number of mutual funds and
other clients with investment research and portfolio management services. The
Portfolios of VIP as part of their operating expenses pay an investment
management fee to Fidelity Management. See "INVESTMENT ADVISORY SERVICES TO VIP
and VIP II."
VARIABLE INSURANCE PRODUCTS FUND II - Variable Insurance Products Fund II ("VIP
II"), managed by Fidelity Management (see discussion under "VARIABLE INSURANCE
PRODUCTS FUND"), is an open-end, diversified, management investment company
organized as a Massachusetts business trust on March 21, 1988 and registered
with the Commission under the 1940 Act. One of its investment portfolios is
available under the Policies: the Asset Manager Portfolio.
T. ROWE PRICE INTERNATIONAL SERIES, INC. - T. Rowe Price International Series,
Inc. ("T. Rowe Price"), managed by Rowe Price-Fleming International, Inc.
("Price-Fleming") (See "INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE"), is an
open-end, diversified, management investment company organized as a Maryland
corporation in 1994 and registered with the Commission under the 1940 Act. One
of its investment portfolios is available under the Policies: the International
Stock Portfolio.
DELAWARE GROUP PREMIUM FUND, INC. - Delaware Group Premium Fund, Inc. ("DGPF")
is an open-end, diversified management investment company registered with the
Commission under the 1940 Act.
DGPF was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. One investment
portfolio ("Series") is available under the Policies, the International Equity
Series, which may not be available in all states.
The investment adviser for the International Equity Series is Delaware
International Advisers Ltd. ("Delaware International"). See "INVESTMENT ADVISORY
SERVICES TO DGPF."
INVESTMENT OBJECTIVES AND POLICIES - A summary of investment objectives of each
of the Underlying Funds is set forth below. More detailed information regarding
the investment objectives, restrictions and risks, expenses paid by the
Underlying Funds, and other relevant information regarding the Underlying Funds
may be found in their respective Prospectuses, which should be read carefully
before investing. The Statements of Additional Information of the Underlying
Funds are available upon request. There can be no assurance that the invested
objectives of the Underlying Funds can be achieved or that the value of a Policy
will equal or exceed the aggregate amount of the purchase payments made under
the Policy.
Subaccount 1 - invests solely in shares of the Growth Fund of the Trust. The
Growth Fund is invested in common stocks and securities convertible into common
stocks that are believed to represent significant underlying value in relation
to current market prices. The objective of the Growth Fund is to achieve
long-term growth of capital. Realization of current investment income, if any,
is incidental to this objective.
Subaccount 2 - invests solely in shares of the Investment Grade Income Fund of
the Trust. The Investment Grade Income Fund is invested in a diversified
portfolio of fixed income securities with the objective of seeking as high a
level of total return (including both income and realized and unrealized capital
gains) as is consistent with prudent investment management.
Subaccount 3 - invests solely in shares of the Money Market Fund of the Trust.
The Money Market Fund is invested in a diversified portfolio of high-quality,
short-term debt instruments with the objective of obtaining maximum current
income consistent with the preservation of capital and liquidity.
Subaccount 4 - invests solely in shares of the Equity Index Fund of the Trust.
The Equity Index Fund seeks to provide investment results that correspond
generally to the composite price and yield performance of United States publicly
traded common stocks. The Equity Index Fund seeks to achieve its objective by
attempting to replicate the composite price and yield performance of the
Standard & Poor's 500 Composite Stock Index.
Subaccount 5 - invests solely in shares of the Government Bond Fund of the
Trust. The Government Bond Fund has the investment objective of seeking high
income, preservation of capital and maintenance of liquidity, primarily through
investments in debt instruments issued or guaranteed by the U.S. Government or
its agencies or instrumentalities and in
-18-
<PAGE>
related options, futures and repurchase agreements.
Subaccount 6 - invests solely in shares of the Select Aggressive Growth Fund of
the Trust. The Select Aggressive Growth Fund seeks above-average capital
appreciation by investing primarily in common stocks of companies which are
believed to have significant potential for capital appreciation.
Subaccount 7 - invests solely in shares of the Select Growth Fund of the Trust.
The Select Growth Fund seeks to achieve long-term growth of capital by investing
in a diversified portfolio consisting primarily of common stocks selected on the
basis of their long-term growth potential.
Subaccount 8 - invests solely in shares of the Select Growth and Income Fund of
the Trust. The select Growth and Income Fund seeks a combination of long-term
growth of capital and current income. The Fund will invest primarily in
dividend-paying common stocks and securities convertible into common stocks.
Subaccount 9 - invests solely in shares of the Small Cap Value Fund of the
Trust. The Small Cap Value Fund seeks long-term growth by investing principally
in a diversified portfolio of common stocks of smaller, faster-growing companies
considered to be attractively valued in the smaller company sector of the
market.
Subaccount 11 - invests solely in shares of the Select International Equity Fund
of the Trust. The Select International Equity Fund seeks maximum long-term total
return (capital appreciation and income) primarily by investing in common stocks
of established non-U.S. companies.
Sub-Account 12 - invests solely in shares of the Select Capital Appreciation
Fund of the Trust. The Select Capital Appreciation Fund seeks long-term growth
of capital in a manner consistent with the preservation of capital. Realization
of income is not a significant investment consideration and any income realized
on the Fund's investments will be incidental to its primary objective. The Fund
will invest primarily in common stock of industries and companies which are
experiencing favorable demand for their products and services, and which operate
in a favorable competitive environment and regulatory climate. The Sub-Adviser
for the Select Capital Appreciation Fund is Janus Capital Corporation.
Subaccount 102 - invests solely in shares of the High Income Portfolio of VIP.
The High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated fixed-income securities
(commonly referred to as "junk bonds"), while also considering growth of
capital. These securities are often considered to be speculative and involve
greater risk of default or price changes than securities assigned a high quality
rating. For more information about these lower-rated securities, see "Risks of
Lower-Rated Debt Securities" in the VIP prospectus.
Subaccount 103 - invests solely in shares of the Equity-Income Portfolio of VIP.
The Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Portfolio
will also consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index. The Portfolio
may invest in high yielding, lower-rated securities (commonly referred to as
"junk bonds") which are subject to greater risk than investments in higher-rated
securities. For a further discussion of lower-rated securities, please see
"Risks of Lower-Rated Debt Securities" in the VIP prospectus.
Subaccount 104 - invests solely in shares of the Growth Portfolio of VIP. The
Growth Portfolio seeks to achieve capital appreciation. The Portfolio normally
purchases common stocks, although its investments are not restricted to any one
type of security. Capital appreciation may also be found in other types of
securities, including bonds and preferred stocks.
Subaccount 105 - invests solely in shares of the Overseas Portfolio of VIP. The
Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities and provides a means for aggressive investors
to diversify their own portfolios by participating in companies and economies
outside of the United States.
Subaccount 106 - invests solely in shares of the Asset Manager Portfolio of VIP
II. The Asset Manager Portfolio seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed-income instruments.
Sub-Account 150 - invests solely in shares of the T. Rowe Price International
Stock Portfolio. The T. Rowe Price International Stock Portfolio seeks long-term
growth of capital through investments primarily in common stocks of established,
non-U.S. companies.
Subaccount 20 - invests solely in shares of the International Equity Series of
DGPF. The International Equity Series seeks long-term growth without undue risk
to principal by investing primarily in equity securities of foreign issuers
providing the
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potential for capital appreciation and income.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF CERTAIN OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUBACCOUNTS
WHICH WILL BEST MEET YOUR NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE TRUST, VIP, VIP II, T. ROWE AND DGPF ALONG WITH THIS PROSPECTUS. THE
MONEY MARKET PORTFOLIO OF VIP AND CERTAIN OTHER PORTFOLIOS OFFERED BY THE
UNDERLYING INVESTMENT COMPANIES ARE NOT AVAILABLE UNDER THE POLICIES.
IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE AVAILABILITY OF
PARTICULAR SUBACCOUNTS.
In the event of a material change in the investment policy of a Subaccount or
the Underlying Fund in which it invests, you will be notified of the change. If
you have Policy Value in that Subaccount, the Company will transfer it without
charge on written request by you to another Subaccount or to the General
Account, where available. The Company must receive your written request within
sixty (60) days of the later of (1) the effective date of such change in the
investment policy or (2) the receipt of the notice of your right to transfer.
INVESTMENT ADVISORY SERVICES TO THE TRUST - The overall responsibility for the
supervision of the affairs of the Trust vests in the Trustees. The Trust has
entered into a Management Agreement with Allmerica Investment Management
Company, Inc. ("Allmerica Investment"), an indirect wholly-owned subsidiary of
First Allmerica, to handle the day-to-day affairs of the Trust. Allmerica
Investment, subject to review by the Trustees, is responsible for the general
management of the Funds. Allmerica Investment is also obligated to perform
certain administrative and management services for the Trust, furnishes to the
Trust all necessary office space, facilities, and equipment, and pays the
compensation, if any, of officers and Trustees who are affiliated with Allmerica
Investment.
Other than the expenses specifically assumed by Allmerica Investment under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by it, including fees and expenses associated with the registration and
qualification of the Trust's shares under the Securities Act of 1933, other fees
payable to the Commission, independent public accountant, legal and custodian
fees, association membership dues, taxes, interest, insurance premiums,
brokerage commission, fees and expenses of the Trustees who are not affiliated
with Allmerica Investment, expenses for proxies, prospectuses, and reports to
shareholders, and other expenses.
Pursuant to the Management Agreement with the Trust, Allmerica Investment has
entered into agreements ("Sub-Adviser Agreements") with other investment
advisers ("Sub-Advisers") under which each Sub-Adviser manages the investments
of one or more of the Funds. Under the Sub-Adviser Agreement, the Sub-Adviser is
authorized to engage in portfolio transactions on behalf of the applicable Fund,
subject to such general or specific instructions as may be given by the
Trustees. The terms of a Sub-Adviser Agreement cannot be materially changed
without the approval of a majority in interest of the shareholders of the
affected Fund.
The Sub-Advisers for each of the Funds are as follows:
Growth Fund Miller, Anderson & Sherrerd
Investment Grade Income Fund Allmerica Asset Management, Inc.
Money Market Fund Allmerica Asset Management, Inc
Equity Index Fund Allmerica Asset Management, Inc.
Government Bond Fund Allmerica Asset Management, Inc.
Select International Equity Fund Bank of Ireland Asset Management Limited
Select Aggressive Growth Fund Nicholas-Applegate Capital Management
Select Capital Appreciation Janus Capital Corporation
Select Growth Fund United Asset Management Corporation
Select Growth and Income Fund John A. Levin & Co., Inc.
Small Cap Value Fund David L. Babson & Co. Inc.
Allmerica Asset Management, Inc. is an indirect wholly owned subsidiary of the
Company.
For providing its services under the Management Agreement, Allmerica Investment
will receive a fee, computed daily at an annual rate based on the average daily
net asset value of each Fund as follows:
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Fund Net Asset Value Rate
---- --------------- ----
Growth First $50 million 0.60%
$50 - 250 million 0.50%
Over $250 million 0.35%
Investment Grade First $50 million 0.50%
Income $50 - 250 million 0.35%
Over $250 million 0.25%
Money Market First $50 million 0.35%
$50 - 250 million 0.25%
Over $250 million 0.20%
Equity Index First $50 million 0.35%
$50 - 250 million 0.30%
Over $250 million 0.25%
Government Bond * 0.50%
Select International * 1.00%
Equity
Select Aggressive * 1.00%
Growth
Select Capital Appreciation * 1.00%
Select Growth * 0.85%
Select Growth and * 0.75%
Income
Small Cap Value * 0.85%
* For the Government Bond Fund, Select International Equity Fund, Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Growth Fund,
Select Growth and Income Fund and Small Cap Value Fund, each rate applicable to
Allmerica Investment does not vary according to the level of assets in the Fund.
Allmerica Investment's fee computed for each Fund will be paid from the assets
of such Fund. Allmerica Investment is solely responsible for the payment of all
fees for investment management services to the Sub-Advisers, who will receive
from Allmerica Investment a fee, computed daily at an annual rate based on the
average daily net asset value of each Fund as follows:
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<TABLE>
<CAPTION>
Sub-Adviser Fund Net Asset Value Rate
----------- ---- --------------- ----
<S> <C> <C> <C>
Miller, Anderson Growth * *
& Sherrerd
Allmerica Asset Management, Investment Grade Income ** 0.20%
Inc.
Allmerica Asset Management, Money Market ** 0.10%
Inc.
Allmerica Asset Management, Equity Index ** 0.10%
Inc.
Allmerica Asset Management, Government Bond ** 0.20%
Inc.
Bank of Ireland Asset Select Int'l Equity First $50 million 0.45%
Management Limited Next $50 million 0.40%
Over $100 million 0.30%
Nicholas-Applegate Capital Select Aggressive Growth ** 0.60%
Management
Janus Capital Corporation Select Capital Appreciation First $100 million 0.60%
Over $100 million 0.55%
United Asset Management Select Growth First $50 million 0.50%
Corporation $50 - 100 million 0.45%
$150 - 250 million 0.35%
$250 - 350 million 0.30%
Over $350 million 0.25%
John A. Levin & Co., Inc. Select Growth and Income First $100 million 0.40%
Next $200 million 0.25%
Over $300 million 0.30%
David L. Babson & Co. Small Cap Value ** 0.50%
</TABLE>
* Allmerica Investment will pay a fee to Miller, Anderson & Sherrerd based on
the aggregate assets of the Growth Fund and certain other accounts of First
Allmerica and its affiliates (collectively, the "Affiliated Accounts") which
are managed by Miller, Anderson & Sherrerd, under the following schedule:
Aggregate Average Net Assets Rate
---------------------------- ----
First $50 million 0.500%
$50 - 100 million 0.375%
$100 - 500 million 0.250%
$500 - 850 million 0.200%
Over $850 million 0.150%
** For the Investment Grade Income Fund, Money Market Fund, Equity Index
Fund, Government Bond Fund, Select Aggressive Growth Fund and Small Cap
Value Fund, each rate applicable to the Sub- Advisers does not vary
according to the level of assets in the Fund.
The Prospectus of the Trust contains additional information concerning the
Funds, including information concerning additional expenses paid by the Funds,
and should be read in conjunction with this Prospectus.
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INVESTMENT ADVISORY SERVICES TO VIP AND VIP II - For managing investments and
business affairs, each Portfolio pays a monthly fee to Fidelity Management. The
Prospectuses of VIP and VIP II contain additional information concerning the
Portfolios, including information concerning additional expenses paid by the
Portfolios, and should be read in conjunction with this Prospectus.
VIP and VIP II Portfolios
The High Income Portfolio pays a monthly fee to Fidelity Management at an annual
fee rate made up of the sum of two components:
1. A group fee rate based on the monthly average net assets of all the mutual
funds advised by Fidelity Management. On an annual basis this rate cannot
rise above 0.37%, and drops as total assets in all these funds rise.
2. An individual fund fee rate of 0.45% of the High Income Portfolio's average
net assets throughout the month. One-twelfth of the annual management fee
rate is applied to net assets averaged over the most recent month, resulting
in a dollar amount which is the management fee for that month.
The Equity-Income, Growth, Asset Manager and Overseas Portfolios' fee rates are
each made of two components:
1. A group fee rate based on the monthly average net assets of all of the mutual
funds advised by Fidelity Management. On an annual basis, this rate cannot
rise above 0.52%, and drops as total assets in all these mutual funds rise.
2. An individual Portfolio fee rate of 0.20% for the Equity-Income Portfolio,
0.30% for the Growth Portfolio, 0.40% for the Asset Manager Portfolio and
0.45% for the Overseas Portfolio.
One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
Thus, the High Income Portfolio may have a fee of as high as 0.82% of its
average net assets. The Equity-Income Portfolio may have a fee of as high as
0.72% of its average net assets. The Growth Portfolio may have a fee of as high
as 0.82% of its average net assets. The Asset Manager Portfolio may have a fee
of as high as 0.92% of its average net assets. The Overseas Portfolio may have a
fee of as high as 0.97% of its average net assets. The actual fee rate may be
less depending on the total assets in the funds advised by Fidelity Management.
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE - The Investment Adviser for the
International Stock Portfolio is Price-Fleming International, Inc.
("Price-Fleming"). Price-Fleming, founded in 1979 as a joint venture between T.
Rowe Price Associates, Inc. and Robert Fleming Holdings, Limited, is one of
America's largest international mutual fund asset managers with approximately
$20 billion under management in its offices in Baltimore, London, Tokyo and Hong
Kong. To cover investment management and operating expenses, the International
Stock Portfolio pays Price-Fleming a single, all- inclusive fee of 1.05% of its
average daily net assets.
INVESTMENT ADVISORY SERVICES TO DGPF - Each Series of DGPF pays an investment
adviser an annual fee for managing the portfolios and making the investment
decisions for the Series. The investment adviser for the International Equity
Series is Delaware International Advisers Ltd. ("Delaware International"). The
annual fee paid by the International Equity Series is equal to 0.75% of the
average daily net assets of the Series.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The Company reserves the
right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Fund are no longer
available for investment or if in the Company's judgment further investment in
any Underlying Fund should become inappropriate in view of the purposes of the
Separate Account or the affected Subaccount, the Company may redeem the shares
of that Underlying Fund and substitute shares of another registered open-end
management company. The Company will not substitute any shares attributable to a
Policy interest in a Subaccount without notice to the Policy Owner and prior
approval of the Commission and state insurance authorities, to the extent
required by the 1940 Act or other applicable law. The Separate Account may, to
the extent permitted by law, purchase other securities for other policies or
permit a conversion between policies upon request by a Policy Owner.
The Company also reserves the right to establish additional Subaccounts of the
Separate Account, each of which would invest in shares corresponding to a new
Underlying Fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required Commission
approval, the Company may, in its sole discretion,
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<PAGE>
establish new Subaccounts or eliminate one or more Subaccounts if marketing
needs, tax considerations or investment conditions warrant. Any new Subaccounts
may be made available to existing Policy Owners on a basis to be determined by
the Company.
Shares of the Underlying Funds are also issued to separate accounts of the
Company and its affiliates which issue variable life policies ("mixed funding").
Shares of the Portfolios are also issued to other unaffiliated insurance
companies ("shared funding"). It is conceivable that in the future such mixed
funding or shared funding may be disadvantageous for variable life Policy Owners
or variable annuity Policy Owners. Although the Company and the Underlying
Investment Companies do not currently foresee any such disadvantages to either
variable life insurance Policy Owners or variable annuity Policy Owners, the
Company and the respective Trustees intend to monitor events in order to
identify any material conflicts between such Policy Owners and to determine what
action, if any, should be taken in response thereto. If the Trustees were to
conclude that separate funds should be established for variable life and
variable annuity Separate Accounts, the Company will bear the attendant
expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Policy to reflect the substitution or change
and will notify Policy Owners of all such changes. If the Company deems it to be
in the best interest of Policy Owners, and subject to any approvals that may be
required under applicable law, the Separate Account or any Subaccount(s) may be
operated as a management company under the 1940 Act, may be deregistered under
the 1940 Act if registration is no longer required, or may be combined with
other Subaccounts or other separate accounts of the Company.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Subaccount in
accordance with instructions received from Policy Owners and, after Annuity
Date, from the Annuitants. Each person having a voting interest in a Subaccount
will be provided with proxy materials of the Underlying Fund together with a
form with which to give voting instructions to the Company. Shares for which no
timely instructions are received will be voted in proportion to the instructions
which are received. The Company will also vote shares in a Subaccount that it
owns and which are not attributable to Policies in the same proportion. If the
1940 Act or any rules thereunder should be amended or if the present
interpretation of the 1940 Act or such rules should change, and as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Policies, the Company reserves the
right to do so.
The number of votes which a Policy Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Fund.
During the accumulation period, the number of Underlying Fund shares
attributable to each Policy Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Policy by the
net asset value of one Underlying Fund share.
During the annuity period, the number of Underlying Fund shares attributable to
each Annuitant will be determined by dividing the reserve held in each
Subaccount for the Annuitant's variable annuity by the net asset value of one
Underlying Fund share. Ordinarily, the Annuitant's voting interest in the
Underlying Fund will decrease as the reserve for the variable annuity is
depleted.
CHARGES AND DEDUCTIONS
Deductions under the Policies and charges against the assets of the Subaccounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Funds are described in the Prospectuses and Statements of Additional
Information of the Trust, VIP, VIP II, T. Rowe Price and DGPF.
A. Contingent Deferred Sales Charge.
No charge for sales expense is deducted from purchase payments at the time the
payments are made. However, a contingent deferred sales charge is deducted from
the Accumulated Value of the Policy in the case of surrender and/or partial
redemption of the Policy or at the time annuity payments begin, within certain
time limits described below.
For purposes of determining the contingent deferred sales charge, the Policy
Value is divided into three categories: (1) New Payments - purchase payments
received by the Company during the nine years preceding the date of the
surrender; (2) Old Payments - purchase payments not defined as New Payments; and
(3) Earnings - the amount of Policy Value in excess of all purchase payments
that have not been previously surrendered. For purposes of determining the
amount of any contingent deferred sales charge, surrenders will be deemed to be
taken first from Old Payments, then from New Payments. Old Payments may be
withdrawn from the Policy at any time without the imposition of a contingent
deferred sales charge. If a
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<PAGE>
withdrawal is attributable all or in part to New Payments, a contingent deferred
sales charge may apply.
No contingent deferred sales charge is imposed, and no commissions are paid, on
Policies issued after December 31, 1992 where the Policy Owner and Annuitant as
of the date of application are both within the following class of individuals:
All employees of First Allmerica located at First Allmerica's home office (or
at off-site locations if such employees are on First Allmerica's home office
payroll); all directors of First Allmerica; all retired employees; all
spouses and immediate family members of such employees, directors and
retirees, who reside in the same household; and beneficiaries who receive a
death benefit under a deceased employee's or retiree's progress sharing plan.
For purposes of the above class of individuals, "First Allmerica" includes its
affiliates and subsidiaries; "immediate family members" means children,
siblings, parents and grandparents; "retirement date" means an employee's early,
normal or late retirement date, as defined in First Allmerica Companies' Pension
Plan or any successor plan; and "progress sharing plan" means the First
Allmerica Financial Life Insurance Company Employees' Incentive and Profit
Sharing Plan or any successor plan.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charge is modified to effect certain exchanges of annuity
contracts for the Policies. See APPENDIX C, "EXCHANGE OFFER."
Charges for Surrender and Partial Redemption. If a Policy is surrendered, or if
New Payments are redeemed, while the Policy is in force and before the Annuity
Date, a contingent deferred sales charge may be imposed. The amount of the
charge will depend upon the number of years that the New Payments, if any, to
which the withdrawal is attributed have remained credited under the Policy. Any
Free Withdrawal Amount is deducted first as described below. Additional amounts
withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for income
tax purposes.)
The Contingent Deferred Sales Charges are as follows:
Years from date of Charge as Percentage of
Payment to date of New
Withdrawal Payments Withdrawn
---------- ------------------
0-2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
The amount redeemed equals the amount requested by the Policy Owner plus the
charge, if any. The charge is applied as a percentage of the New Payments
redeemed, but in no event will the total contingent deferred sales charge exceed
a maximum limit of 8% of total gross New Payments. Such total charge equals the
aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
Free Withdrawal Amounts. In each calendar year, the Company will waive the
contingent deferred sales charge, if any, on an amount ("Free Withdrawal
Amount") equal to the greatest of (1), (2) or (3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by total
gross payments not previously redeemed ("Cumulative Earnings").
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<PAGE>
Where (2) is:
10% of the Accumulated Value as of the Valuation Date coincident with or
next following the date of receipt of the request for withdrawal, reduced by
the total amount of any prior partial redemptions made in the same calendar
year to which no contingent deferred sales charge was applied.
Where (3) is:
The amount calculated under the Company's life expectancy distribution (see
"LED Distributions," below), whether or not the withdrawal was part of such
distribution (applies only if the Policy Owner and Annuitant are the same
individual).
For example, an 81-year-old Policy Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
The Free Withdrawal Amount will first be deducted from Cumulative Earnings. If
the Free Withdrawal Amount exceeds Cumulative Earnings, the excess amount will
be deemed withdrawn from payments not previously redeemed on a last-in-
first-out ("LIFO") basis. If more than one partial withdrawal is made during the
year, on each subsequent withdrawal the Company will waive the contingent
deferred sales load, if any, until the entire Free Withdrawal Amount has been
redeemed. (For Policies issued on Form No. A3018-91, and state variations
thereof, see APPENDIX B for special provisions.)
LED Distributions. A Policy Owner who is also the Annuitant may elect to make a
series of systematic withdrawals from the Policy according to a life expectancy
distribution ("LED") option, by returning a properly signed LED request form to
the Company's Principal Office. The LED option permits the Policy Owner to make
systematic withdrawals from the Policy over his or her lifetime. The amount
withdrawn from the Policy changes each year, because life expectancy changes
each year that a person lives. For example, actuarial tables indicate that a
person age 70 has a life expectancy of 16 years, but a person who attains age 86
has a life expectancy of another 6.5 years.
If a Policy Owner elects the LED option, in each policy year a fraction of the
Accumulated Value is withdrawn from the Policy based on the Policy Owner's then
life expectancy. The numerator of the fraction is 1 (one) and the denominator of
the fraction is the remaining life expectancy of the Policy Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value of the Policy at the beginning of the year to
determine the amount to be distributed during the year. The Policy Owner may
elect monthly, bimonthly, quarterly, semiannual, or annual distributions, and
may terminate the LED option at any time. The Policy Owner may also elect to
receive distributions under an LED option which is determined on the joint life
expectancy of the Policy Owner and a beneficiary. The Company may also offer
other systematic withdrawal options.
If a Policy Owner makes withdrawals under the LED distribution prior to age 59
1/2, the withdrawals may be treated by the IRS as premature distributions from
the Policy. The payments would then be taxed on an "income first" basis, and be
subject to a 10% federal tax penalty. For more information, see "FEDERAL TAX
CONSIDERATIONS," "B. Taxation of the Policies in General."
Surrenders. In the case of a complete surrender, the amount received by the
Policy Owner is equal to the entire Accumulated Value under the Policy, net of
the applicable contingent deferred sales charge on New Payments, the Policy Fee,
and any tax withholding, if applicable. Subject to the same rules that are
applicable to partial redemptions, the Company will not assess a contingent
deferred sales charge on a Free Withdrawal Amount. Because Old Payments count in
the calculation of the Free Withdrawal Amount, if Old Payments equal or exceed
the Free Withdrawal Amount, the Company may assess the full applicable
contingent deferred sales charge on New Payments.
Where a Policy Owner who is trustee under a pension plan surrenders, in whole or
in part, a Policy on a terminating employee, the trustee will be permitted to
reallocate all or a part of the total Accumulated Value under the Policy to
other policies issued by the Company and owned by the trustee, with no deduction
for any otherwise applicable contingent deferred sales charge. Any such
reallocation will be at the unit values for the Subaccounts as of the valuation
date on which a written, signed request is received at the Company's Principal
Office.
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For further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining under the Policy in the case of
partial redemption, and important tax considerations, see "Surrender" and
"Partial Redemption" under "THE VARIABLE ANNUITY POLICIES," and see "FEDERAL TAX
CONSIDERATIONS."
Charge at the Time Annuity Payments Begin. If a period certain option is chosen
(Option V or the comparable fixed annuity option), a contingent deferred sales
charge will be deducted from the Accumulated Value of the Policy if the Annuity
Date occurs at any time during the surrender charge period. Such charge is the
same as that which would apply had the policy been surrendered on the Annuity
Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any policy year under an option involving a life contingency (Options I, II,
III, IV-A, IV-B or the comparable fixed annuity options).
If an owner of a fixed annuity policy issued by the Company wishes to elect a
variable annuity option, the Company may permit such owner to exchange, at the
time of annuitization, the fixed policy for a Policy offered in this Prospectus.
The proceeds of the fixed policy, minus any contingent deferred sales charge
applicable under the fixed policy if a period certain option is chosen, will be
applied towards the variable annuity option desired by the owner. The number of
Annuity Units under the option will be calculated using the Annuity Unit values
as of the 15th of the month preceding the Annuity Date.
Sales Expense. The Company pays sales commissions equal to 5% (4% on policies
originally issued as part of a 401(k) plan) of the purchase payments to
registered representatives of Allmerica Investments, Inc. Managers who supervise
the agents will receive overriding commissions ranging up to no more than 2% of
purchase payments.
The Company intends to recoup the commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges, described above,
and the investment earnings on amounts allocated to accumulate on a fixed basis
in excess of the interest credited on fixed accumulations by the Company. There
is no additional charge to Policy Owners or the Separate Account. Any contingent
deferred sales charges assessed on a Policy will be retained by the Company
except for amounts it may pay to Allmerica Investments, Inc. for services it
performs and expenses it may incur as principal underwriter and general
distributor. Alternative commission schedules are available with lower initial
commission amounts based on purchase payments, plus ongoing annual compensation
of up to 1% of contract value.
B. Premium Taxes.
Some states and municipalities impose a premium tax on variable annuity
policies. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when purchase payments were
received, to the extent permitted in your Policy the premium tax charge is
deducted on a pro rata basis when partial withdrawals are made, upon
surrender of the Policy, or when annuity payments begin (the Company
reserves the right instead to deduct the premium tax charge for these
Policies at the time the purchase payments are received); or
(2) the premium tax charge is deducted when annuity payments begin. In no event
will a deduction be taken before the Company has incurred a tax liability
under applicable state law.
If no amount for premium tax was deducted at the time the purchase payment was
received, but subsequently tax is determined to be due prior to the Annuity
Date, the Company reserves the right to deduct the premium tax from the Policy
value at the time such determination is made.
C. Policy Fee.
A Policy Fee currently is deducted on the policy anniversary date and upon full
surrender of the Policy when the Accumulated Value is $50,000 or less. The
Policy Fee will be the lesser of $30 or 3% of the Accumulated Value under the
Policy on the policy anniversary or full surrender date. The Policy Fee is
waived for policies issued to and maintained by the Trustee of a 401(k) plan.
Where policy value has been allocated to more than one account (General Account
and/or one or more of the Subaccounts), a percentage of the total Policy Fee
will be deducted from the Policy Value in each account. The portion of the
charge deducted from each account will be equal to the percentage which the
Policy Value in that account represents of the total Accumulated Value under the
Policy. The deduction of the Policy Fee will result in cancellation of a number
of Accumulation Units equal in value to the percentage of the charge deducted
from that account.
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D. Annual Charges Against Separate Account Assets.
Mortality and Expense Risk Charge - The Company makes a charge of 1.25% on an
annual basis of the daily value of each Subaccount's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Policies. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
guarantee that it will make annuity payments in accordance with annuity rate
provisions established at the time the Policy is issued for the life of the
Annuitant (or in accordance with the annuity option selected), no matter how
long the Annuitant (or other payee) lives and no matter how long all Annuitants
as a class live. Therefore, the mortality charge is deducted during the annuity
phase on all contracts, including those that do not involve a life contingency,
even though the Company does not bear direct mortality risk with respect to
variable annuity settlement options that do not involve life contingencies. The
expense risk arises from the Company's guarantee that the charges it makes will
not exceed the limits described in the Policies and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
Administrative Expense Charge - The Company assesses each Subaccount with a
daily charge at an annual rate of 0.20% of the average daily net assets of the
Subaccount. The charge is imposed during both the accumulation period and the
annuity period. The daily Administrative Expense Charge is assessed to help
defray administrative expenses actually incurred in the administration of the
Subaccount, without profits. However, there is no direct relationship between
the amount of administrative expenses imposed on a given policy and the amount
of expenses actually attributable to that policy.
Deductions for the Policy Fee (described under C. Policy Fee) and for the
Administrative Expense Charge are designed to reimburse the Company for the cost
of administration and related expenses and are not expected to be a source of
profit. The administrative functions and expense assumed by the Company in
connection with the Separate Account and the Policies include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
Transfer Charge - The Company currently makes no charge for transfers. The
Company guarantees that the first six transfers in a Policy Year will be free of
charge, but reserves the right to assess a charge, guaranteed never to exceed
$25, for the seventh and each subsequent transfer in a Policy Year.
The Policy Owner may have automatic transfers of at least $100 a month made on a
periodic basis (a) from Subaccount 3 or Sub-Account 5 (which invest in the Money
Market Fund and Government Bond Fund of the Trust, respectively) to one or more
of the other Subaccounts or (b) in order to reallocate Policy Value among the
Subaccounts. Automatic transfers may be made on a monthly, bimonthly, quarterly,
semiannual or annual schedule. The first automatic transfer counts as one
transfer towards the six transfers which are guaranteed to be free in each
policy year. For more information, see "The Policy Transfer Privilege."
Other Charges - Because the Subaccounts purchase shares of the Underlying Funds,
the value of the net assets of the Subaccounts will reflect the investment
advisory fee and other expenses incurred by the Underlying Funds. The Prospectus
and Statement of Additional Information of the Trust, VIP, VIP II, T. Rowe and
DGPF contain additional information concerning expenses of the Underlying Funds.
THE VARIABLE ANNUITY POLICIES
The Policies are designed for use in connection with several types of retirement
plans as well as for sale to individuals. Participants under such plans, as well
as Policy Owners, Annuitants, and beneficiaries, are cautioned that the rights
of any person to any benefits under such Policies may be subject to the terms
and conditions of the plans themselves, regardless of the terms and conditions
of the Policies.
The Policies offered by the Prospectus may be purchased from representatives of
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers,
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Inc. (NASD). Allmerica Investments, Inc., 440 Lincoln Street, Worcester,
Massachusetts, 01653, is indirectly wholly-owned by First Allmerica. The
Policies also may be purchased from certain independent broker-dealers which are
NASD members.
Policy Owners may direct any inquiries to Allmerica Financial Customer Services,
Allmerica Financial Life Insurance and Annuity Company, 440 Lincoln Street,
Worcester, Massachusetts 01653.
A. Purchase Payments.
Purchase payments are payable to the Company. The initial payment will be
credited to the Policy as of the date that the properly completed application
which accompanies the payment is received by the Company at its principal
office. If an application is incomplete, or does not specify how payments are to
be allocated among the Accounts, the initial purchase payment will be returned
within five business days. After a policy is issued, Accumulation Units will be
credited to the Policy at the unit value computed as of the Valuation Date that
a purchase payment is received at the Company's principal office.
Purchase payments are not limited as to frequency and number, but there are
certain limitations as to amount. Generally, the initial payment must be at
least $600. Under a salary deduction or a monthly automatic payment plan, the
minimum initial payment is $50. In all cases, each subsequent payment must be at
least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's average
annual contribution per eligible plan participant is at least $600. Total
payments may not exceed the maximum limit specified in the Policy. If the
payments are divided among two or more accounts, a net amount of at least $10 of
each payment must be allocated to each account.
Generally, payments will be allocated among the Accounts according to the Policy
Owner's instructions when the Policy is issued. However, to the extent permitted
by state law, if the Policy is issued in Georgia, Indiana, Michigan, Missouri,
New York, North Carolina, Oklahoma, South Carolina, Texas, Utah, Washington,
West Virginia or in connection with an IRA, for the first 14 days following the
date of issue, all Separate Account allocations will be held in Subaccount 3
(the Money Market Fund of the Trust). For California senior citizens age 60 and
older, all Separate Account allocations will be held in Subaccount 3 for 34 days
following the date of issue because of the extended California free-look right
for these individuals. Thereafter, all amounts will be allocated according to
the Policy Owner's instructions. The Policy Owner may change allocation
instructions for new payments pursuant to written or telephone request. If
telephone requests are elected by the Policy Owner, a properly completed
authorization form must be on file before telephone requests will be honored.
The policy of the Company and its agents and affiliates is that they will not be
responsible for losses resulting from acting upon telephone requests reasonably
believed to be genuine. The Company will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine; otherwise, the Company
may be liable for any losses due to unauthorized or fraudulent instructions. The
procedures the Company follows for transactions initiated by telephone include
requirements that callers on behalf of a Policy Owner identify themselves by
name and identify the Annuitant by name, date of birth and social security
number. All transfer instructions by telephone are tape recorded.
B. Transfer Privilege
At any time prior to the Annuity Date, subject to the consent of the Company, a
Policy Owner may have amounts transferred among the Subaccounts or between a
Subaccount and the General Account, where available. Transfer values will be
affected at the Accumulation Value next computed after receipt of the transfer
order. The Company will make transfers pursuant to written or telephone
requests. As discussed in "A. Purchase Payments," a properly completed
authorization form must be on file before telephone requests will be honored.
The Policy Owner may have automatic transfers of at least $100 made on a
periodic basis from Subaccount 3 or Subaccount 5 (which invest in the Money
Market Fund and Government Bond Fund of the Trust, respectively) to one or more
of the other Subaccounts or to reallocate Policy value among the Subaccounts.
Automatic transfers may be made on a one, two or three month schedule. The first
automatic transfer counts as one transfer towards the six transfers which are
guaranteed to be free in each policy year.
Automatic transfers may also be made from policy value allocated to the
Company's General Account (a) to one or more of the Subaccounts or (b) in order
to reallocated policy value among the Subaccounts. Automatic transfers from the
General Account may be made on a monthly, bimonthly, or quarterly basis,
provided that: (i) the amount of each monthly transfer cannot exceed 10% of
policy value in the General Account as of the date of the first transfer,
(ii) each bimonthly transfer cannot exceed 20% of policy value in the General
Account as of the date of the first transfer, (iii) each quarterly transfer
cannot exceed 25% of policy value in the General Account as of the date of the
first transfer.
Except in Texas and New York, no other transfers are permitted from the General
Account except during the 30-day period beginning on each policy anniversary.
During that 30 day annual "window" period, any amount (up to 100%) of policy
value in the General Account may be transferred. These rules are subject to
change by the Company. In Texas and New York, transfers from the General Account
are also permitted if (a) there has been at least a ninety (90) day period since
the last transfer from the General Account; and (b) the amount transferred from
the General Account in each transfer does not exceed the lesser of $100,000 or
$25 of the Accumulated Value under the Policy.
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The transfer privilege is subject to the consent of the Company. The Company
reserves the right to impose limitations on transfers including, but not limited
to: (1) the minimum amount that may be transferred, (2) the minimum amount that
may remain in a Subaccount following a transfer from that Subaccount, (3) the
minimum period of time between transfers involving the General Account, and
(4) the maximum amount that may be transferred each time from the General
Account.
Currently, the Company makes no charge for transfers. The first six (6)
transfers in a Policy year are guaranteed to be free of any charge. For each
subsequent transfer in a Policy year the Company reserves the right to assess a
charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
C. Surrender.
At any time prior to the Annuity Date, a Policy Owner may surrender the Policy
and receive its Accumulated Value, less applicable charges ("Surrender Amount").
The Policy Owner must return the Policy and a signed, written request for
surrender, satisfactory to the Company, to the Company's Principal Office. The
amount payable to the Policy Owner upon surrender will be based on the
Accumulated Value of the Policy as of the Valuation Date on which the request
and the Policy are received at the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Policy is surrendered if payments have been credited to the policy during the
last nine full policy years. See "CHARGES AND DEDUCTIONS." The Policy Fee will
be deducted upon surrender of the Policy.
After the Annuity Date, only Policies under which future annuity payments are
limited to a specified period (as specified in Annuity Option V) may be
surrendered. The Surrender Amount is the commuted value of any unpaid
installments, computed on the basis of the assumed interest rate incorporated in
such annuity payments. No contingent deferred sales charge is imposed after the
Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Subaccount in any
period during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each Separate Account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to the Company's General Account for a period not to exceed
six months.
The surrender rights of Policy Owners who are participants under Section 403(b)
plans or who are participants in the Texas Optional Retirement Program (Texas
ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems
and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
D. Partial Redemption.
At any time prior to the Annuity Date, a Policy Owner may redeem a portion of
the Accumulated Value of his or her Policy, subject to the limits stated below.
The Policy Owner must file a signed, written request for redemption,
satisfactory to the Company, at the Company's Principal Office. The written
request must indicate the dollar amount the Policy Owner wishes to receive and
the account from which such amount is to be redeemed. The amount redeemed equals
the amount requested by the Policy Owner plus any applicable contingent deferred
sales charge, as described under "CHARGES AND DEDUCTIONS."
Where allocations have been made to more than one account, a percentage of the
partial redemption may be allocated to each
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such account. A partial redemption from a Subaccount will result in cancellation
of a number of units equivalent in value to the amount redeemed, computed as of
the Valuation Date that the request is received at the Company's principal
office.
Each partial redemption must be in a minimum amount of $100. No partial
redemption will be permitted if the Accumulated Value remaining under the Policy
would be reduced to less than $1,000. Partial redemptions will be paid in
accordance with the time limitations described under "Surrender."
After the Annuity Date, only Policies under which future variable annuity
payments are limited to a specified period may be partially redeemed. A partial
redemption after the Annuity Date will result in cancellation of a number of
Annuity Units equivalent in value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Policy Owners
who are participants under Section 403(b) plans or under the Texas ORP, see
"FEDERAL TAX CONSIDERATIONS," "I. Public School Systems and Certain Tax Exempt
Organizations" and "J. Texas Optional Retirement Program."
For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
E. Death Benefit.
If the Annuitant dies (or a Policy Owner predeceases the Annuitant) prior to the
Annuity Date while the Policy is in force, the Company will pay the beneficiary
a death benefit, except where the Policy continues as provided in "F. THE SPOUSE
OF THE POLICY OWNER AS BENEFICIARY."
Upon death of the Annuitant (including a Policy Owner who is also the
Annuitant), the death benefit is equal to the greatest of (a) the Accumulated
Value under the Policy or (b) the total amount of gross payment(s) made under
the Policy reduced proportionally to reflect the amount of all prior partial
withdrawals or (c) the death benefit that would have been payable on the most
recent fifth year policy anniversary, increased for subsequent purchase payments
and reduced proportionally to reflect withdrawals after that date.
A partial withdrawal will reduce the gross payments available as a death benefit
under (b) in the same proportion that the Accumulated Value was reduced on the
date of withdrawal. For each withdrawal, the reduction is calculated by
multiplying the total amount of gross payments by a fraction, the numerator of
which is the amount of the partial withdrawal and the denominator of which is
the Accumulated Value immediately prior to the withdrawal. For example, if gross
payments total $8,000 and a $3,000 withdrawal is made when the Accumulated Value
is $12,000, the proportional reduction of gross payments available as a death
benefit is calculated as follows: The Accumulated Value is reduced by 1/4 (3,000
divided by 12,000); therefore, the gross amount available as a death benefit
under (b) will also be reduced by 1/4 (8,000 times 1/4 equals $2,000), so that
the $8,000 gross payments are reduced to $6,000. Payments made after a
withdrawal will increase the death benefit available under (b) by the amount of
the payment.
A partial withdrawal after the most recent fifth year Policy anniversary will
decrease the death benefit available under (c) in the same proportion that the
Accumulated Value was reduced on the date of the withdrawal. For example, if the
death benefit that would have been payable on the most recent fifth year Policy
anniversary is $12,000 and partial withdrawals totaling $5,000 are made
thereafter when the Accumulated Value is $15,000, the proportional reduction of
death benefit available under (c) is calculated as follows: The Accumulated
Value is reduced by 1/3 (5,000 divided by 15,000); therefore, the death benefit
that would have been payable on the most recent fifth year Policy anniversary
will also be reduced by 1/3 (12,000 times 1/3 or $4,000), so that the death
benefit available under (c) will be $8,000 ($12,000 minus $4,000). Payments made
after the most recent fifth year Policy anniversary will increase the death
benefit available under (c) by the amount of the payment. (For Policies issued
on Form No. A3018-91, and state variations thereof, see APPENDIX B for special
provisions.)
Upon death of a Policy Owner who is not the Annuitant, the death benefit is
equal to the Accumulated Value of the Policy next determined following receipt
of due proof of death received at the Principal Office. The death benefit is
paid only on the first of any joint Policy Owner to predecease the Annuitant.
The death benefit generally will be paid to the beneficiary in one sum. However,
the beneficiary may, by written request, elect one of the following options:
(1) The payment of the one sum may be delayed for a period not to exceed
five years from the date of death.
(2) The death benefit may be paid in the form of a life annuity or an
annuity for a period certain not extending beyond the beneficiary's
life expectancy. Annuity benefits must begin within one year from the
date of
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death and will be provided in accordance with the annuity options
described in "THE VARIABLE ANNUITY POLICIES - I. Description of
Variable Annuity Options."
If there is more than one beneficiary, the death benefit will be paid to such
beneficiaries in one sum unless the Company consents to pay an annuity option
chosen by the beneficiaries.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed monthly annuity payments, any unpaid amounts or
installments will be paid to the beneficiary. The Company must pay the remaining
payments at least as rapidly as under the payment option in effect on the date
of the Annuitant's death. If there is more than one beneficiary, the commuted
value of the payments, computed on the basis of the assumed interest rate
incorporated in the annuity option table on which such payments are based, shall
be paid to the beneficiaries in one sum.
With respect to any death benefit, the Accumulated Value under the Policy shall
be based on the unit values next computed after due proof of the Annuitant's
death has been received at the Company's principal office. If the beneficiary
elects to receive the death benefit in one sum, the death benefit will be paid
within seven business days. If the beneficiary has not elected an annuity option
within one year from the date notice of death is received by the Company, the
Company will pay the death benefit in one sum. The death benefit will reflect
any earnings or losses experienced during the period and any withdrawals.
F. The Spouse of the Policy Owner as Beneficiary.
The Policy Owner's spouse, if named as the beneficiary, may by written request
continue the Policy in lieu of receiving the amount payable upon death of the
policy Owner. Upon such election, the spouse will become the new Policy Owner
(and, if the deceased Owner was also the Annuitant, the new Annuitant). All
other rights and benefits provided in the Policy will continue, except that any
subsequent spouse of such new Policy Owner will not be entitled to continue the
Policy upon such new Policy Owner's death.
G. Assignment.
The Policies, other than those sold in connection with certain qualified plans,
may be assigned by the Policy Owner at any time prior to the Annuity Date and
while the Annuitant is alive (see "FEDERAL TAX CONSIDERATIONS"). The Company
will not be deemed to have knowledge of an assignment unless it is made in
writing and filed at the Principal Office. The Company will not assume
responsibility for determining the validity of any assignment. If an assignment
of the Policy is in effect on the Annuity Date, the Company reserves the right
to pay to the assignee, in one sum, that portion of the Surrender Value of the
Policy to which the assignee appears to be entitled. The Company will pay the
balance, if any, in one sum to the Policy Owner in full settlement of all
liability under the Policy. The interest of the Policy Owner and of any
beneficiary will be subject to any assignment.
H. Electing the Form of Annuity and the Annuity Date.
Subject to certain restrictions described below, the Policy Owner has the right
(1) to select the annuity option under which annuity payments are to be made,
and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Annuity payments are
determined according to the annuity tables in the Policy, by the annuity option
selected, and by the investment performance of the Account(s) selected. To the
extent a fixed annuity is selected, Accumulated Value will be transferred to the
General Account of the Company, and the annuity payments will be fixed in
amount. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Subaccount(s) is made each month. Since the value of an
Annuity Unit in a Subaccount will reflect the investment performance of the
Subaccount, the amount of each monthly payment will vary.
The annuity option selected must produce an initial payment of at least $50. If
a combination of fixed and variable payments is selected, the initial payment on
each basis must be at least $50. The Company reserves the right to increase
these minimum amounts. If the annuity option(s) selected does not produce
initial payments which meet these minimums, the Company will pay the Accumulated
Value in one sum. Once the Company begins making annuity payments, the Annuitant
cannot make partial redemptions or surrender the annuity benefit, except in the
case where future annuity payments are limited to a "period certain" (only under
Option V or a comparable fixed option). Only beneficiaries entitled to receive
remaining payments for a "period certain" may elect to instead receive a lump
sum settlement.
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The Annuity Date is selected by the Policy Owner. To the extent permitted in
your state, the Annuity Date may be the first day of any month (a) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Policy is 75 or under, or (b) within 10 years from the date of issue of the
Policy and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of issue is between 76 and 90. The Policy Owner may elect to change the
Annuity Date by sending a request to the Company's Principal Office at least one
month before the new Annuity Date. The new Annuity Date must be the first day of
any month occurring before the Annuitant's 90th birthday. The new Annuity Date
must be within the life expectancy of the Annuitant. The Company shall determine
such life expectancy at the time a change in Annuity Date is requested. The
Internal Revenue Code and the terms of qualified plans impose limitations on the
age at which annuity payments may commence and the type of annuity option
selected. See "FEDERAL TAX CONSIDERATIONS" for further information.
If the Policy Owner does not elect otherwise, annuity payments will be made in
accordance with Option I, a variable life annuity with 120 monthly payments
guaranteed. Changes in either the Annuity Date or annuity option can be made up
to one month prior to the Annuity Date.
I. Description of Variable Annuity Options.
The Company currently provides the variable annuity options described below.
Variable annuity options may be funded through the Growth Fund, the Money Market
Fund, the Equity Index Fund, and/or the Select Growth and Income Fund.
The Company also provides fixed-amount annuity options which are comparable to
the variable annuity options. Regardless of how payments were allocated during
the accumulation period, any one of the variable annuity options or the
fixed-amount options may be selected, or any one of the variable annuity options
may be selected in combination with any one of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
OPTION I--Variable Life Annuity with 120 Monthly Payments Guaranteed
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if the payee should die before 120 monthly payments have been
paid, the monthly annuity payments will continue to the beneficiary until a
total of 120 monthly payments have been paid.
OPTION II--Variable Life Annuity
A variable annuity payable monthly only during the lifetime of the payee. It
would be possible under this option for the Annuitant to receive only one
annuity payment if the Annuitant dies prior to the due date of the second
annuity payment, two annuity payments if the Annuitant dies before the due date
of the third annuity payment, and so on. However, payments will continue during
the lifetime of the payee, no matter how long the payee lives.
OPTION III--Unit Refund Variable Life Annuity
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if (1) exceeds (2) then monthly variable annuity payments will
continue to the beneficiary until the number of such payments equals the number
determined in (1).
Where: (1) is the dollar amount of the Accumulated Value divided by the
dollar amount of the first monthly payment (which determines the
greatest number of payments payable to the beneficiary), and
(2) is the number of monthly payments paid prior to the death of the
payee,
OPTION IV-A--Joint and Survivor Variable Life Annuity
A monthly variable annuity payable jointly to two payees during their joint
lifetime, and then continuing during the lifetime of the survivor. The amount of
each payment to the survivor is based on the same number of Annuity Units which
applied during the joint lifetime of the two payees. One of the payees must be
either the person designated as the Annuitant in the Policy or the beneficiary.
There is no minimum number of payments under this option. See Option IV-B,
below.
OPTION IV-B--Joint and Two-thirds Survivor Variable Life Annuity
A monthly variable annuity payable jointly to two payees during their joint
lifetime, and then continuing thereafter during the lifetime of the survivor.
However, the amount of each monthly payment to the survivor is based upon
two-thirds of the number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be the person designated as
the Annuitant in the Policy or the beneficiary. There is no minimum number of
payments under this option. See Option IV-A, above.
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OPTION V--Period Certain Variable Annuity
A monthly variable annuity payable for a stipulated number of from one to thirty
years.
It should be noted that Option V does not involve a life contingency. In the
computation of the payments under this option, the charge for annuity rate
guarantees, which includes a factor for mortality risks, is made. Although not
contractually required to do so, the Company currently follows a practice of
permitting persons receiving payments under Option V to elect to convert to a
variable annuity involving a life contingency. The Company may discontinue or
change this practice at any time, but not with respect to Policy Owners who have
elected Option V prior to the date of any change in this practice. See "FEDERAL
TAX CONSIDERATIONS" for a discussion of the possible adverse tax consequences of
selecting Option V.
J. Norris Decision.
In the case of Arizona Governing Committee v. Norris, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a policy issued in connection with an employer-sponsored benefit plan
affected by the Norris decision will be based on the greater of (1) the
Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed unisex rates described in such Policy, regardless of whether the
Annuitant is male or female.
Although the Company believes that the Supreme Court ruling does not affect
Policies funding IRA plans that are not employer-sponsored, the Company will
apply certain aspects of the ruling to annuity benefits under such Policies,
except in those states in which it is prohibited. Such benefits will be based on
(1) the greater of the guaranteed unisex annuity rates described in the Policies
or (2) the Company's sex-distinct Non-Guaranteed Current Annuity Option Rates.
K. Computation of Policy Values and Annuity Payments.
The Accumulation Unit. Each net purchase payment is allocated to the account(s)
selected by the Policy Owner. Allocations to the Subaccounts are credited to the
Policy in the form of Accumulation Units. Accumulation Units are credited
separately for each Subaccount. The number of Accumulation Units of each
Subaccount credited to the Policy is equal to the portion of the net purchase
payment allocated to the Subaccount, divided by the dollar value of the
applicable Accumulation Unit as of the Valuation Date the payment is received at
the Company's Principal Office. The number of Accumulation Units resulting from
each payment will remain fixed unless changed by a subsequent split of
Accumulation Unit value, a transfer, a partial redemption, or surrender. The
dollar value of an Accumulation Unit of each Subaccount varies from Valuation
Date to Valuation Date based on the investment experience of that Subaccount and
will reflect the investment performance, expenses and charges of its Underlying
Funds. The value of an Accumulation Unit was set at $1.00 on the first Valuation
Date for each Subaccount.
Allocations to the General Account are not converted into Accumulation Units,
but are credited interest at a rate periodically set by the Company. See
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
The Accumulated Value under the Policy is determined by (1) multiplying the
number of Accumulation Units in each Subaccount by the value of an Accumulation
Unit of that Subaccount on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the General Account, if any.
Adjusted Gross Investment Rate. At each Valuation Date an adjusted gross
investment rate for each Subaccount for the Valuation Period then ended is
determined from the investment performance of that Subaccount. Such rate is (1)
the investment income of that Subaccount for the Valuation Period, plus capital
gains and minus capital losses of that Subaccount for the Valuation Period,
whether realized or unrealized, adjusted for provisions made for taxes, if any,
divided by (2) the amount of that Subaccount's assets at the beginning of the
Valuation Period. The adjusted gross investment rate may be either positive or
negative.
Net Investment Rate and Net Investment Factor. The net investment rate for a
Subaccount's variable accumulations for any Valuation Period is equal to the
adjusted gross investment rate of the Subaccount for such Valuation Period
decreased by the equivalent for such period of a charge equal to 1.45% per
annum. This charge cannot be increased.
The net investment factor is 1.000000 plus the applicable net investment rate.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
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For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY PAYMENTS" in the Statement of Additional Information.
The Annuity Unit. On and after the Annuity Date the Annuity Unit is a measure of
the value of the Annuitant's monthly annuity payments under a variable annuity
option. The value of an Annuity Unit in each Subaccount initially was set at
$1.00. The value of an Annuity Unit under a Subaccount on any Valuation Date
thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the product of (1) the net investment factor of
the Subaccount for the current Valuation Period and (2) a factor to adjust
benefits to neutralize the assumed interest rate. The assumed interest rate,
discussed below, is incorporated in the variable annuity options offered in the
Policy.
Determination of the First and Subsequent Annuity Payments. The first monthly
annuity payment is based upon the Accumulated Value as of a date not more than
four weeks preceding the date the first annuity payment is due. Currently,
variable annuity payments are made on the first of the month based on unit
values as of the 15th day of the preceding month.
The Policy provides annuity rates which determine the dollar amount of the first
monthly payment under each form of annuity for each $1,000 of applied value
(Accumulated Value applied under a specific annuity option to provide annuity
income payments, minus any applicable premium tax). The annuity rates in the
Policy are based on a modification of the 1983 Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. Norris Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3 1/2% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity payments will increase
over periods when the actual net investment result of the Subaccount(s) funding
the annuity exceeds the equivalent of the assumed interest rate for the period.
Variable Annuity Payments will decrease over periods when the actual net
investment result of the respective Subaccount is less than the equivalent of
the assumed interest rate for the period.
The dollar amount of the first monthly annuity payment under a life contingency
or a noncommutable period certain option of at lease a 10 year option is
determined by multiplying (1) the Accumulated Value applied under that option
(after deduction for applicable contingent deferred sales charge and premium
tax, if any) divided by $1,000, by (2) the applicable amount of the first
monthly payment per $1,000 of value. For any commutable period certain options
and for a noncommutable period certain options the Surrender Value less any
premium tax is applied. The dollar amount of the first monthly variable annuity
payment is then divided by the value of an Annuity Unit of the selected
Subaccount(s) to determine the number of Annuity Units represented by the first
payment. This number of Annuity Units remains fixed under all annuity options
except the joint and two-thirds survivor annuity option. In each subsequent
month, the dollar amount of the variable annuity payment is determined by
multiplying this fixed number of Annuity Units by the value of an Annuity Unit
on the applicable Valuation Date.
After the first payment, the dollar amount of each monthly variable annuity
payment will vary with subsequent variations in the value of the Annuity Unit of
the selected Subaccount(s). The dollar amount of each fixed amount monthly
annuity payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Policy Owners both fixed and
variable annuity rates more favorable than those contained in the Policy. Any
such rates will be applied uniformly to all Policy Owners of the same class.
For an illustration of variable annuity payment calculation using a hypothetical
example, see "ANNUITY PAYMENTS" in the Statement of Additional Information.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Policy, on redemptions or
surrenders, on annuity payments, and on the economic benefit to the Policy
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the Internal
Revenue Service (IRS).
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY POLICIES IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER SHOULD ALWAYS BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
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The Company intends to make a charge for any effect which the income, assets, or
existence of the Policies, the Separate Account or the Subaccounts may have upon
its tax. The Separate Account presently is not subject to tax, but the Company
reserves the right to assess a charge for taxes should the Separate Account at
any time become subject to tax. Any charge for taxes will be assessed on a fair
and equitable basis in order to preserve equity among classes of Policy Owners
and with respect to each Separate Account as though that Separate Account were a
separate taxable entity.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Internal Revenue Code ("Code"). The Company files a
consolidated tax return with its parent, State Mutual, and other affiliates.
The Internal Revenue Service has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
contracts under Section 817(h) of the Code. The regulations provide that the
investments of a segregated asset account underlying a variable annuity contract
are adequately diversified if no more than 55% of the value of its assets is
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. If the investments are not adequately diversified, the income on a
contract, for any taxable year of the Policy Owner, would be treated as ordinary
income received or accrued by the Policy Owner. It is anticipated that the Funds
of the Allmerica Investment Trust, the Portfolios of VIP and VIP II, the
Portfolio of T. Rowe and the Series of DGPF will comply with the diversification
requirements.
A. Qualified and Non-Qualified Policies.
From a federal tax viewpoint there are two types of variable annuity Policies,
"qualified" Policies and "non-qualified" Policies. A qualified Policy is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Policy is one that is not purchased in connection with one of the
indicated retirement plans. The tax treatment for certain partial redemptions or
surrenders will vary according to whether they are made from a qualified Policy
or a non-qualified Policy. For more information on the tax provisions applicable
to qualified Policies, see Sections D through J, below.
B. Taxation of the Policies in General.
The Company believes that the Policies described in this Prospectus will, with
certain exceptions (see K below), be considered annuity policies under Section
72 of the Internal Revenue Code (the "Code"). This section provides for the
taxation of annuities. The following discussion concerns annuities subject to
Section 72. Section 72(e)(11)(A)(ii) requires that all non-qualified deferred
annuity policies issued by the same insurance company to the same Policy Owner
during the same calendar year be treated as a single Policy in determining
taxable distributions under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the Policy is
not taxable to the Policy Owner until it is withdrawn from the Policy. If the
Policy is surrendered or amounts are withdrawn prior to the Annuity Date, to the
extent of the amount withdrawn any investment gain in value over the cost basis
of the Policy would be taxed as ordinary income. Under the current provisions of
the Code, amounts received under a non-qualified Policy prior to the Annuity
Date (including payments made upon the death of the Annuitant or Policy Owner),
or as non-periodic payments after the Annuity Date, are generally first
attributable to any investment gains credited to the Policy over the taxpayer's
basis (if any) in the Policy. Such amounts will be treated as income subject to
federal income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59-1/2. The penalty tax will not be imposed
after age 59-1/2, or if the withdrawal follows the death of the Policy Owner
(or, if the Policy Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Annuitant. Furthermore, under Section 72 of the
Code, this penalty tax will not be imposed, irrespective of age, if the amount
received is one of a series of "substantially equal" periodic payments made at
least annually for the life or life expectancy of the payee. This requirement is
met when the Policy Owner elects to have distributions made over the Policy
Owner's life expectancy, or over the joint life expectancy of the Policy Owner
and beneficiary. The requirement that the amount be paid out as one of a series
of "substantially equal" periodic payments is met when the number of units
withdrawn to make each distribution is substantially the same.
In a private letter ruling, the IRS took the position that where distributions
from a variable annuity policy were determined by amortizing the accumulated
value of the policy over the taxpayer's remaining life expectancy (such as under
the Policy's life expectancy distribution ("LED") option), and the option could
be changed or terminated at any time, the distributions failed to qualify as
part of a "series of substantially equal payments" within the meaning of Section
72 of the Code. The distributions were therefore subject to the 10% federal
penalty tax. This private letter ruling may be applicable to a Policy Owner who
receives distributions under the LED option prior to age 59 1/2. Subsequent
private letter rulings, however, have
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treated LED-type withdrawal programs as effectively avoiding the 10% penalty
tax. The position of the IRS on this issue is unclear.
If the Policy Owner transfers (assigns) the Policy to another individual as a
gift prior to the Annuity Date, the Code provides that the Policy Owner will
incur taxable income at the time of the transfer. An exception is provided for
certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the Surrender Value of the
Policy over the Policy Owner's cost basis at the time of the transfer. The
transfer is also subject to federal gift tax provisions. Where the Policy Owner
and Annuitant are different persons, the change of ownership of the Policy to
the Annuitant on the Annuity Date, as required under the Policy, is a gift and
will be taxable to the Policy Owner as such. However, the Policy Owner will not
incur taxable income. Rather the Annuitant will incur taxable income upon
receipt of annuity payments as discussed below.
When annuity payments are commenced under the Policy, generally a portion of
each payment may be excluded from gross income. The excludable portion is
generally determined by a formula that establishes the ratio that the cost basis
of the Policy bears to the expected return under the Policy. The portion of the
payment in excess of this excludable amount is taxable as ordinary income. Once
all cost basis in the Policy is recovered, the entire payment is taxable. If the
last Annuitant dies before cost basis is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.
C. Tax Withholding and Penalties.
The Code requires withholding with respect to payments or distributions from
employee benefit plans, annuities, and IRAs, unless a taxpayer elects not to
have withholding. In addition, the Code requires reporting to the IRS of the
amount of income received with respect to payment or distributions from
annuities.
In certain situations, the Code provides for a tax penalty if, prior to death,
disability or attainment of age 59 1/2, a Policy Owner makes a withdrawal or
receives any amount under the Policy, unless the distribution is in the form of
a life annuity (including life expectancy distributions). The penalty is 10% of
the amount includible in income by the Policy Owner.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Policies offered by this Prospectus will vary according to whether
the amount redeemed or surrendered is allocable to an investment in the Policy
made before or after certain dates.*
D. Provisions Applicable to Qualified Employer Plans.
The tax rules applicable to qualified employer plans, as defined by the Code,
vary according to the type of plan and the terms and conditions of the plan
itself. Therefore, the following is general information about the use of the
Policies with various types of qualified plans. The rights of any person to any
benefits under such qualified plans will be subject to the terms and conditions
of the qualified plans themselves regardless of the terms and conditions of the
Policy.
A loan to a participant or beneficiary from plans qualified under Sections 401
and 403 or an assignment or pledge of an interest in such a plan is generally
treated as a distribution. This general rule does not apply to loans which
contain certain repayment terms and do not exceed a specified maximum amount, as
required under Section 72(p).
E. Qualified Employee Pension and Profit Sharing Trusts and Qualified Annuity
Plans.
When an employee (including a self-employed individual) or one or more of the
employee's beneficiaries receives a "lump sum" distribution (a distribution from
a qualified plan described in Code Section 401(a) within one taxable year equal
to the total amount payable with respect to such an employee) the taxable
portion of such distribution may qualify for special treatment under a special
five-year income averaging provision of the Code. The employee must have had at
least 5 years of participation under the plan, and the lump sum distribution
must be made after the employee has attained age 59 1/2 or on account of his or
her death, separation from the employer's service (in the case of a common-law
employee) or disability (in the case of a self-employed individual). Such
treatment can be elected for only one taxable year once the individual has
reached age 59 1/2. An employee who attained age 50 before January 1, 1986 may
elect to treat part of the taxable portion of a lump-sum distribution as
long-term capital gain and may also elect 10-year averaging instead of five-year
averaging.
The Company can provide prototype plans for certain of the pension or profit
sharing plans for review by your legal counsel. For information, ask your agent.
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F. Self-Employed Individuals.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended, frequently
referred to as "H.R. 10", allows self-employed individuals and partners to
establish qualified pension and profit sharing trusts and annuity plans to
provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements applicable
to corporate qualified plans, with some special restrictions imposed on
"owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
G. Individual Retirement Account Plans.
Any individual who earns "compensation" (as defined in the Code and including
alimony payable under a court decree) from employment or self-employment,
whether or not he or she is covered by another qualified plan, may establish an
Individual Retirement Account or Annuity plan ("IRA") for the accumulation of
retirement savings on a tax-deferred basis. Income from investments is not
included in "compensation." The assets of an IRA may be invested in, among other
things, annuity policies including the Policies offered by this Prospectus.
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the above-described
limit on each. An individual with an IRA may establish an additional IRA for a
non-working spouse if they file a joint return. Contributions to the two IRAs
together are deductible up to the lesser of $2,250 or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be deducted,
taxes on their earnings are deferred until the earnings are distributed. The
maximum permissible non-deductible contribution is $2,000 for an individual
taxpayer and $2,250 for a taxpayer and non-working spouse. These limits are
reduced by the amount of any deductible contributions made by the taxpayer.
Contributions may be made with respect to a particular year until the due date
of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2, and failure to
make adequate distributions at this time may result in certain adverse tax
consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a
non-deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's tax
return to enable the IRS to determine the proportion of the IRA balance which
represents non-deductible contributions. If the required information is
provided, that part of the amount withdrawn which is proportionate to the
individual's aggregate non-deductible contributions over the aggregate balance
of all of the individual's IRAs, is excludable from income.
Distributions which are a return of a non-deductible contribution are
non-taxable, as they represent a return of basis. If the required information is
not provided to the IRS, distributions from an IRA to which both deductible and
non-deductible contributions have been made are presumed to be fully taxable.
H. Simplified Employee Pensions.
Employees may establish simplified employee pensions ("SEPs") under Code Section
408(k) if certain requirements are met.
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A SEP is an IRA to which the employer contributes under a written formula.
Currently, a SEP may accept employer contributions each year up to $30,000 or
15% of compensation (as defined), whichever is less. To establish SEPs the
employer must make a contribution for every employee age 21 and over who has
performed services for the employer for at least three of the five immediately
preceding calendar years and who has earned at least $300 for the year.
The employer's contribution is excluded from the employee's gross income for the
taxable year for which it was made up to the $30,000/15% limit. In addition to
the employer's contribution, the employee may contribute 100% of the employee's
earned income, up to $2,000, to the SEP, but such contributions will be subject
to the rules described above in "F. Individual Retirement Account Plans."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
I. Public School Systems and Certain Tax-Exempt Organizations.
Under the provisions of Section 403(b) of the Code, payments made for annuity
policies purchased for employees under annuity plans adopted by public school
systems and certain organizations which are tax exempt under Section 501(c)(3)
of the Code are excludable from the gross income of such employees to the extent
that the aggregate purchase payments for such annuity policies in any year do
not exceed the maximum contribution permitted under the Code.
A Policy qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Policy Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax. The distribution restrictions are
effective for years beginning after December 31, 1988, but only with respect to
amounts that were not held under the Policy as of that date.
J. Texas Optional Retirement Program.
Under a Code Section 403(b) annuity policy issued as a result of participation
in the Texas Optional Retirement Program, distributions may not be received
except in the case of the participant's death, retirement or termination of
employment in the Texas public institutions of higher education. These
restrictions are imposed by reason of an opinion of the Texas Attorney General
interpreting the Texas laws governing the Optional Retirement Program.
K. Section 457 Plans for State Governments and Tax-Exempt Entities.
Code Section 457 allows employees of a state, one of its political subdivisions,
or certain tax-exempt entities to participate in eligible government deferred
compensation plans. An eligible plan, by its terms, must not allow deferral of
more than $7,500 or 33 1/3% of a participant's includible compensation for the
taxable year, whichever is less. Includible compensation does not include
amounts excludable under the eligible deferred compensation plan or amounts paid
into a Code Section 403(b) annuity. The amount a participant may defer must be
reduced dollar-for-dollar by elective deferrals under a SEP, 401(k) plan or a
deductible employee contribution to a 501(c)(18) plan. Under eligible deferred
compensation plans the state, political subdivision, or tax-exempt entity will
be owner of the Policy.
If an employee also participates in another eligible plan or contributes to a
Code Section 403(b) annuity, a single limit of $7,500 will be applied for all
plans. Additionally, the employee must designate how much of the $7,500 or 33
1/3% limitation will be allocated among the various plans. Contributions to an
eligible plan will serve to reduce the maximum exclusion allowance for a Code
Section 403(b) annuity. Amounts received by employees under such plans generally
are includible in gross income in the year of receipt.
L. Non-individual Owners.
Non-individual Owners (e.g., a corporation) of deferred annuity contracts
generally will be currently taxed on any increase in the cash surrender value of
the deferred annuity attributable to contributions made after February 28, 1986.
This rule does not apply to immediate annuities or to deferred annuities held by
a qualified pension plan, an IRA, a 403(b) plan, estates, employers with respect
to terminated pension plans, or a nominee or agent holding a contract for the
benefit of an individual. Corporate-owned annuities may result in exposure to
the alternative minimum tax, to the extent that income on the annuities
increases the corporation's adjusted current earnings.
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REPORTS
A Policy Owner is sent a report semi-annually which states certain financial
information about the Underlying Funds. The Company will also furnish an annual
report to the Policy Owner containing a statement of his or her account,
including unit values and other information as required by applicable law, rules
and regulations.
Loans (Qualified Policies Only)
Loans will be permitted only for TSAs and Policies issued to a plan qualified
under Section 401(a) and 401(k) of the Code. Loans are made from the Policy's
value on a pro-rata basis from all accounts. The maximum loan amount is the
amount determined under the Company's maximum loan formula for qualified plans.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Policy. Loans are subject to applicable retirement legislation and their
taxation is determined under the Federal income tax laws. The amount borrowed
will be transferred to a fixed, minimum guarantee loan assets account in the
Company's General Account, where it will accrue interest at a specified rate
below the then current loan interest rate. Generally, loans must be repaid
within five (5) years. When repayments are received, they will be allocated in
accordance with the contract owner's most recent allocation instructions.
The amount of the death benefit, the amount payable on a full surrender and the
amount applied to provide an annuity on the Annuity Date will be reduced to
reflect any outstanding loan balance (plus accrued interest thereon). Partial
withdrawals may be restricted by the maximum loan limitation.
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from any Separate Account or Subaccount to another of the
Company's separate accounts or Subaccounts having assets of the same class, (2)
to operate the Separate Account or any Subaccount as a management investment
company under the 1940 Act or in any other form permitted by law, (3) to
deregister the Separate Account under the 1940 Act in accordance with the
requirements of the 1940 Act, (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Subaccount, in the event that Underlying Fund shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the
Subaccount, (5) to change the methodology for determining the net investment
factor, and (6) to change the names of the Separate Account or of the
Subaccounts. In no event will the changes described above be made without
notice to Policy Owners in accordance with the 1940 Act.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted from
this Prospectus pursuant to the rules and regulations of the Commission. The
omitted information may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the Commission's prescribed fees.
APPENDIX A
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account are not generally subject to regulation under
the provisions of the Securities Act of 1933 or the Investment Company Act of
1940. Disclosures regarding the fixed portion of the annuity contract and the
General Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission. Allocations to and transfers to and from the General
Account of the Company are not permitted in certain states.
The General Account of the Company is made up of all of the general assets of
the Company other than those allocated to any
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Separate Account. Allocations to the General Account become part of the assets
of the Company and are used to support insurance and annuity obligations.
A portion or all of net purchase payments may be allocated to accumulate at a
fixed rate of interest in the General Account, where available. Such net amounts
are guaranteed by the Company as to principal and a minimum rate of interest.
Under the Policies, the minimum interest which may be credited on amounts
allocated to the General Account is 3% compounded annually. (For Policies issued
on Form No. A3018-91, and state variations thereof, see APPENDIX B for special
provisions.) Additional "Excess Interest" may or may not be credited at the sole
discretion of the Company.
If a Policy is surrendered, or if an Excess Amount is redeemed, while the Policy
is in force and before the Annuity Date, a contingent deferred sales charge is
imposed if such event occurs before the payments attributable to the surrender
or withdrawal have been credited to the Policy less than nine full policy years.
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PROSPECTUS B
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Deferred Combination Variable and Fixed Annuity Contracts
Funded through Subaccounts of
Separate Account VA-K Investing in Shares of
Allmerica Investment Trust, Variable Insurance Products Fund,
Variable Insurance Products Fund II, T. Rowe Price International
Series, Inc. and Delaware Group Premium Fund, Inc.
This prospectus describes interests under flexible premium deferred combination
variable and fixed annuity contracts issued either on a group basis or as
individual contracts by Allmerica Financial Life Insurance and Annuity Company
("Company") to individuals and businesses in connection with retirement plans
which may or may not qualify for special federal income tax treatment. (For
information about the tax status when used with a particular type of plan, see
"FEDERAL TAX CONSIDERATIONS.") Participation in a group contract will be
accounted for by the issuance of a certificate describing the individual's
interest under the group contract. Participation in an individual contract will
be evidenced by the issuance of an individual contract. Certificates and
individual contracts are collectively referred to herein as the "Contracts." The
following is a summary of information about these Contracts. More detailed
information can be found under the referenced captions in this Prospectus.
Contract values may accumulate on a variable basis in the contract's Variable
Account, known as Separate Account VA-K. The Assets of the Variable Account are
divided into sub-accounts, each investing exclusively in shares of an underlying
mutual fund.
In most jurisdictions, values may also be allocated on a fixed basis to the
Fixed Account, which is part of the Company's General Account and during the
accumulation period to one or more of the Guarantee Period Accounts. Amounts
allocated to the Fixed Account earn interest at a guaranteed rate for one year
from the date allocated. Amounts allocated to a Guarantee Period Account earn
a fixed rate of interest for the duration of the applicable Guarantee Period.
The interest earned in a Guarantee Period Account is guaranteed if held for the
entire guarantee period. If removed prior to the end of the Guarantee Period
the value may be increased or decreased by a market value adjustment. Assets
supporting allocation to the Guarantee Period Accounts in the accumulation phase
are held in the Company's Separate Account GPA.
This prospectus gives prospective investors information about the contract that
they should consider before investing.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE
PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC. AND DELAWARE GROUP
PREMIUM FUND, INC. THE HIGH INCOME PORTFOLIO OF VARIABLE INSURANCE PRODUCTS FUND
INVESTS IN HIGHER YIELDING, LOWER RATED DEBT SECURITIES (SEE "INVESTMENT
OBJECTIVES AND POLICIES" IN THIS PROSPECTUS). INVESTORS SHOULD RETAIN A COPY OF
THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE CONTRACTS ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE CONTRACTS ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENT IN THE
CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
DATED APRIL 30, 1996
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL
INFORMATION.................................................................. 3
SPECIAL TERMS................................................................ 4
SUMMARY...................................................................... 5
ANNUAL AND TRANSACTION EXPENSES.............................................. 7
PERFORMANCE INFORMATION...................................................... 13
WHAT IS AN ANNUITY?.......................................................... 15
RIGHT TO REVOKE OR SURRENDER ................................................ 15
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
THE TRUST, VIP, VIP II, T. ROWE PRICE AND DGPF.......................... 16
VOTING RIGHTS................................................................ 23
CHARGES AND DEDUCTIONS....................................................... 23
A. Annual Charge Against Variable Account Assets....................... 23
B. Contract Fee........................................................ 24
C. Premium Taxes....................................................... 24
D. Contingent Deferred Sales Charge.................................... 25
DESCRIPTION OF CONTRACT...................................................... 28
A. Payments............................................................ 28
B. Transfer Privilege.................................................. 28
C. Surrender........................................................... 29
D. Partial Redemption.................................................. 29
E. Death Benefit....................................................... 30
F. The Spouse of the Contract Owner as Beneficiary..................... 30
G. Assignment.......................................................... 31
H. Electing the Form of Annuity and Annuity Date ...................... 31
I. Description of Variable Annuity Options............................. 31
J. Norris Decision..................................................... 32
K. Computation of Variable Account Values and Annuity Payments......... 32
GUARANTEED PERIOD ACCOUNTS................................................... 34
FEDERAL TAX CONSIDERATIONS................................................... 35
A. Qualified and Non-Qualified Contracts............................... 36
B. Taxation of the Contracts in General................................ 36
C. Tax Withholding and Penalties....................................... 36
D. Provisions Applicable to Qualified Employee Benefit Plans........... 37
E. Qualified Employee Pension and Profit Sharing Trusts
and Qualified Annuity Plans......................................... 37
F. Self-Employed Individuals........................................... 37
G. Individual Retirement Account Plans................................. 37
H. Simplified Employee Pensions........................................ 38
I. Public School Systems and Certain Tax-Exempt Organizations ......... 38
J. Texas Optional Retirement Program................................... 38
K. Section 457 Plans for State Governments and Tax-Exempt Entities..... 39
L. Non-individual Owners............................................... 39
REPORTS. . . . . . ..................................................... 39
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<PAGE>
TABLE OF CONTENTS (continued)
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT ................................ 39
LEGAL MATTERS................................................................ 39
FURTHER INFORMATION.......................................................... 39
APPENDIX A- MORE INFORMATION ABOUT THE FIXED ACCOUNT......................... 39
APPENDIX B- EXCHANGE OFFER................................................... 40
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY............................................... 2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY.............................. 2
SERVICES...................................................................... 3
UNDERWRITERS.................................................................. 3
ANNUITY PAYMENTS.............................................................. 4
PERFORMANCE INFORMATION....................................................... 5
FINANCIAL STATEMENTS.......................................................... 9
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE OR SOLICIT AN OFFER IN THAT STATE.
-3-
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
Accumulated Value: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the Fixed Account and
Guarantee Period Accounts then credited to the Contract, on any date before the
Annuity Date..
Accumulation Unit: a measure of the Contract Owner's interest in a Subaccount
before annuity benefit payments begin.
Annuitant: the person designated in the Contract upon whose life annuity benefit
payments are to be made.
Annuity Date: the date on which annuity payments begin.
Annuity Unit: a measure of the value of the periodic annuity benefit payments
under the Contract.
Fixed Account: the part of the Company's General Account that guarantees
principal and a fixed interest rate and to which all or a portion of a payment
or transfer under this contract may be allocated.
Fixed Amount Annuity: an Annuity providing for annuity benefit payments which
remain fixed in an amount throughout the annuity payment period selected.
Guaranteed Interest Rate: the annual effective rate of interest after daily
compounding credited to a Guarantee Period Account.
Guarantee Period: the number of years that a Guaranteed Interest Rate is
credited.
Guarantee Period Account: an account which corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period and is supported by assets in a
non-unitized separate account.
General Account: all the assets of the Company other than those held in a
Separate Account.
Market Value Adjustment: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
Subaccount: a subdivision of the Variable Account. Each Subaccount available
under the Contracts invests exclusively in the shares of a corresponding fund of
Allmerica Investment Trust, a corresponding portfolio of the Variable Insurance
Products Fund or Variable Insurance Products Fund II, the International Stock
Portfolio of T. Rowe Price International Series, Inc. or a corresponding series
of Delaware Group Premium Fund, Inc.
Surrender Value: the Accumulated Value of the Contract after application of any
Contract fee, contingent deferred sales charge, and Market Value Adjustment
Contract applicable upon full surrender.
Underlying Funds: the Growth Fund, Investment Grade Income Fund, Money Market
Fund, Equity Index Fund, Government Bond Fund, Select International Equity Fund,
Select Aggressive Growth Fund, Select Capital Appreciation Fund, Select Growth
Fund, Select Growth and Income Fund and Small Cap Value Fund of Allmerica
Investment Trust; High Income Portfolio, Equity-Income Portfolio, Growth
Portfolio and Overseas Portfolio of Variable Insurance Products Fund; the Asset
Manager Portfolio of Variable Insurance Products Fund II; the International
Stock Portfolio of T. Rowe Price International Series, Inc.; and the
International Equity Series of Delaware Group Premium Fund, Inc.
Underlying Investment Companies: Allmerica Investment Trust, Variable Insurance
Products Fund, Variable Insurance Products Fund II, T. Rowe Price International
Series, Inc. and Delaware Group Premium Fund, Inc.
Valuation Date: a day on which the net asset value of the shares of any of the
Underlying Funds is determined and Unit values of the Subaccounts are
determined. Valuation dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Contract was
received) when there is a sufficient degree of trading in an Underlying Fund's
portfolio securities such that the current net asset value of the Subaccounts
may be materially affected.
Valuation Period: the interval between two consecutive Valuation Dates.
Variable Account: Separate Account VA-K, one of the Company's Separate Accounts,
consisting of assets segregated from other assets of the Company. The investment
performance of the assets of the Variable Account is determined separately from
-4-
<PAGE>
the other assets of the Company and are not chargeable with liabilities arising
out of any other business which the Company may conduct.
Variable Annuity: an Annuity providing for payments varying in amount in
accordance with the investment experience of the Growth Fund, Money Market Fund,
Equity Index Fund or Select Growth and Income Fund of Allmerica Investment
Trust.
SUMMARY
Investment Options. The Contracts permit net payments to be allocated among the
Subaccounts, the Guarantee Period Account and the Fixed Account. The Fixed
Account and/or the Guarantee Period Accounts may not be available in all states.
Similarly, not all Subaccounts may be available in all states.
Subaccounts - The Subaccounts are subdivisions of the Variable Account,
established as the Company's Separate Account, VA-K. The Variable Account is
registered as a unit investment trust under the Investment Company Act of 1940,
as amended, (the "1940 Act") but such registration does not involve the
supervision of the management or investment practices or contracts of Variable
Account by the Securities and Exchange Commission (the "SEC").
Each Subaccount available under the Contracts invests its assets without sales
charge in a corresponding investment series of the Allmerica Investment Trust
(the "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, VIP, VIP II,
T. Rowe and DGPF are open-end, diversified series 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 Equity Fund, Select Aggressive Growth Fund,
Select Capital Appreciation Fund, Select Growth Fund, Select Growth and Income
Fund and Small Cap Value Fund of Allmerica Investment Trust. Four of the
portfolios of VIP are available under the Contracts: the High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio. One of the
portfolios of VIP II is available under the Contracts: the Asset Manager
Portfolio. One of the portfolios of T. Rowe Price is available under the
Contracts: the International Stock Portfolio. One of the series of DGPF is
available under the Contracts: the International Equity Series. Each of the
Funds, Portfolios and Series available under the Contracts (together, the
"Underlying Funds") operates pursuant to different investment objectives,
discussed below.
Investment in the Subaccount. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Funds. There can be no assurance that the investment objectives of
the Underlying Funds can be achieved or that the value of a Contract will equal
or exceed the aggregate amount of the purchase payments made under the Contract.
For more information about the Variable Account, the Company and the investments
of the Underlying Funds, see "DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
THE TRUST, VIP, VIP II, T. ROWE PRICE AND DGPF." The accompanying prospectuses
of the Trust, VIP, VIP II, T. Rowe Price and DGPF describe the investment
objectives and risks of each of the Underlying Funds.
Dividends or capital gains distributions received from an Underlying Fund are
reinvested in additional shares of that Underlying Fund, which are retained as
assets of the Subaccount.
Guarantee Period Accounts - Assets supporting the guarantees under the Guarantee
Period Accounts are held in the Company's Separate Account GPA, a non-unitized
insulated separate account. However, values and benefits calculated on the basis
of Guarantee Period Account allocations are obligations of the Company's General
Account. Amounts allocated to a Guarantee Period Account earn a Guaranteed
Interest Rate declared by the Company. The level of the Guaranteed Interest Rate
depends on the number of years of the Guarantee Period selected. The Company
currently makes available seven Guarantee Periods ranging from three to ten
years in duration (excluding a four year Guarantee Period). Once declared, the
Guaranteed Interest Rate will not change during the duration of the Guarantee
Period. If amounts allocated to a Guarantee Period Account are transferred,
surrendered or applied to an annuity option at any time other than the last day
of the applicable Guarantee Period, a Market Value Adjustment will apply that
may increase or decrease the account's value. For more information about the
Guarantee Period Accounts and the Market Value Adjustment, see "GUARANTEE PERIOD
ACCOUNTS."
Fixed Account - The Fixed Account is part of the General Account which consists
of all the Company's assets other than those allocated to the Variable Account
and any other separate account. Allocations to the Fixed Account are guaranteed
as to principal and minimum rate of interest. Additional excess interest may be
declared periodically at the Company's discretion. Furthermore, the initial rate
in effect on the date an amount is allocated to the Fixed Account will be
guaranteed for one year from that date. For more information about the Fixed
Accounts see Appendix A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
Transfers Between Accounts. Prior to the Annuity Date, the Contracts permit
amounts to be transferred among and between the Subaccounts, the Guarantee
Period Accounts and the Fixed Account, subject to certain limitations described
under "Transfer Privilege."
-5-
<PAGE>
Annuity Benefit Payments. The owner of a Contract ("Contract Owner") may select
variable annuity payments based on one or more of certain Subaccounts,
fixed-amount annuity payments, or a combination of fixed-amount and variable
annuity payments.
Fixed-amount annuity payments are guaranteed by the Company.
See "DESCRIPTION OF CONTRACT" for information about annuity benefit payment
options, selecting the Annuity Date, and how annuity benefit payments are
calculated.
Revocation Rights. An individual purchasing a Contract intended to qualify as an
Individual Retirement Annuity ("IRA") may revoke the Contract within 10 days
after receipt of the Contract. In certain states Contract Owners may have
special revocation rights. For more information about revocation rights, see
"RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY" and "RIGHT TO REVOKE OR
SURRENDER IN SOME STATES."
Payment Minimums and Maximums. Under the Contracts, payments are not limited as
to frequency and number, but no payments may be submitted within one month of
the Annuity Date. Generally, the initial payment must be at least $600 and
subsequent payments must be at least $50. Under a monthly automatic payment plan
or a payroll deduction plan, each payment must be at least $50. However, in
cases where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Contract on the employee, if the plan's
average annual contribution per eligible plan participant is at least $600.
The Company reserves the right to set maximum limits on the aggregate purchase
payments made under the Contract. In addition, the Internal Revenue Code imposes
maximum limits on contributions under qualified annuity plans.
Charges and Deductions. For a complete discussion of charges, see "CHARGES AND
DEDUCTIONS."
A. Contingent Deferred Sales Charge. No sales charge is deducted from payments
at the time they are made. However, depending on the length of time that the
payments to which the withdrawal is attributed have remained credited under the
Contract a contingent deferred sales charge of up to 8% may be assessed for a
surrender, partial redemption, or election of an annuity for a commutable period
certain option or any period certain option for less than 10 years.
B. Annual Contract Fee. A Contract Fee equal of $30 will be deducted from the
Accumulated Value under the Contract for administrative expense on the Contract
anniversary, or upon full surrender of the Contract during the year, when the
Accumulated Value is $50,000 or less. The Contract Fee is waived for Contracts
issued to and maintained by the trustee of a 401(k) plan.
C. Premium Taxes. A deduction for State and local premium taxes, if any, may be
made as described under "Premium Taxes."
D. Variable Account Asset Charges. A daily charge, equivalent to 1.25% per
annum, is made on the value of each Subaccount at each Valuation Date. The
charge is retained for the mortality and expense risks the Company assumes. In
addition, to cover administrative expenses, the Company deducts a daily charge
of 0.20% per annum of the value of the average net assets in the Subaccounts.
E. Transfer Charge. The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Contract year will be
free of charge. For each subsequent transfer the Company reserves the right to
assess a charge, guaranteed never to exceed $25, to reimburse the Company for
the cost of processing the transfer. If the Contract Owner has elected automatic
transfers, the first automatic transfer will count as one transfer towards the
twelve transfers which are guaranteed to be free of charge. F. Charges of the
Underlying Fund. In addition to the charges described above, certain fees and
expenses are deducted from the assets of the Underlying Funds. These charges
vary among the Underlying Funds.
Surrender or Partial Redemption. At any time before the Annuity Date, the
Contract Owner has the right either to surrender the Contract in full and
receive its current value, minus the Contract Fee and any applicable contingent
deferred sales charge, and adjusted for any positive or negative Market Value
Adjustment or to redeem a portion of the Contract's value subject to certain
limits and any applicable contingent deferred sales charge and/or Market Value
Adjustment. There may be tax consequences for surrender or redemptions. For
further information, see "Surrender" and "Partial Redemption," "Contingent
Deferred Sales Charge," and "FEDERAL TAX CONSIDERATIONS."
Death Benefit. If the Annuitant, Contract Owner or Joint Owner should die before
the Annuity Date, a death benefit will be paid to the beneficiary. Upon death of
the Annuitant (or an Owner if that Owner is also the Annuitant), the death
benefit is equal to the greatest of (a)the Accumulated Value increased by any
positive Market Value Adjustment; (b) gross payments accumulated daily at 5%
starting on the date each payment was applied, reduced proportionately to
reflect withdrawals. For each withdrawal the proportionate reduction is
calculated as the death benefit under this option immediately prior to the
withdrawal multiplied by the withdrawal amount and divided by the Accumulated
Value immediately prior to the withdrawal; or (c) the death benefit that would
have been payable on the most recent Contract Anniversary, increased for
subsequent purchase payments and reduced proportionally to reflect withdrawals
after that date.
-6-
<PAGE>
If an Owner who is not also the Annuitant dies prior to annuitization, the death
benefit will equal the Accumulated Value of the Contract determined following
receipt of due proof of death at the Principal Office. If the Annuitant dies
after the Annuity Date but before all guaranteed annuity benefit payments have
been made, the remaining payments will be paid to the beneficiary at least as
rapidly as under the annuity option in effect. See "Death Benefit."
Sales of Contracts. The Contracts are sold by agents of the Company who are
registered representatives of Allmerica Investments, Inc., a broker-dealer
affiliate of the Company. The Contracts also may be purchased from certain other
broker-dealers which are members of the National Association of Securities
Dealers, Inc., and whose representatives are authorized by applicable law to
sell variable annuity Contracts. See "Sales Expense."
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly under the Contracts. The tables reflect charges under the
Contracts, expenses of the Subaccounts, and expenses of the Underlying Funds. In
addition to the charges and expenses described below, in some states premium
taxes may be applicable.
Contract Owner Transaction Expenses
Contingent Deferred Sales Charge The Years from Charge
charge (as a percentage of payments, date of
applied to the amount surrendered in Payment
excess of the amount, if any, which may Less than 2 8%
be surrendered free of charge) will be 3 7%
assessed upon surrender, redemption, or 4 6%
annuitization under a period certain 5 5%
option, within the indicated time 6 4%
periods. 7 3%
8 2%
9 1%
Thereafter 0%
Transfer Charge $25
The Company currently makes no charge
for transfers. The Company guarantees
that the first twelve transfers in a
Contract Year will be free of charge.
For each subsequent transfer, the
Company reserves the right to assess a
charge, guaranteed never to exceed $25,
to reimburse the Company for the costs
of processing the transfer.
Annual Contract Fee $30
A $30.00 annual Contract Fee is deducted
when Accumulated Value is $50,000 or
less. The Contract Fee is waived for
Contracts issued to and maintained by
the trustee of a 401(k) plan.
Variable Account Annual Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Variable Account Administrative Charge 0.20%
Total Annual Expenses 1.45%
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<PAGE>
<TABLE>
<CAPTION>
Allmerica Investment Trust
Invest-
ment Govern- Select
Grade Money Equity ment Intl.
Growth Income Market Index Bond Equity
Fund Annual Expenses Fund Fund Fund Fund Fund Fund
- -------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.46% 0.41% 0.29% 0.34% 0.50% 1.00%
Other Fund Expenses 0.08% 0.12% 0.07% 0.21% 0.19% 0.24%
Total Fund Annual Expenses 0.54% 0.53% 0.36% 0.55% 0.69% 1.24%
<CAPTION>
Select Select Select
Aggres- Capital Growth Small
sive Apprecia- Select and Cap
Growth tion Growth Income Value
Fund Annual Expenses Fund Fund Fund Fund Fund
- -------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Management Fees 1.00% 0.93% 0.85% 0.75% 0.85%
Other Fund Expenses 0.09% 0.42% 0.12% 0.10% 0.16%
Total Fund Annual Expenses 1.09% 1.35% 0.97% 0.85% 1.01%
</TABLE>
Under the Management Agreement with the Trust, Allmerica Investment
Management Company, Inc. ("Allmerica Investment") has declared a
voluntary expense limitation of 1.50% of average net assets for the Select
International Equity Fund, 1.35% for the Select Aggressive Growth
Fund and Select Capital Appreciation Fund, 1.25% for the Small Cap Value
Fund, 1.20% for the Growth Fund and Select Growth Fund, 1.10% for the Select
Growth and Income Fund, 1.00% for the Investment Grade Income Fund and
Government Bond Fund, and 0.60% for the Money Market Fund and Equity
Index Fund. Without the effect of the expense limitation, in 1995 the
total operation expenses of the Select Capital Appreciation Fund would have
been 1.42% of average net assets. The total operating expenses of the
Growth Fund, Investment Grade Income Fund, Money Market Fund and Government
Bond Fund were less than their respective expense limitations
throughout 1995. The declaration of a voluntary expense limitation in
any year does not bind Allmerica Investment to declare future expense
limitations with respect to any Fund.
<TABLE>
<CAPTION>
Variable Insurance Products Fund
High Income Equity-Income Growth Overseas
Fund Annual Expenses Portfolio Portfolio Portfolio Portfolio
- -------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Management Fees 0.60% 0.51% 0.61% 0.76%
Other Portfolio Expenses 0.11% 0.10% 0.09% 0.15%
----- ----- ----- -----
Total Portfolio Annual Expenses 0.71% 0.61% 0.70% 0.91%
</TABLE>
*A portion of the brokerage commissions the Portfolio paid was used to reduce
the expenses. Without this reduction, total operating expenses would have been
0.60% for the Equity-Income Portfolio and 0.70% for the Growth Portfolio.
Variable Insurance Products Fund II
Asset
Manager
Portfolio Annual Expenses Portfolio
- ------------------------- ---------
Management Fees 0.71%
Other Portfolio Expenses 0.08%
----
Total Portfolio Annual Expenses 0.79%
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<PAGE>
*A portion of the brokerage commissions the Portfolio paid was used to reduce
its expenses. Without this reduction, total operating expenses would have been
0.81% for the Asset Manager Portfolio.
T. Rowe Price International Series, Inc.
International
Stock
Fund Annual Expenses Portfolio
- -------------------- ---------
Management Fees 1.05%
Other Portfolio Expenses 0.00%
Total Fund Annual Expenses 1.05%
Delaware Group Premium Fund
International
Equity
Fund Annual Expenses Series
- -------------------- ------
Management Fees 0.66%
Other Series Expenses 0.14%
Total Fund Annual Expenses 0.80%
Delaware International Advisers Ltd., the investment adviser for the
International Equity Series, has agreed to waive its management fee and
reimburse the International Equity Series to limit certain expenses to 8/10 of
1% of the corresponding net assets. This waiver has been in effect from the
commencement of the Public offering for the Series and has been extended through
June 30, 1996. Without the effect of the expense limitation, in 1995 the total
annual expenses of the International Equity Series would have been 0.89% of
average net assets.
The following Examples demonstrate the cumulative expenses which would be paid
by the Contract Owner at 1-year, 3-year, 5-year, and 10-year intervals under
certain contingencies. Each Example assumes a $1,000 investment in a Subaccount
and a 5% annual return on assets. Because the expenses of the Underlying Funds
differ, separate Examples are used to illustrate the expenses incurred by a
Contract Owner on an investment in the various Subaccounts.
The information given under the following Examples should not be considered a
representation of past or future expenses. Actual expenses may be greater or
lesser than those shown.
(a) If at the end of the applicable period, you surrender your Contract or
annuitize* under any commutable period certain option or a noncommutable
period certain option for less than 10 years, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on assets:
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1 year 3 years 5 years 10 years
Growth Fund $94 $129 $159 $246
Investment Grade Income Fund $94 $130 $160 $248
Money Market Fund $93 $126 $153 $235
Equity Index Fund $94 $130 $159 $247
Government Bond Fund $95 $134 $166 $261
Select International Equity Fund $103 $158 $206 $338
International Stock Portfolio $99 $144 $184 $295
Select Aggressive Growth Fund $100 $147 $189 $306
Select Capital Appreciation Fund $102 $153 $198 $324
Select Growth Fund $98 $144 $183 $293
Select Growth and Income Fund $97 $140 $177 $282
Small Cap Value Fund $99 $145 $185 $298
High Income Portfolio $95 $134 $166 $262
Equity-Income Portfolio $94 $130 $160 $248
Growth Portfolio $95 $133 $165 $260
Overseas Portfolio $97 $140 $177 $283
Asset Manager Portfolio $96 $137 $171 $271
International Equity Series $96 $137 $171 $271
(b) If at the end of the applicable time period you annuitize* under a life
option or elect a noncommutable period certain option of ten years or
longer or if you do not surrender or annuitize your Contract, you would pay
the following expenses on a $1,000 investment, assuming 5% annual return on
assets:
1 year 3 years 5 years 10 years
Growth Fund $22 $67 $114 $246
Investment Grade Income Fund $22 $67 $115 $248
Money Market Fund $21 $63 $109 $235
Equity Index Fund $22 $67 $115 $247
Government Bond Fund $23 $71 $122 $261
Select International Equity Fund $31 $95 $161 $338
International Stock Portfolio $27 $81 $139 $295
Select Aggressive Growth Fund $28 $85 $144 $306
Select Capital Appreciation Fund $30 $90 $154 $324
Select Growth Fund $26 $81 $138 $293
Select Growth and Income Fund $25 $77 $132 $282
Small Cap Value Fund $27 $82 $141 $298
High Income Portfolio $23 $71 $122 $262
Equity-Income Portfolio $22 $67 $115 $248
Growth Portfolio $23 $71 $121 $260
Overseas Portfolio $25 $78 $133 $283
Asset Manager Portfolio $24 $74 $127 $271
International Equity Series $24 $74 $127 $271
- ----------
Pursuant to requirements of the 1940 Act, the contract fee has been reflected in
the Examples by a method intended to show the "average" impact of the Contract
fee on an investment in the Variable Account. The total Contract fees collected
under the Contracts by the Company are divided by the total average net assets
attributable to the Contracts. The resulting percentage is 0.12%, and the amount
of the Contract fee is assumed to be $1.20 in the Examples. The Contract Fee is
deducted only when the accumulated value is $50,000 or less. Lower costs apply
to Contracts issued as part of a 401(k) plan.
* The contract fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any contract year if a
life contingency option or a noncommutable period certain option of ten years or
longer is selected.
-10-
<PAGE>
CONDENSED FINANCIAL INFORMATION
Allmerica Financial Life Insurance and Annuity Company
Separate Account VA-K
<TABLE>
<CAPTION>
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Subaccount 1
Unit Value:
Beginning of Period ............................... 1.221 1.236 1.175 1.111
End of Period ..................................... 1.599 1.221 1.236 1.175
Number of Units Outstanding at End of ............. 116,008 102,399 72,609 34,373
Period (in thousands)
Subaccount 2
Unit Value:
Beginning of Period ................... 1.196 1.250 1.145 1.073
End of Period ......................... 1.390 1.196 1.250 1.145
Number of Units Outstanding at End of ............. 69,168 57,454 48,488 15,428
Period (in thousands)
Subaccount 3
Unit Value:
Beginning of Period ................... 1.077 1.051 1.035 1.013
End of Period ......................... 1.124 1.077 1.051 1.035
Number of Units Outstanding at End of ............. 69,311 37,668 30,815 30,778
Period (in thousands)
Subaccount 4
Unit Value:
Beginning of Period ................... 1.221 1.226 1.135 1.074
End of Period ......................... 1.640 1.221 1.226 1.135
Number of Units Outstanding at End of ............. 39,534 29,176 22,466 9,535
Period (in thousands)
Subaccount 5
Unit Value:
Beginning of Period ................... 1.152 1.179 1.112 1.075
End of Period ......................... 1.285 1.152 1.179 1.112
Number of Units Outstanding at End of ............. 31,710 32,519 60,265 29,844
Period (in thousands)
Subaccount 6
Unit Value:
Beginning of Period ................... 1.292 1.342 1.139 1.000
End of Period ......................... 1.686 1.292 1.342 1.139
Number of Units Outstanding at End of ............. 70,349 54,288 26,158 2,019
Period (in thousands)
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992
---- ---- ---- ----
Subaccount 7
<S> <C> <C> <C> <C>
Unit Value:
Beginning of Period 1.024 1.055 1.058 1.000
End of Period 1.259 1.024 1.055 1.058
Number of Units Outstanding at End of 47,078 38,415 26,064 3,039
Period (in thousands)
Subaccount 8
Unit Value:
Beginning of Period 1.066 1.074 0.987 1.000
End of Period 1.370 1.066 1.074 0.987
Number of Units Outstanding at End of 63,841 51,098 31,846 4,711
Period (in thousands)
Subaccount 9
Unit Value:
Beginning of Period 1.075 1.167 1.000 ---
End of Period 1.249 1.075 1.167 ---
Number of Units Outstanding at End of 43,433 33,049 9,902 ---
Period (in thousands)
Subaccount 11
Unit Value:
Beginning of Period 0.956 1.000 --- ---
End of Period 1.127 0.956 --- ---
Number of Units Outstanding at End of 12,530 --- ---
Period (in thousands)
Subaccount 20
Unit Value:
Beginning of Period 1.143 1.129 1.000 ---
End of Period 1.284 1.143 1.129 ---
Number of Units Outstanding at End of 34,692 26,924 6,681 ---
Period (in thousands)
Subaccount 102
Unit Value:
Beginning of Period 1.465 1.510 1.270 1.047
End of Period 1.743 1.465 1.510 1.270
Number of Units Outstanding at End of 38,042 27,041 13,583 3,625
Period (in thousands)
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Subaccount 103 1995 1994 1993 1992
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Unit Value:
Beginning of Period ................................. 1.490 1.412 1.211 1.051
End of Period ....................................... 1.985 1.490 1.412 1.211
Number of Units Outstanding at End of ........................... 139,145 104,356 61,264 17,855
Period (in thousands)
Subaccount 104
Unit Value:
Beginning of Period ................................. 1.419 1.440 1.224 1.135
End of Period ....................................... 1.895 1.419 1.440 1.224
Number of Units Outstanding at End of ........................... 116,485 90,717 49,136 18,253
Period (in thousands)
Subaccount 105
Unit Value:
Beginning of Period ................................. 1.230 1.226 0.906 1.030
End of Period ....................................... 1.330 1.230 1.226 0.906
Number of Units Outstanding at End of ........................... 65,256 59,774 25,395 6,728
Period (in thousands)
Subaccount 106
Unit Value:
Beginning of Period ................................. 0.977 1.000 -- --
End of Period ....................................... 1.127 0.977 -- --
Number of Units Outstanding at End of ........................... 33,444 20,720 -- --
Period (in thousands)
Subaccount 12
Unit Value:
Beginning of Period ................................. 1.000
End of Period ....................................... 1.383
Number of Units Outstanding at End of ........................... 16,096
Period (in thousands)
Subaccount 150
Unit Value:
Beginning of Period ................................. 1.000
End of Period ....................................... 1.064
Number of Units Outstanding at End of ........................... 10,882
Period (in thousands)
</TABLE>
*The date of inception of Subaccount 3 was 4/7/94. The date of inception of
Subaccounts 1, 5, 6, 7, 8, 9, 20, 102, 103, 104, and 105 was 4/19/94. The date
of inception of Subaccounts 2 and 4 was 4/20/94. The date of inception of
Subaccounts 11 and 106 was 5/17/94. The date of inception of Subaccounts 12 and
150 was 4/28/95, respectively.
PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1991. However, the Company
may advertise "Total Return" and "Average Total Return" performance information
based on the periods that the Underlying Funds have been in existence. The
results for any period prior to the Contracts being offered will be calculated
as if the Contracts had been offered during that period of time, with all
charges assumed to be those applicable to the Sub-Accounts and the Underlying
Funds. Both the total return and yield figures are based on historical
earnings and are not intended to indicate future performance.
The "total return" of a Subaccount refers to the total of the income generated
by an investment in the Subaccount and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by certain charges, and expressed as a percentage of
the investment.
The "yield" of the Subaccount investing in the Money Market Fund of the Trust
refers to the income generated by an investment in the Subaccount over a
seven-day period (which period will be specified in the advertisement). This
income is then "annualized" by assuming that the income generated in the
specific week is generated over a 52-week period. This annualized yield is shown
as a percentage of the investment. The "effective yield" calculation is similar,
but when annualized, the income earned by an investment in the Subaccount is
assumed to be reinvested. Thus the "effective yield" will be slightly higher
than the "yield" because of the compounding effect of this assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect the
Subaccount's asset charges. The total return figures also reflect the $30 annual
Contract Fee and the contingent deferred sales load which would be assessed if
the investment were completely redeemed at the end of the specified period.
-13-
<PAGE>
The Company may also advertise supplemental total return performance
information. Supplemental total return refers to the total of the income
generated by an investment in the Subaccount and of the changes of value of the
principal invested (due to realized and unrealized capital gains or losses),
adjusted by the Subaccount's annual asset charges, and expressed as a percentage
of the investment. Because it is assumed that the investment is NOT redeemed at
the end of the specified period, the contingent deferred sales load is NOT
included in the calculation of supplemental total return.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (I) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Subaccount
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity variable accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Subaccount. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of a
hypothetical investment in the Subaccount during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and Contracts, characteristics and quality
of the portfolio of the Underlying Fund in which the Subaccount invests and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(Assuming COMPLETE redemption of the investment)
<TABLE>
<CAPTION>
For year 10 years or
SUBACCOUNT NAME ended 3 Years 5 Years since
- ---------- ---- 12/31/95 inception*
-------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Sub-Account 1 Growth 22.93% 8.85% 13.86% 13.12%
Sub-Account 2 Investment Grade 8.18% 4.58% 7.26% 7.51%
Sub-Account 3 Money Market -3.18% 0.57% 1.76% 4.38%
Sub-Account 4 Equity Index 26.27% 11.19% 7.45% 14.82%
Sub-Account 5 Governement Bond 3.46% 2.75% N/A 5.21%
Sub-Account 6 Select Aggresive Growth 22.43% 12.14% N/A 17.22%
Sub-Account 7 Select Growth 14.83% 3.82% N/A 6.92%
Sub-Account 8 Select Growth and Income 20.50% 9.65% N/A 8.60%
Sub-Account 9 Small Cap Value 7.95% N/A N/A 6.22%
Sub-Account 11 Select Int'l Equity 9.94% N/A N/A 2.79%
Sub-Account 12 Select Capital Appreciation N/A N/A N/A 30.19%
Sub-Account 102 High Income 10.91% 9.17% 16.44% 9.86%
Sub-Account 103 Equity-Income 25.20% 16.19% 18.86% 11.70%
Sub-Account 104 Growth 25.47% 13.92% 18.32% 13.18%
Sub-Account 105 Overseas 0.34% 11.80% 5.44% 5.69%
Sub-Account 106 Asset Manager 7.31% 6.39% 10.19% 9.34%
Sub-Account 150 International Stock 1.68% N/A N/A 0.89%
Sub-Account 20 International Equity 4.27% N/A N/A 5.48%
</TABLE>
-14-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(Assuming NO redemption of the investment)
<TABLE>
<CAPTION>
For year 10 years or
SUBACCOUNT NAME ended 3 Years 5 Years since
- ---------- ---- 12/31/95 inception*
-------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Sub-Account 1 Growth 30.93% 10.79% 14.68% 13.12%
Sub-Account 2 Investment Grade 16.18% 6.67% 8.29% 7.51%
Sub-Account 3 Money Market 4.34% 2.77% 3.03% 4.38%
Sub-Account 4 Equity Index 34.27% 13.05% 8.48% 15.24%
Sub-Account 5 Governement Bond 11.46% 4.91% N/A 6.16%
Sub-Account 6 Select Aggressive Growth 30.43% 13.97% N/A 18.43%
Sub-Account 7 Select Growth 22.83% 5.95% N/A 8.42%
Sub-Account 8 Select Growth and Income 28.50% 11.56% N/A 2.85%
Sub-Account 9 Small Cap Value 15.95% N/A N/A 8.55%
Sub-Account 11 Select Int'l Equity 17.94% N/A N/A 7.44%
Sub-Account 12 Select Capital Appreciation N/A N/A N/A 38.19%
Sub-Account 102 High Income 18.91% 11.09% 17.19% 9.86%
Sub-Account 103 Equity-Income 33.20% 17.89% 19.56% 11.70%
Sub-Account 104 Growth 33.47% 15.69% 19.02% 13.18%
Sub-Account 105 Overseas 8.12% 13.64% 6.55% 5.76%
Sub-Account 106 Asset Manager 15.31% 8.41% 11.12% 9.64%
Sub-Account 150 International Stock 9.56% N/A N/A 5.76%
Sub-Account 20 International Equity 12.27% N/A N/A 7.14%
</TABLE>
* The inception dates of the Underlying Funds are:
WHAT IS AN ANNUITY?
In general, an annuity is a contract designed to provide a retirement income in
the form of periodic payments for the lifetime of the purchaser or an individual
chosen by the purchaser. The retirement income payments are called "annuity
benefit payments" and the individual receiving the payments is called the
"Annuitant." Annuity benefit payments begin on the annuity date.
Under an annuity contract, the insurance company assumes a mortality risk and an
expense risk. The mortality risk arises from the insurance company's guarantee
that annuity payments will continue for the life of the Annuitant, regardless of
how long the Annuitant lives or how long all Annuitants as a group live. The
expense risk arises from the insurance company's guarantee that charges will not
be increased beyond the limits specified in the Contract, regardless of actual
costs of operations.
The Contract Owner's payments, less any applicable deductions, are invested by
the insurance company. After retirement, annuity payments are paid to the
Annuitant for life or for such other period chosen by the Contract Owner. In the
case of a "fixed" annuity, the value of these annuity benefit payments is
guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more information
about fixed annuities see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED
ACCOUNT." With a variable annuity, the value of the Contract and the annuity
benefit payments are not guaranteed but will vary depending on the investment
performance of a portfolio of securities. Any investment gains or losses are
reflected in the value of the Contract and in the annuity payments. If the
portfolio increases in value, the value of the Contract increases. If the
portfolio decreases in value, the value of the Contract decreases.
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Contract intended to qualify as an Individual
Retirement Annuity ("IRA") may revoke the Contract at any time within 10 days
after receipt of the contract and receive a refund. In order to revoke the
Contract, the Contract Owner must mail or deliver the Contract to the agent
through whom the Contract was purchased, to the principal office of the Company
at 440 Lincoln Street, Worcester, Massachusetts 01653, or to any local agency of
the Company. Mailing or delivery must occur on or before 10 days after receipt
of the Contract for revocation to be effective.
-15-
<PAGE>
Within seven days the Company will provide a refund equal to the greater of (1)
gross payments, or (2) the Accumulated Value plus any amounts deducted under the
Contract or by the Underlying Investment Companies for taxes, charges or fees.
The liability of the Variable Account under this provision is limited to the
Contract Owner's Accumulated Value in the Subaccounts on the date of
cancellation. Any additional amounts refunded to the Contract Owner will be paid
by the Company.
RIGHT TO REVOKE OR SURRENDER IN SOME STATES
In Georgia, Indiana, Michigan, Missouri, North Carolina, Oklahoma, South
Carolina, Texas, Utah, Washington and West Virginia, any Contract Owner may
revoke the Contract at any time within ten days (20 in Idaho) after receipt of
the Contract and receive a refund as described under "RIGHT TO REVOKE INDIVIDUAL
RETIREMENT ANNUITY", above.
In all other states, a Contract Owner may return the Contract at any time within
10 days (or the number of days required by state law if more than 10) after
receipt of the Contract. The Company will pay to the Contract Owner an amount
equal to the sum of (i) the difference between the premium paid, including fees,
and any amount allocated to the Variable Account and (ii) the Accumulated Value
of amounts allocated to the Variable Account as of the date the request is
received. If the Contract was purchased as an IRA, the IRA revocation right
described above may be utilized in lieu of the special surrender right.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, THE TRUST,
VIP, VIP II, T. ROWE PRICE AND DGPF
THE COMPANY - The Company is a life insurance company organized under the laws
of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, Telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 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 indirect 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.
The VARIABLE ACCOUNT - The Variable Account is a separate investment account of
the Company referred to as Separate Account VA-K. The assets used to fund the
variable portions of the Contracts are set aside in the Subaccounts of the
Variable Account, and are kept separate and apart from the general assets of the
Company. There are 18 Subaccounts available under the Contracts. Each Subaccount
is administered and accounted for as part of the general business of the
Company, but the income, capital gains, or capital losses of each Subaccount are
allocated to such Subaccount, without regard to other income, capital gains, or
capital losses of the Company. Under Massachusetts law, the assets of the
Variable Account may not be charged with any liabilities arising out of any
other business of the Company.
The Variable Account was authorized by vote of the Board of Directors of the
Company on August 20, 1991. The Variable Account meets the definition of
"separate account" under federal securities law and is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). The registration of the
Variable Account and the Underlying Investment Companies does not involve the
supervision by the Commission of management or investment practices or Contracts
of the Variable Account, the Company, the Underlying Investment Companies or the
Underlying Funds.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Variable Account and the Subaccounts.
ALLMERICA INVESTMENT TRUST - Allmerica Investment Trust, (the "Trust") is an
open-end, diversified management investment company registered with the
Commission under the 1940 Act.
The Trust was established by the Company as a Massachusetts business trust on
October 11, 1984, for the purpose of providing a vehicle for the investment of
assets of various variable accounts established by the Company or other
affiliated insurance companies. Eleven investment portfolios ("Funds") are
currently available under the Contracts, each issuing a series of shares: the
Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, Select International Equity Fund, Select Aggressive Growth
Fund, Select Capital Appreciation Fund, Select Growth Fund, Select Growth and
Income Fund and Small Cap Value Fund of
-15-
<PAGE>
Allmerica Investment Trust. The assets of each Fund are held separate from the
assets of the other Funds. Each Fund operates as a separate investment vehicle
and the income or losses of one Fund have no effect on the investment
performance of another Fund. Shares of the Trust are not offered to the general
public but solely to such variable accounts.
Allmerica Investment Management Company, Inc. ("Allmerica Investment") serves as
investment adviser of the Trust. Allmerica Investment has entered into
sub-advisory agreements with other investment managers ("Sub-Advisers") who
manage the investments of the Funds.
See "INVESTMENT ADVISORY SERVICES TO THE TRUST."
VARIABLE INSURANCE PRODUCTS FUND - Variable Insurance Products Fund ("VIP"),
managed by Fidelity Management, is an open-end, diversified, management
investment company organized as a Massachusetts business trust on November 13,
1981 and registered with the Commission under the 1940 Act. Four of its
investment portfolios are available under the Contracts: High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio.
Various Fidelity companies perform certain activities required to operate VIP.
Fidelity Management, a registered investment adviser under the Investment
Advisers Act of 1940, is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire Street,
Boston MA. It is composed of a number of different companies, which provide a
variety of financial services and products. Fidelity Management is the original
Fidelity company, founded in 1946. It provides a number of mutual funds and
other clients with investment research and portfolio management services. The
Portfolios of VIP as part of their operating expenses pay an investment
management fee to Fidelity Management. See "INVESTMENT ADVISORY SERVICES TO VIP
AND VIP II."
VARIABLE INSURANCE PRODUCTS FUND II - Variable Insurance Products Fund II ("VIP
II"), managed by Fidelity Management (see discussion under "VARIABLE INSURANCE
PRODUCTS FUND"), is an open-end, diversified, management investment company
organized as a Massachusetts business trust on March 21, 1988 and registered
with the Commission under the 1940 Act. One of its investment portfolios is
available under the Contracts: the Asset Manager Portfolio.
T. ROWE PRICE INTERNATIONAL SERIES, INC. - T. Rowe Price International Series,
Inc. ("T. Rowe Price"), managed by Rowe Price-Fleming International, Inc.
("Price-Fleming") (See "INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE"), is
an open-end, diversified, management investment company organized as a Maryland
corporation in 1994 and registered with the Commission under the 1940 Act. One
of its investment portfolios is available under the Contracts: the International
Stock Portfolio.
DELAWARE GROUP PREMIUM FUND, INC. - Delaware Group Premium Fund, Inc. ("DGPF")
is an open-end, diversified management investment company registered with the
Commission under the 1940 Act.
DGPF was established to provide a vehicle for the investment of assets of
various variable accounts supporting variable insurance Contracts. One
investment portfolio ("Series") is available under the Contracts, the
International Equity Series.
The investment adviser for the International Equity Series is Delaware
International Advisers Ltd. ("Delaware International"). See "INVESTMENT ADVISORY
SERVICES TO DGPF."
INVESTMENT OBJECTIVES AND POLICIES - A summary of investment objectives of each
of the Underlying Funds is set forth below. More detailed information regarding
the investment objectives, restrictions and risks, expenses paid by the
Underlying Funds, and other relevant information regarding the Underlying Funds
may be found in their respective Prospectuses, which should be read carefully
before investing. The Statements of Additional Information of the Underlying
Funds are available upon request. There can be no assurance that the investment
objectives of the Underlying Funds can be achieved or that the value of a
Contract will equal or exceed the aggregate amount of the purchase payments made
under the Contract.
Subaccount 1 - invests solely in shares of the Growth Fund of the Trust. The
Growth Fund is invested in common stocks and securities convertible into common
stocks that are believed to represent significant underlying value in relation
to current market prices. The objective of the Growth Fund is to achieve
long-term growth of capital. Realization of current investment income, if any,
is incidental to this objective.
Subaccount 2 - invests solely in shares of the Investment Grade Income Fund of
the Trust. The Investment Grade Income Fund is invested in a diversified
portfolio of fixed income securities with the objective of seeking as high a
level of total return (including both income and realized and unrealized capital
gains) as is consistent with prudent investment management.
Subaccount 3 - invests solely in shares of the Money Market Fund of the Trust.
The Money Market Fund is invested in a diversified portfolio of high-quality,
short-term debt instruments with the objective of obtaining maximum current
income consistent with the preservation of capital and liquidity.
Subaccount 4 - invests solely in shares of the Equity Index Fund of the Trust.
The Equity Index Fund seeks to provide investment results that correspond
generally to the composite price and yield performance of United States publicly
traded common stocks. The Equity Index
-17-
<PAGE>
Fund seeks to achieve its objective by attempting to replicate the composite
price and yield performance of the Standard & Poor's 500 Composite Stock Index.
Subaccount 5 - invests solely in shares of the Government Bond Fund of the
Trust. The Government Bond Fund has the investment objective of seeking high
income, preservation of capital and maintenance of liquidity, primarily through
investments in debt instruments issued or guaranteed by the U.S. Government or
its agencies or instrumentalities.
Subaccount 6 - invests solely in shares of the Select Aggressive Growth Fund of
the Trust. The Select Aggressive Growth Fund seeks above-average capital
appreciation by investing primarily in common stocks of companies which are
believed to have significant potential for capital appreciation.
Subaccount 7 - invests solely in shares of the Select Growth Fund of the Trust.
The Select Growth Fund seeks to achieve long-term growth of capital by investing
in a diversified portfolio consisting primarily of common stocks selected on the
basis of their long-term growth potential.
Subaccount 8 - invests solely in shares of the Select Growth and Income Fund of
the Trust. The select Growth and Income Fund seeks a combination of long-term
growth of capital and current income. The Fund will invest primarily in
dividend-paying common stocks and securities convertible into common stocks.
Subaccount 9 - invests solely in shares of the Small Cap Value Fund of the
Trust. The Small Cap Value Fund seeks long-term growth by investing principally
in a diversified portfolio of common stocks of smaller, faster-growing companies
considered to be attractively valued in the smaller company sector of the
market.
Subaccount 11 - invests solely in shares of the Select International Equity Fund
of the Trust. The Select International Equity Fund seeks maximum long-term total
return (capital appreciation and income) primarily by investing in common stocks
of established non-U.S. companies.
Sub-Account 12- invests solely in shares of the Select Capital Appreciation Fund
of the Trust. The Select Capital Appreciation Fund seeks long-term growth of
capital in a manner consistent with the preservation of capital. Realization of
income is not a significant investment consideration and any income realized on
the Fund's investments will be incidental to its primary objective. The Fund
will invest primarily in common stock of industries and companies which are
experiencing favorable demand for their products and services, and which operate
in a favorable competitive environment and regulatory climate. The Sub-Adviser
for the Select Capital Appreciation Fund is Janus Capital Corporation.
Subaccount 102 - invests solely in shares of the High Income Portfolio of VIP.
The High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated fixed-income securities
(commonly referred to as "junk bonds"), while also considering growth of
capital. These securities are often considered to be speculative and involve
greater risk of default or price changes than securities assigned a high quality
rating. For more information about these lower-rated securities, see "Risks of
Lower-Rated Debt Securities" in the VIP prospectus.
Subaccount 103 - invests solely in shares of the Equity-Income Portfolio of VIP.
Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Portfolio
will also consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's 500 Composite Stock Price Index. The Portfolio
may invest in high yielding, lower-rated securities (commonly referred to as
"junk bonds") which are subject to greater risk than investments in higher-rated
securities. For a further discussion of lower-rated securities, please see
"Risks of Lower-Rated Debt Securities" in the VIP prospectus.
Subaccount 104 - invests solely in shares of the Growth Portfolio of VIP. The
Growth Portfolio seeks to achieve capital appreciation. The Portfolio normally
purchases common stocks, although its investments are not restricted to any one
type of security. Capital appreciation may also be found in other types of
securities, including bonds and preferred stocks.
Subaccount 105 - invests solely in shares of the Overseas Portfolio of VIP. The
Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities and provides a means for aggressive investors
to diversify their own portfolios by participating in companies and economies
outside of the United States.
Subaccount 106 - invests solely in shares of the Asset Manager Portfolio of VIP
II. The Asset Manager Portfolio seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed-income instruments.
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<PAGE>
Sub-Account 150 - invests solely in shares of the T. Rowe Price International
Stock Portfolio. The International Stock Portfolio seeks long-term growth of
capital through investments primarily in common stocks of established, non-U.S.
companies.
Subaccount 20 - invests solely in shares of the International Equity Series of
DGPF. The International Equity Series seeks long-term growth without undue risk
to principal by investing primarily in equity securities of foreign issuers
providing the potential for capital appreciation and income.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR CONTRACTS SIMILAR TO
THOSE OF CERTAIN OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUBACCOUNTS
WHICH WILL BEST MEET YOUR NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE TRUST, VIP, VIP II, T. ROWE AND DGPF ALONG WITH THIS PROSPECTUS. THE
MONEY MARKET PORTFOLIO OF VIP AND CERTAIN OTHER PORTFOLIOS OFFERED BY THE
UNDERLYING INVESTMENT COMPANIES ARE NOT AVAILABLE UNDER THIS CONTRACT.
In the event of a material change in the investment policy of a Subaccount or
the Underlying Fund in which it invests, the Contract Owner will be notified of
the change. No material changes in the investment policy of the Variable Account
or any Subaccounts will be made without approval pursuant to the applicable
state insurance laws. If the Contract Owner has Contract Value in that
Subaccount, the Company will transfer it without charge on written request by
the Contract Owner to another Subaccount or to the Fixed Account. The Company
must receive the Contract Owner's written request within sixty (60) days of the
later of (1) the effective date of such change in the investment policy or (2)
the receipt of the notice of the Contract Owner's right to transfer.
INVESTMENT ADVISORY SERVICES TO THE TRUST - The overall responsibility for the
supervision of the affairs of the Trust vests in the Trustees. The Trust has
entered into a Management Agreement with Allmerica Investment Management
Company, Inc. ("Allmerica Investment"), an indirect wholly-owned subsidiary of
the Company, to handle the day-to-day affairs of the Trust. Allmerica
Investment, subject to review by the Trustees, is responsible for the general
management of the Funds. Allmerica Investment is also obligated to perform
certain administrative and management services for the Trust, furnishes to the
Trust all necessary office space, facilities, and equipment, and pays the
compensation, if any, of officers and Trustees who are affiliated with Allmerica
Investment.
Other than the expenses specifically assumed by Allmerica Investment under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by it, including fees and expenses associated with the registration and
qualification of the Trust's shares under the Securities Act of 1933, other fees
payable to the Commission, independent public accountant, legal and custodian
fees, association membership dues, taxes, interest, insurance premiums,
brokerage commission, fees and expenses of the Trustees who are not affiliated
with Allmerica Investment, expenses for proxies, prospectuses, and reports to
shareholders, and other expenses.
Pursuant to the Management Agreement with the Trust, Allmerica Investment has
entered into agreements ("Sub-Adviser Agreements") with other investment
advisers ("Sub-Advisers") under which each Sub-Adviser manages the investments
of one or more of the Funds. Under the Sub-Adviser Agreement, the Sub-Adviser is
authorized to engage in portfolio transactions on behalf of the applicable Fund,
subject to such general or specific instructions as may be given by the
Trustees. The terms of a Sub-Adviser Agreement cannot be materially changed
without the approval of a majority in interest of the shareholders of the
affected Fund.
The Sub-Advisers for each of the Funds are as follows:
Growth Fund Miller, Anderson & Sherrerd
Investment Grade Income Fund Allmerica Asset Management, Inc.
Money Market Fund Allmerica Asset Management, Inc
Equity Index Fund Allmerica Asset Management, Inc.
Government Bond Fund Allmerica Asset Management, Inc.
Select International Equity Fund Bank of Ireland Asset Management
Select Aggressive Growth Fund Nicholas-Applegate Capital Management
Select Capital Appreciation Fund Janus Capital Corporation
Select Growth Fund United Asset Management Corporation
Select Growth and Income Fund John A. Levin & Co., Inc.
Small Cap Value Fund David L. Babson & Co. Inc.
Allmerica Asset Management, Inc. is an indirect wholly owned subsidiary of the
Company.
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<PAGE>
For providing its services under the Management Agreement, Allmerica Investment
will receive a fee, computed daily at an annual rate based on the average daily
net asset value of each Fund as follows
Fund Net Asset Value Rate
Growth First $50 million 0.60%
$50 - 250 million 0.50%
Over $250 million 0.35%
Investment Grade Income First $50 million 0.50%
$50 - 250 million 0.35%
Over $250 million 0.25%
Money Market First $50 million 0.35%
$50 - 250 million 0.25%
Over $250 million 0.20%
Equity Index First $50 million 0.35%
$50 - 250 million 0.30%
Over $250 million 0.25%
Government Bond * 0.50%
Select International Equity * 1.00%
Select Aggressive Growth * 1.00%
Select Capital Appreciation * 1.00%
Select Growth * 0.85%
Select Growth and Income * 0.75%
Small Cap Value * 0.85%
* For the Government Bond Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Growth Fund, Select Growth and Income Fund and
Small Cap Value Fund, each rate applicable to Allmerica Investment does not
vary according to the level of assets in the Fund.
Allmerica Investment's fee computed for each Fund will be paid from the assets
of such Fund. Allmerica Investment is solely responsible for the payment of all
fees for investment management services to the Sub-Advisers, who will receive
from Allmerica Investment a fee, computed daily at an annual rate based on the
average daily net asset value of each Fund as follows:
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<TABLE>
<CAPTION>
Sub-Adviser Fund Net Asset Value Rate
----------- ---- --------------- ----
<S> <C> <C> <C>
Miller, Anderson Growth * *
& Sherrerd
Allmerica Asset Investment Grade Income ** 0.20%
Management, Inc.
Allmerica Asset Money Market ** 0.10%
Management, Inc.
Allmerica Asset Equity Index ** 0.10%
Management, Inc.
Allmerica Asset Government Bond ** 0.20%
Management, Inc.
Bank of Ireland Asset Select Int'l. Equity First $50 million 0.45%
Management Limited Next $50 million 0.40%
Over $100 million 0.30%
Nicholas-Applegate Select Aggressive Growth ** 0.60%
Capital Management
Janus Capital Corporation Select Capital Appreciation First $100 million 0.60%
Over $100 million 0.55%
United Asset Management Select Growth First $50 million 0.50%
Corporation $50 - 100 million 0.45%
$150 - 250 million 0.35%
$250 - 350 million 0.30%
Over $350 million 0.25%
John A. Levin & Co., Inc. Select Growth and Income First $100 million 0.40%
Next $200 million 0.25%
Over $300 million 0.30%
David L. Babson & Co. Small Cap Value ** 0.50%
</TABLE>
* Allmerica Investment will pay a fee to Miller, Anderson & Sherrerd based on
the aggregate assets of the Growth Fund and certain other accounts of the
Company and its affiliates (collectively, the "Affiliated Accounts") which
are managed by Miller, Anderson & Sherrerd, under the following schedule:
Aggregate Average Net Assets Rate
---------------------------- ----
First $50 million 0.500%
$50 - 100 million 0.375%
$100 - 500 million 0.250%
$500 - 850 million 0.200%
Over $850 million 0.150%
** For the Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, Select Aggressive Growth Fund and Small Cap Value
Fund, each rate applicable to the Sub-Advisers does not vary according to
the level of assets in the Fund.
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<PAGE>
The Prospectus of the Trust contains additional information concerning the
Funds, including information concerning additional expenses paid by the Funds,
and should be read in conjunction with this Prospectus.
INVESTMENT ADVISORY SERVICES TO VIP AND VIP II - For managing investments and
business affairs, each Portfolio pays a monthly fee to Fidelity Management. The
Prospectuses of VIP and VIP II contain additional information concerning the
Portfolios, including information concerning additional expenses paid by the
Portfolios, and should be read in conjunction with this Prospectus.
VIP and VIP II Portfolios
The High Income Portfolio pays a monthly fee to Fidelity Management at an annual
fee rate made up of the sum of two components:
1. A group fee rate based on the monthly average net assets of all the mutual
funds advised by Fidelity Management. On an annual basis this rate cannot
rise above 0.37%, and drops as total assets in all these funds rise.
2. An individual fund fee rate of 0.45% of the High Income Portfolio's average
net assets throughout the month. One-twelfth of the annual management fee
rate is applied to net assets averaged over the most recent month,
resulting in a dollar amount which is the management fee for that month.
The Equity-Income, Growth, Asset Manager and Overseas Portfolios' fee rates are
each made of two components:
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by Fidelity Management. On an annual basis, this rate
cannot rise above 0.52%, and drops as total assets in all these mutual
funds rise.
2. An individual Portfolio fee rate of 0.20% for the Equity-Income Portfolio,
0.30% for the Growth Portfolio, 0.40% for the Asset Manager Portfolio and
0.45% for the Overseas Portfolio.
One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
Thus, the High Income Portfolio may have a fee of as high as 0.82% of its
average net assets. The Equity-Income Portfolio may have a fee of as high as
0.72% of its average net assets. The Growth Portfolio may have a fee of as high
as 0.82% of its average net assets. The Asset Manager Portfolio may have a fee
of as high as 0.92% of its average net assets. The Overseas Portfolio may have a
fee of as high as 0.97% of its average net assets. The actual fee rate may be
less depending on the total assets in the funds advised by Fidelity Management.
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE. The Investment Adviser for the
T. Rowe Price International Stock Portfolio is Price-Fleming International, Inc.
("Price-Fleming"). Price-Fleming, founded in 1979 as a joint venture between
T. Rowe Price Associates, Inc. and Robert Fleming Holdings, Limited, is one of
America's largest international mutual fund asset managers with approximately
$20 billion under management in its offices in Baltimore, London, Tokyo and Hong
Kong. To cover investment management and operating expenses, the T. Rowe
Price International Stock Portfolio pays Price-Fleming a single, all-inclusive
fee of 1.05% of its average daily net assets.
INVESTMENT ADVISORY SERVICES TO DGPF - Each Series of DGPF pays an investment
adviser an annual fee for managing the portfolios and making the investment
decisions for the Series. The investment adviser for the International Equity
Series is Delaware International Advisers Ltd. ("Delaware International"). The
annual fee paid by the International Equity Series is equal to 0.75% of the
average daily net assets of the Series.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The Company reserves the
right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Fund are no longer
available for investment or if in the Company's judgment further investment in
any Underlying Fund should become inappropriate in view of the purposes of the
Variable Account or the affected Subaccount, the Company may redeem the shares
of that Underlying Fund and substitute shares of another registered open-end
management company. The Company will not substitute any shares attributable to a
Contract interest in a Subaccount without notice to the Contract Owner and prior
approval of the Commission and state insurance authorities, to the extent
required by the 1940 Act or other applicable law. The Variable Account may, to
the extent permitted by law, purchase other securities for other contracts or
permit a conversion between contracts upon request by a Contract Owner.
The Company also reserves the right to establish additional Subaccounts of the
Variable Account, each of which would invest in shares corresponding to a new
Underlying Fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required Commission
approval, the Company may, in its sole discretion, establish new Subaccounts or
eliminate one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant. Any new Subaccounts may be made available to
existing Contract Owners on a basis to be determined by the Company.
-22-
<PAGE>
Shares of the Underlying Funds are also issued to variable accounts of the
Company and its affiliates which issue variable life Contracts ("mixed
funding"). Shares of the Portfolios are also issued to other unaffiliated
insurance companies ("shared funding"). It is conceivable that in the future
such mixed funding or shared funding may be disadvantageous for variable life
Contract Owners or variable annuity Contract Owners. Although the Company and
the Underlying Investment Companies do not currently foresee any such
disadvantages to either variable life insurance Contract Owners or variable
annuity Contract Owners, the Company and the respective Trustees intend to
monitor events in order to identify any material conflicts between such Contract
Owners and to determine what action, if any, should be taken in response
thereto. If the Trustees were to conclude that separate funds should be
established for variable life and variable annuity Separate accounts, the
Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Contract to reflect the substitution or
change and will notify Contract Owners of all such changes. If the Company deems
it to be in the best interest of Contract Owners, and subject to any approvals
that may be required under applicable law, the Variable Account or any
Subaccount(s) may be operated as a management company under the 1940 Act, may be
deregistered under the 1940 Act if registration is no longer required, or may be
combined with other Subaccounts or other separate accounts of the Company.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Subaccount in
accordance with instructions received from Contract Owners and, after the
Annuity Date, from the Annuitants. Each person having a voting interest in a
Subaccount will be provided with proxy materials of the Underlying Fund together
with a form with which to give voting instructions to the Company. Shares for
which no timely instructions are received will be voted in proportion to the
instructions which are received. The Company will also vote shares in a
Subaccount that it owns and which are not attributable to Contracts in the same
proportion. If the 1940 Act or any rules thereunder should be amended or if the
present interpretation of the 1940 Act or such rules should change, and as a
result the Company determines that it is permitted to vote shares in its own
right, whether or not such shares are attributable to the Contract, the Company
reserves the right to do so.
The number of votes which a Contract Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Fund. During the accumulation period, the number of Underlying Fund shares
attributable to each Contract Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Contract by
the net asset value of one Underlying Fund share.
During the annuity period, the number of Underlying Fund shares attributable to
each Annuitant will be determined by dividing the reserve held in each
Subaccount for the Annuitant's variable annuity by the net asset value of one
Underlying Fund share. Ordinarily, the Annuitant's voting interest in the
Underlying Fund will decrease as the reserve for the variable annuity is
depleted.
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the Subaccounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Funds are described in the Prospectus and Statement of Additional
Information of the Trust, VIP, VIP II, T. Rowe and DGPF.
A. Annual Charges Against Variable Account Assets.
Mortality and Expense Risk Charge - The Company makes a charge of 1.25% on an
annual basis of the daily value of each Subaccount's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Contracts. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
guarantee that it will make annuity payments in accordance with annuity rate
provisions established at the time the Contract is issued for the life of the
Annuitant (or in accordance with the annuity option selected), no matter how
long the Annuitant (or other payee) lives and no matter how long all Annuitants
as a class live. Therefore, the mortality charge is deducted during the annuity
phase on all contracts, including those that do not involve a life contingency,
even though the Company does not bear direct mortality risk with respect to
variable annuity settlement options that do not involve life contingencies. The
expense risk arises from the Company's guarantee that the charges it makes will
not exceed the limits described in the Contracts and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
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<PAGE>
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
Administrative Expense Charge - The Company assesses each Subaccount with a
daily charge at an annual rate of 0.20% of the average daily net assets of the
Subaccount. The charge is imposed during both the accumulation period and the
annuity period. The daily Administrative Expense Charge is assessed to help
defray administrative expenses actually incurred in the administration of the
Subaccount, without profits. However, there is no direct relationship between
the amount of administrative expenses imposed on a given contract and the amount
of expenses actually attributable to that contract.
Deductions for the Contract Fee (described under B. Contract Fee) and for the
Administrative Expense Charge are designed to reimburse the Company for the cost
of administration and related expenses and are not expected to be a source of
profit. The administrative functions and expense assumed by the Company in
connection with the Variable Account and the Contracts include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
Transfer Charge - The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Contract Year will be
free of charge, but reserves the right to assess a charge, guaranteed never to
exceed $25, for each subsequent transfer in a Contract Year.
The Contract Owner may have automatic transfers of at least $100 a month made on
a periodic basis (a) from Subaccount 3 or Sub-Account 5 (which invest in the
Money Market Fund and Government Bond Fund of the Trust, respectively) or from
the Fixed Account to one or more of the other Subaccounts or (b) in order to
reallocate Contract Value among the Subaccounts. The first automatic transfer
counts as one transfer towards the twelve transfers which are guaranteed to be
free in each contract year. For more information, see "The Contract Transfer
Privilege."
Other Charges - Because the Subaccounts purchase shares of the Underlying Funds,
the value of the net assets of the Subaccounts will reflect the investment
advisory fee and other expenses incurred by the Underlying Funds. The Prospectus
and Statement of Additional Information of the Trust, VIP, VIP II, T. Rowe and
DGPF contain additional information concerning expenses of the Underlying Funds.
B. Contract Fee.
A $30 Contract Fee currently is deducted on the Contract anniversary date and
upon full surrender of the Contract when the Accumulated Value is $50,000 or
less. The Contract Fee is waived for Contracts issued to and maintained by the
Trustee of a 401(k) plan. Where Contract value has been allocated to more than
one account, a percentage of the total Contract Fee will be deducted from the
Value in each account. The portion of the charge deducted from each account will
be equal to the percentage which the Value in that account bears to the
Accumulated Value under the Contract. The deduction of the Contract Fee from a
subaccount will result in cancellation of a number of Accumulation Units equal
in value to the percentage of the charge deducted from that account.
C. Premium Taxes.
Some states and municipalities impose a premium tax on variable annuity
Contracts. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when purchase payments were
received, the premium tax charge is deducted on a pro rata basis when
partial withdrawals are made, upon surrender of the Contract, or when
annuity payments begin (the Company reserves the right instead to deduct
the premium tax charge for these Contracts at the time the purchase
payments are received); or
(2) the premium tax charge is deducted when annuity payments begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law
If no amount for premium tax was deducted at the time the purchase payment was
received, but subsequently tax is determined to be due prior to the Annuity
Date, the Company reserves the right to deduct the premium tax from the Contract
value at the time such determination is made.
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<PAGE>
D. Contingent Deferred Sales Charge.
No charge for sales expense is deducted from payments at the time the payments
are made. However, a contingent deferred sales charge is deducted from the
Accumulated Value of the Contract in the case of surrender and/or partial
redemption of the Contract or at the time annuity payments begin, within certain
time limits described below.
For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments - payments
received by the Company during the nine years preceding the date of the
surrender; (2) Old Payments - Accumulated payments not defined as New Payments;
and (3) Earnings - the amount of Contract Value in excess of all payments that
have not been previously surrendered. For purposes of determining the amount of
any contingent deferred sales charge, surrenders will be deemed to be taken
first from Old Payments, then from New Payments. Old Payments may be withdrawn
from the Contract at any time without the imposition of a contingent deferred
sales charge. If a withdrawal is attributable all or in part to New Payments, a
contingent deferred sales charge may apply.
Charges for Surrender and Partial Redemption. If a Contract is surrendered, or
if New Payments are redeemed, while the Contract is in force and before the
Annuity Date, a contingent deferred sales charge may be imposed. The amount of
the charge will depend upon the number of years that the New Payments, if any,
to which the withdrawal is attributed have remained credited under the Contract.
Amounts withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for income
tax purposes.)
The Contingent Deferred Sales Charges are as follows:
Years from date of Charge as Percentage of New
Payment Payments Withdrawn
less than-2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
Thereafter 0%
The amount redeemed equals the amount requested by the Contract Owner plus the
charge, if any. The charge is applied as a percentage of the New Payments
redeemed, but in no event will the total contingent deferred sales charge exceed
a maximum limit of 8% of total gross New Payments. Such total charge equals the
aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
Reduction or Elimination of Withdrawal Charges. Where permitted by law, the
Company will waive the contingent deferred sales charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is: (a) admitted to
a medical care facility after the issue date of the Contract and remains
confined there until the later of one year after the issue date or 90
consecutive days; (b) first diagnosed by a licensed physician as having a fatal
illness after the issue date of the contract; or (c) physically disabled after
the issue date of the Contract and before attaining age 65. The Company may
require proof of such disability and continuing disability, including written
confirmation of receipt and approval of any claim for Social Security Disability
Benefits and reserves the right to obtain an examination by a licensed physician
of its choice and at its expense.
For purposes of the above provision, "medical care facility" means any state
licensed facility (or, in a state that does not require licensing)a facility
that is operating pursuant to state law, providing medically necessary inpatient
care which is prescribed by a licensed "physician" in writing and based on
physical limitations which prohibit daily living in a non-institutional setting;
"fatal illness" means a condition diagnosed by a licensed physician which is
expected to result in death within two years of the diagnosis; and "physician"
means a person other than the Owner, Annuitant or a member of one of their
families who is state licensed to give medical care or treatment and is acting
within the scope of that license.
Where contingent deferred sales charges have been waived under any one of three
situations discussed above, no additional payments under this Contract will be
accepted.
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<PAGE>
Where permitted by law, no contingent deferred sales charge is imposed (and no
commissions will be paid) on contracts issued where both the Contract Owner and
the Annuitant on the date of issue are within the following class of
individuals: (a) any employee of the Company located at its home office or at
off-site locations if such employees are on the Company's home office payroll;
(b) any director of the Company; (c) any retiree who elected to retire on
his/her retirement date; (d) the immediate family members of those persons
identified in (a) through (c) above residing in the same household; and (e) any
beneficiary who receives a death benefit under a deceased employee's or
retiree's progress sharing plan.
For purposes of the above class of individuals, "the Company" incudes affiliates
and subsidiaries; "immediate family members" means children, siblings, parents
and grandparents; "retirement date" means an employee's early, normal or late
retirement date as defined in the Company's Pension Plan or any successor plan;
and "progress sharing" means the Allmerica Financial Life Insurance Company
Employee's Incentive and Profit Sharing Plan or any successor plan.
In addition, from time to time the Company may also reduce the amount of the
contingent deferred sales, the period during which it applies, or both, when
Contracts are sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider (a) the size and type of
group; (b) the total amount of payments to be received; (c) other transactions
where sales expenses are likely to be reduced. Any reduction or elimination in
the amount or duration of the contingent deferred sales charge will not
discriminate unfairly between purchasers of this Contract. The Company will not
make any changes to this charge where prohibited by law.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charges is modified to effect certain exchanges of annuity
contracts for the Contracts. See Statement of Additional Information.
Withdrawal Without Surrender Charge. In each calendar year, the Company will
waive the contingent deferred sales charge, if any, on an amount ("Withdrawal
Without Surrender Charge") equal to the greatest of (1), (2) or (3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by total
gross payments not previously redeemed ("Cumulative Earnings")
Where (2) is:
10% of the Accumulated Value as of the Valuation Date coincident with or
next following the date of receipt of the request for withdrawal, reduced by the
total amount of any prior partial redemptions made in the same calender year to
which no contingent deferred sales charge was applied.
Where (3) is:
The amount calculated under the Company's life expectancy distribution
(see"LED Distributions," below) whether or not the withdrawal was part of such
distribution (applies only if Annuitant is also an Owner)
For example, an 81 year old Policy Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge will first be deducted from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from payments not
previously redeemed on a last-in-first-out ("LIFO") basis. If more than one
partial withdrawal is made during the year, on each subsequent withdrawal the
Company will waive the contingent deferred sales load, if any, until the entire
Withdrawal Without Surrender Charge has been redeemed. Amounts withdrawn from a
Guarantee Period Account prior to the end of the applicable Guarantee Period
will be subject to a Market Value Adjustment.
LED Distributions. Prior to the Annuity Date a Contract Owner who is also the
Annuitant may elect to make a series of systematic withdrawals from the Contract
according to a life expectancy distribution ("LED") option, by returning a
properly signed LED request form to the Company's Principal Office. The LED
option permits the Contract Owner to make systematic withdrawals from the
Contract over his or her lifetime. The amount withdrawn from the Contract
changes each year, because life expectancy changes each year that a person
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<PAGE>
lives. For example, actuarial tables indicate that a person age 70 has a life
expectancy of 16 years, but a person who attains age 86 has a life expectancy of
another 6.5 years.
If a Contract Owner elects the LED option, in each contract year a fraction of
the Accumulated Value is withdrawn based on the Contract Owner's then life
expectancy. The numerator of the fraction is 1 (one) and the denominator of the
fraction is the remaining life expectancy of the Contract Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value at the beginning of the year to determine the
amount to be distributed during the year. The Contract Owner may elect monthly,
bimonthly, quarterly, semiannual, or annual distributions, and may terminate the
LED option at any time. The Contract Owner may also elect to receive
distributions under an LED option which is determined on the joint life
expectancy of the Contract Owner and a beneficiary. The Company may also offer
other systematic withdrawal options.
If a Contract Owner makes withdrawals under the LED distribution prior to
age 59 1/2, the withdrawals may be treated by the IRS as premature distributions
from the Contract. The payments would then be taxed on an "income first" basis,
and be subject to a 10% federal tax penalty. For more information, see
"FEDERAL TAX CONSIDERATIONS," "B. Taxation of the Contracts in General." The LED
will cease on the Annuity Date.
Surrenders. In the case of a complete surrender, the amount received by the
Contract Owner is equal to the entire Accumulated Value under the Contract, net
of the applicable contingent deferred sales charge on New Payments, the Contract
Fee and any applicable tax withholding and adjusted for any applicable market
value adjustment. Subject to the same rules that are applicable to partial
redemptions, the Company will not assess a contingent deferred sales charge on
an amount equal to the greater of the Withdrawal Without Surrender Charge
Amount, described above, or the life expectancy distribution, if applicable.
Where a Contract Owner who is trustee under a pension plan surrenders, in whole
or in part, a Contract on a terminating employee, the trustee will be permitted
to reallocate all or a part of the total Accumulated Value under the Contract to
other contracts issued by the Company and owned by the trustee, with no
deduction for any otherwise applicable contingent deferred sales charge. Any
such reallocation will be at the unit values for the Subaccounts as of the
valuation date on which a written, signed request is received at the Company's
Principal Office.
For further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining under the Contract in the case of
partial redemption, and important tax considerations, see "Surrender" and
"Partial Redemption" under "DESCRIPTION OF CONTRACT" and see "FEDERAL TAX
CONSIDERATIONS."
Charge at the Time Annuity Benefit Payments Begin. If any commutable period
certain option or a non-commutable period certain option for less than ten years
is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any Contract year under an option involving a life contingency or for any
non-commutable period certain option for ten years or more. However, a Market
Value Adjustment may apply. See "Guarantee Period Accounts".
If an owner of a fixed annuity Contract issued by the Company wishes to elect a
variable annuity option, the Company may permit such owner to exchange, at the
time of annuitization, the fixed Contract for a Contract offered in this
Prospectus. The proceeds of the fixed Contract, minus any contingent deferred
sales charge applicable under the fixed Contract if a period certain option is
chosen, will be applied towards the variable annuity option desired by the
owner. The number of Annuity Units under the option will be calculated using the
Annuity Unit values as of the 15th of the month preceding the Annuity Date.
Sales Expense. The Company pays sales commissions on the Contracts of up to 5%
(up to 4% on Contracts originally issued as part of a 401(k) plan) of the
payments to registered representatives of Allmerica Investments, Inc. Managers
who supervise the agents will receive overriding commissions ranging up to no
more than 2% of purchase payments.
The Company intends to recoup the commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges, described above,
and the investment earnings on amounts allocated to accumulate on a fixed basis
in excess of the interest credited on fixed accumulations by the Company. There
is no additional charge to Contract Owners or the Variable Account. Any
contingent deferred sales charges assessed on a Contract will be retained by the
Company except for amounts it may pay to Allmerica Investments, Inc. for
services it performs and expenses it may incur as principal underwriter and
general distributor.
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DESCRIPTION OF THE CONTRACT
The Contracts are designed for use in connection with several types of
retirement plans as well as for sale to individuals. Participants under such
plans, as well as Contract Owners, Annuitants, and beneficiaries, are cautioned
that the rights of any person to any benefits under such Contracts may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the Contracts.
The Contracts offered by the Prospectus may be purchased from representatives of
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD). Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, Massachusetts, 01653, is indirectly wholly-owned by the Company. The
Contracts also may be purchased from certain independent broker-dealers which
are NASD members.
Contract Owners may direct any inquiries to Annuity Customer Services, Allmerica
Financial Life Insurance and Annuity Company, 440 Lincoln Street, Worcester,
Massachusetts 01653.
A. Payments.
The Company's underwriting requirements, which include receipt of the initial
payment and allocation instructions by the Company at its Principal Office, must
be met before a Contract can be issued. These requirements may also include the
proper completion of an application; however, where permitted, the Company may
issue a contract without completion of an application for certain classes of
annuity contracts. Payments are to be made payable to the Company. A net payment
is equal to the payment received less the amount of any applicable premium tax.
The initial net payment will be credited to the contract as of the date that all
underwriting requirements are properly met. If all underwriting requirements are
not complied with within five business days of the Company's receipt of the
initial payment, the payment will be immediately returned unless the Owner
specifically consents to the holding of the initial payment until completion of
any outstanding underwriting requirements. Subsequent payments will be credited
as of the Valuation Date received at the Principal Office.
Payments are not limited as to frequency and number, but there are certain
limitations as to amount. Currently, the initial payment must be at least $600
($1,000 in Washington). Under a salary deduction or monthly automatic payment
plan, the minimum initial payment is $50. In all cases, each subsequent payment
must be at least $50. Where the contribution on behalf of an employee under an
employee-sponsored retirement plan is less that $600 but more than $300
annually, the Company may issue a contract on the employee, if the plan's
average annual contribution per eligible plan participant is at least $600.
The minimum allocation to a Guarantee Period Account is $1,000. If less than
$1,000 is allocated to a Guarantee Period Account, the Company reserves the
right to apply that amount to Sub-account, 3 -(the Money Market Fund of the
Trust).
Generally, unless otherwise requested, all payments will be allocated among the
accounts in the same proportion that the initial net payment is allocated, or,
if subsequently changed, according to the most recent allocation instructions.
However, to the extent permitted by state law, if the contract is issued as an
IRA or is issued in Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina,
Oklahoma, South Carolina, Texas, Utah, Washington and West Virginia, any portion
of the initial net payment and of additional net payments received during the
contracts's first fifteen days measured from the date of issue, allocated to any
Subaccount and/or any Guarantee Period Account, will be held in Subaccount 3
(the Money Market Fund of the Trust) until the end of the fifteen day period.
Thereafter, these amounts will be allocated as requested.
The Contract Owner may change allocation instruction for new payments pursuant
to a written or telephone request. If telephone requests are elected by the
Contract Owner, a properly completed authorization must be on file before
telephone requests will be honored. The policy of the Company and its agents and
affiliates is that they will not be responsible for losses resulting from acting
upon telephone requests reasonably believed to be genuine. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; otherwise, the Company may be liable for any losses due
to unauthorized or fraudulent instructions. The procedures the Company follows
for transactions initiated by telephone include requirements that callers on
behalf of a Contract Owner identify themselves by name and identify the
Annuitant by name, date of birth and social security number. All transfer
instructions by telephone are tape recorded.
B. Transfer Privilege.
At any time prior to the Annuity Date a Contract Owner may have amounts
transferred among all accounts. Transfer values will be effected at the
Accumulation Value next computed after receipt of the transfer order. The
Company will make transfers pursuant to written or telephone requests. As
discussed in "A. Payments," a properly completed authorization form must be on
file before telephone requests will be honored.
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Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to Subaccount 3, the Money Market Fund of the Trust.
The Contract Owner may have automatic transfers of at least $100 each made on a
periodic basis from the Money Market Fund and the Government Bond Fund of the
Trust, or from the Fixed Account to one or more of the other Subaccounts or
reallocate Contract values among the Subaccounts. Automatic transfers may be
made on a monthly, bimonthly, quarterly, semiannual or annual schedule. The
first automatic transfer counts as one transfer towards the twelve transfers
which are guaranteed to be free in each Contract year.
Currently, the Company makes no charge for transfers. The first twelve (12)
transfers in a Contract year are guaranteed to be free of any charge. For the
twelfth and each subsequent transfer in a Contract year the Company reserves the
right to assess a charge, guaranteed never to exceed $25, to reimburse it for
the expense of processing transfers.
C. Surrender.
At any time prior to the Annuity Date, a Contract Owner may surrender the
Contract and receive its Accumulated Value, less applicable charges and adjusted
for any market value adjustment ("Surrender Amount"). The Contract Owner must
return the Contract and a signed, written request for surrender, satisfactory to
the Company, to the Company's Principal Office. The amount payable to the
Contract Owner upon surrender will be based on the Contract's Accumulated Value
as of the Valuation Date on which the request and the Contract are received at
the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Contract is surrendered if payments have been credited to the Contract during
the last nine full contract years. See "CHARGES AND DEDUCTIONS." The Contract
Fee will be deducted upon surrender of the Contract.
After the Annuity Date, only Contracts under which future annuity payments are
limited to a specified period (as specified in the Period Certain Annuity
Option) may be surrendered. The Surrender Amount is the commuted value of any
unpaid installments, computed on the basis of the assumed interest rate
incorporated in such annuity payments. No contingent deferred sales charge is
imposed after the Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Subaccount in any
period during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each separate account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to the Company's Fixed Account and Guarantee Period
Accounts for a period not to exceed six months.
The surrender rights of Contract Owners who are participants under Section
403(b) plans or who are participants in the Texas Optional Retirement Program
(Texas ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School
Systems and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
D. Partial Redemption.
At any time prior to the Annuity Date, a Contract Owner may redeem a portion of
the Accumulated Value of his or her Contract, subject to the limits stated
below. The Contract Owner must file a signed, written request for redemption,
satisfactory to the Company, at the Company's Principal Office. The written
request must indicate the dollar amount the Contract Owner wishes to receive and
the accounts from which such amount is to be redeemed. The amount redeemed
equals the amount requested by the Contract Owner plus any applicable contingent
deferred sales charge, as described under "CHARGES AND DEDUCTIONS." In addition,
amounts redeemed from a Guarantee Period Account prior to the end of the
applicable Guarantee Period will be subject to a Market Value Adjustment, as
described under "GUARANTEE PERIOD ACCOUNTS".
Where allocations have been made to more than one account, a percentage of the
partial redemption may be allocated to each such account. A partial redemption
from a Subaccount will result in cancellation of a number of units equivalent in
value to the amount redeemed, computed as of the Valuation Date that the request
is received at the Company's principal office.
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Each partial redemption must be a minimum amount of $100. No partial
redemption will be permitted if the Accumulated Value remaining under the
Contract would be reduced to less than $1,000. Partial redemptions will be paid
in accordance with the time limitations described under "Surrender."
After the Annuity Date, only Contracts under which future variable annuity
benefit payments are limited to a specified period may be partially redeemed. A
partial redemption after the Annuity Date will result in cancellation of a
number of Annuity Units equivalent in value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Contract
Owners who are participants under Section 403(b) plans or under the Texas ORP,
see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems and Certain Tax
Exempt Organizations" and "J. Texas Optional Retirement Program."
For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
E. Death Benefit.
If the Annuitant dies (or a Contract Owner predeceases the Annuitant) prior to
the Annuity Date while the Contract is in force, the Company will pay the
beneficiary a death benefit, except where the Contract continues as provided in
"F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY."
Upon death of the Annuitant (including an Owner who is also the Annuitant), the
death benefit is equal to the greatest of (a) the Accumulated Value under the
Contract increased for any positive Market Value Adjustment; (b) gross
payments accumulated daily at 5% starting on the date each payment is applied,
reduced proportionately to reflect withdrawals (for each withdrawal, the
proportionate reduction is calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the withdrawal amount and
divided by the Accumulated Value immediately prior to the withdrawal); or (c) or
the death benefit that would have been payable on the most recent contract
anniversary, increased for subsequent payments and reduced proportionally to
reflect withdrawals after that date.
If an Owner who is not also the Annuitant dies before the Annuity Date, the
death benefit will be the Accumulated Value increased by any positive Market
Value Adjustment. The death benefit will never be reduced by a negative Market
Value Adjustment. The death benefit will generally be paid to the Beneficiary in
one sum within 7 days of the receipt of due proof of death unless the Owner has
specified a death benefit annuity option. Instead, the Beneficiary may, by
Written Request, elect to:
(a) defer distribution of the death benefit for a period no more than 5
years from the date of death; or
(b) receive a life annuity or an annuity for a period certain not
extending beyond the Beneficiary's life expectancy. Annuity benefit
payments must begin within one year from the date of death.
If distribution of the death benefit is deferred under (a) or (b), any value in
the Guarantee Period Accounts will be transferred to Sub-Account 3 (Money Market
Fund). The excess, if any, of the death benefit over the Accumulated Value will
also be added to the Money Market Sub-Account. The Beneficiary may, by Written
Request, effect transfers and withdrawals during the deferral period and prior
to annuitization under (b), but may not make additional payments. If there are
multiple Beneficiaries, the consent of all is required.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed annuity benefit payments, any unpaid amounts or
installments will be paid to the beneficiary. The Company must pay the remaining
payments at least as rapidly as under the payment option in effect on the date
of the Annuitant's death.
With respect to any death benefit, the Accumulated Value under the Policy shall
be based on the unit values next computed after due proof of the Annuitant's
death has been received at the Company's principal office. If the beneficiary
elects to receive the death benefit in one sum, the death benefit will be paid
within seven business days. If the beneficiary has not elected an annuity option
within one year from the date notice of death is received by the Company, the
Company will pay the death benefit in one sum. The death benefit will reflect
any earnings or losses experienced during the period and any withdrawals.
F. The Spouse of the Contract Owner as Beneficiary.
The Contract Owner's spouse, if named as the sole beneficiary, may by written
request continue the Contract in lieu of receiving the amount payable upon death
of the Contract Owner. Upon such election, the spouse will become the Owner and
Annuitant subject to the following: (a) any value in the Guarantee Period
Accounts will be transferred to the Money Market Subaccount; (b) the excess, if
any, of the death benefit over the Contract's Accumulated Value will also be
added to the Money Market Subaccount. Additional payments may be made; however,
a Surrender charge will apply to these amounts. All other rights and benefits
provided in the Contract will continue, except that any subsequent spouse of
such new Contract Owner will not be entitled to continue the Contract upon such
new Owner's death.
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G. Assignment.
The Contracts, other than those sold in connection with certain qualified plans,
may be assigned by the Contract Owner at any time prior to the Annuity Date and
while the Annuitant is alive (see "FEDERAL TAX CONSIDERATIONS"). The Company
will not be deemed to have knowledge of an assignment unless it is made in
writing and filed at the Principal Office. The Company will not assume
responsibility for determining the validity of any assignment. If an assignment
of the Contract is in effect on the Annuity Date, the Company reserves the right
to pay to the assignee, in one sum, that portion of the Surrender Value of the
Contract to which the assignee appears to be entitled. The Company will pay the
balance, if any, in one sum to the Contract Owner in full settlement of all
liability under the Contract. The interest of the Contract Owner and of any
beneficiary will be subject to any assignment.
H. Electing the Form of Annuity and the Annuity Date.
Subject to certain restrictions described below, the Contract Owner has the
right (1) to select the annuity option under which annuity benefit payments are
to be made, and (2) to determine whether payments are to be made on a fixed
basis, a variable basis, or a combination fixed and variable basis. Annuity
benefit payments are determined according to the annuity tables in the Contract,
by the annuity option selected, and by the investment performance of the
Account(s) selected.
To the extent a fixed annuity is selected, Accumulated Value will be transferred
to the Fixed Account of the Company, and the annuity payments will be fixed in
amount. See APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Subaccount(s) is made monthly, quarterly, semiannually or
annually. Since the value of an Annuity Unit in a Subaccount will reflect the
investment performance of the Subaccount, the amount of each annuity benefit
payment will vary.
The annuity option selected must produce an initial payment of at least $50
(a lower amount may be required some state laws). If a combination of fixed and
variable payments is selected, the initial payment on each basis must be at
least $20. The Company reserves the right to increase these minimum amounts.
If the annuity option(s) selected does not produce an initial payment which
meet this minimum, a single payment will be made. Once the Company begins making
annuity payments, the Annuitant cannot make partial redemptions or surrender the
annuity benefit, except in the case where future annuity payments are limited to
a "period certain." Only beneficiaries entitled to receive remaining payments
for a "period certain" may elect to instead receive a lump sum settlement.
The Annuity Date is selected by the Contract Owner. To the extent permitted in
your state, the Annuity Date may be the first day of any month (a) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Policy is 75 or under, or (b) within 10 years from the date of issue of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of issue is between 76 and 90. The Contract Owner may elect to change the
Annuity Date by sending a request to the Company's Principal Office at least one
month before the new Annuity date. The new Annuity Date must be the first day of
any month occurring before the Annuitant's 90th birthday and must be within the
life expectancy of the Annuitant. The Company shall determine such life
expectancy at the time a change in Annuity Date is requested. The Internal
Revenue Code and the terms of qualified plans impose limitations on the age at
which annuity payments may commence and the type of annuity option selected. See
"FEDERAL TAX CONSIDERATIONS" for further information.
If the Contract Owner does not elect otherwise, a variable life annuity with
periodic payments for 10 years guaranteed will be purchased. Changes in either
the Annuity Date or annuity option can be made up to one month prior to the
Annuity Date.
I. Description of Variable Annuity Options.
The Company provides the variable annuity options described below. Currently,
Variable annuity options may be funded through the Growth Fund, the Money Market
Fund, the Equity Index Fund, or the Select Growth and Income Fund.
The Company also provides these same options funded through the fixed account
(fixed-amount annuity option). Regardless of how payments were allocated during
the accumulation period, any one of the variable annuity options or the
fixed-amount options may be selected, or any one of the variable annuity options
may be selected in combination with any one of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
A Variable Life Annuity with Payments Guaranteed for 10 years. A variable
annuity payable periodically during the lifetime of the payee with the guarantee
that if the payee should die before all payments have been made, the remaining
annuity benefit payments will continue to the beneficiary.
A Variable Life Annuity payable periodically during the lifetime of the payee
only. It would be possible under this option for the Annuitant to receive only
one annuity benefit payment if the Annuitant dies prior to the due date of the
second annuity payment, two annuity payments if the Annuitant dies before the
due date of the third annuity benefit payment, and so on. However, payments will
continue during the lifetime of the payee, no matter how long the payee lives.
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A Unit Refund Variable Life Annuity is an annuity payable periodically during
the lifetime of the payee with the guarantee that if (1) exceeds (2) then
periodic variable annuity payments will continue to the beneficiary until the
number of such payments equals the number determined in (1).
Where: (1) is the dollar amount of the Accumulated Value divided by the
dollar amount of the first payment (which determines the
greatest number of payment payable to the beneficiary), and
(2) is the number of payments paid prior to the death of the
payee,
Joint and Survivor Variable Life Annuity is payable jointly to two payees during
their joint lifetime, and then continuing during the lifetime of the survivor.
The amount of each payment to the survivor is based on the same number of
Annuity Units which applied during the joint lifetime of the two payees. One of
the payees must be either the person designated as the Annuitant in the Contract
or the beneficiary. There is no minimum number of payments under this option.
Joint and Two-thirds Survivor Variable Life Annuity is a variable annuity
payable jointly to two payees during their joint lifetime, and then continuing
thereafter during the lifetime of the survivor. However, the amount of each
periodic payment to the survivor is based upon two-thirds of the number of
Annuity Units which applied during the joint lifetime of the two payees. One of
the payees must be the person designated as the Annuitant in the Contract or the
beneficiary. There is no minimum number of payments under this option.
Period Certain Variable Annuity is a variable annuity, with periodic payments
for a stipulated number of years ranging from one to thirty.
It should be noted that the Period Certain Option does not involve a life
contingency. In the computation of the payments under this option, the charge
for annuity rate guarantees, which includes a factor for mortality risks, is
made. Although not contractually required to do so, the Company currently
follows a practice of permitting persons receiving payments under the Period
Certain Option to elect to convert to a variable annuity involving a life
contingency. The Company may discontinue or change this practice at any time,
but not with respect to election of the option made prior to the date of any
change in this practice. See "FEDERAL TAX CONSIDERATIONS" for a discussion of
the possible adverse tax consequences of selecting a Period Certain Option.
J. Norris Decision.
In the case of Arizona Governing Committee v. Norris, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a Contract issued in connection with an employer-sponsored benefit plan
affected by the Norris decision will be based on the greater of (1) the
Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed unisex rates described in such Contract, regardless of whether the
Annuitant is male or female.
K. Computation of Values and Annuity Payments.
The Accumulation Unit. Each net payment is allocated to the account(s) selected
by the Contract Owner. Allocations to the Subaccounts are credited to the
Contract in the form of Accumulation Units. Accumulation Units are credited
separately for each Subaccount. The number of Accumulation Units of each
Subaccount credited to the Contract is equal to the portion of the net payment
allocated to the Subaccount, divided by the dollar value of the applicable
Accumulation Unit as of the Valuation Date the payment is received at the
Company's Principal Office. The number of Accumulation Units resulting from each
payment will remain fixed unless changed by a subsequent split of Accumulation
Unit value, a transfer, a partial redemption, or surrender. The dollar value of
an Accumulation Unit of each Subaccount varies from Valuation Date to Valuation
Date based on the investment experience of that Subaccount and will reflect the
investment performance, expenses and charges of its Underlying Funds. The value
of an Accumulation Unit was set at $1.00 on the first Valuation Date for each
Subaccount.
Allocations to the Guarantee Period Account and the Fixed Account are not
converted into Accumulation Units, but are credited interest at a rate
periodically set by the Company. See Appendix A.
The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Subaccount by the value of an Accumulation
Unit of that Subaccount on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the Fixed Account and Guarantee Period
Accounts, if any.
Adjusted Gross Investment Rate. At each Valuation Date an adjusted gross
investment rate for each Subaccount for the Valuation Period then ended is
determined from the investment performance of that Subaccount. Such rate is (1)
the investment income of that Subaccount for the Valuation Period, plus capital
gains and minus capital losses of that Subaccount for the Valuation Period,
whether realized or
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unrealized, adjusted for provisions made for taxes, if any, divided by (2) the
amount of that Subaccount's assets at the beginning of the Valuation Period. The
adjusted gross investment rate may be either positive or negative.
Net Investment Factor
The Net Investment Factor is an index that measures the investment performance
of a Sub-Account from one Valuation Period to the next. This factor is equal to
1.000000 plus the result from dividing (a) by (b) and subtracting (c) and (d)
where:
(a) is the investment income of a Sub-Account for the Valuation
Period, including realized or unrealized capital gains and losses
during the Valuation Period, adjusted for provisions made for taxes,
if any;
(b) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(c) is a charge for mortality and expense risks equal to 1.25% on an
annual basis of the daily value of the Sub-Account's assets, and
(d) is an administrative charge of .15% on an annual basis of the
daily value of the Sub-Account's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY PAYMENTS" in the Statement of Additional Information.
The Annuity Unit. On and after the Annuity Date the Annuity Unit is a measure of
the value of the Annuitant's monthly annuity payments under a variable annuity
option. The value of an Annuity Unit in each Subaccount initially was set at
$1.00. The value of an Annuity Unit under a Subaccount on any Valuation Date
thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the product of (1) the net investment factor of
the Subaccount for the current Valuation Period and (2) a factor to adjust
benefits to neutralize the assumed interest rate. The assumed interest rate,
discussed below, is incorporated in the variable annuity options offered in the
Contract.
Determination of the First and Subsequent Annuity Payments. The first periodic
annuity payment is based upon the Accumulated Value as of a date not more than
four weeks preceding the date that the first annuity payment is due. Currently,
variable annuity payments are made on the first of a month based on unit values
as of the 15th day of the preceding month.
The Contract provides annuity rates which determine the dollar amount of the
first periodic payment under each form of annuity for each $1,000 of applied
value. For Life Option and Noncommutable Period Certain Options of 10 or more
years, the annuity value is the Accumulated Value less any premium taxes and
adjusted for any Market Value Adjustment. For commutable period certain options
or any period certain option less than 10 years, the value is surrender value
less any premium tax. For a death benefit annuity, the annuity value will be the
amount of the death benefit. The annuity rates in the Contract are based on a
modification of the 1983 Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. Norris Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3 1/2% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity payments will increase
over periods when the actual net investment result of the Subaccount(s) funding
the annuity exceeds the equivalent of the assumed interest rate for the period.
Variable annuity benefit payments will decrease over periods when the actual net
investment result of the respective Subaccount is less than the equivalent of
the assumed interest rate for the period.
The dollar amount of the first periodic annuity payment under life annuity
options and non-commutable period certain options of 10 years or more is
determined by multipyling (1) the Accumulated Value applied under that option
(after application of any Market Value Adjustment and less premium tax, if any)
divided by $1,000, by (2) the applicable amount of the first monthly payment per
$1,000 of value. For commutable period certain options and any period certain
option of less than 10 years, the Surrender Value less premium taxes, if any, is
used rather than the Accumulated Value. The dollar amount of the first variable
annuity benefit payment is then divided by the value of an Annuity Unit of the
selected Subaccount(s) to determine the number of Annuity Units represented by
the first payment. This number of Annuity Units remains fixed under all annuity
options except the joint and two-thirds survivor annuity option. For each
subsequent payment, the dollar amount of the variable annuity benefit is
determined by multiplying this fixed number of Annuity Units by the value of an
Annuity unit on the applicable Valuation Date.
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After the first payment, the dollar amount of each periodic variable annuity
benefit payment will vary with subsequent variations in the value of the Annuity
Unit of the selected Subaccount(s). The dollar amount of each fixed amount
annuity benefit payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Contract Owners both fixed and
variable annuity rates more favorable than those contained in the Contract. Any
such rates will be applied uniformly to all Contract Owners of the same class.
For an illustration of variable annuity payment calculation using a hypothetical
example, see "ANNUITY PAYMENTS" in the Statement of Additional Information.
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 or the Investment Company Act of 1940. Accordingly, the staff of the
Commission has not reviewed the disclosures in this Prospectus relating to the
Guarantee Period Accounts or the Fixed Account. Nevertheless, disclosures
regarding the Guarantee Period Accounts and the Fixed Account of this annuity
Contract or any benefits offered under these accounts may be subject to the
provisions of the Securities Act of 1933 relating to the accuracy and
completeness of statements made in the Prospectus.
Investment Options - In most jurisdictions, there are currently seven Guarantee
period Accounts available under this Contract with Guarantee Periods of three,
five, six, seven, eight, nine and ten years. Each Guarantee Period Account
established for the Contract Owner is accounted for separately in a non-unitized
segregated account. Each Guarantee Period Account provides for the accumulation
of interest at a Guaranteed Interest Rate. The Guaranteed Interest Rate on
amounts allocated or transferred to a Guarantee Period Account is determined
from time-to-time by the Company in accordance with market conditions; however,
once an interest rate is in effect for a Guarantee Period Account, the Company
may not change it during the duration of the Guarantee Period. In no event will
the Guaranteed Rate off Interest be less than 3%.
To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract was initially issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Contract owners may allocate net payments or make transfers from any of the
subaccounts, the Fixed Account or an existing Guarantee Period Account to
establish a new Guarantee Period at any time prior to the Annuity Date.
Transfers from a Guarantee Period Account on any date other than on the day
following the expiration of that Guarantee Period will be subject to a Market
Value Adjustment. The Company establishes a separate investment account each
time the Contract Owner allocates or transfers amounts to a Guarantee Period
Account except that amounts allocated to the same Guarantee Period on the same
day will be treated as one Guarantee Period Account. The minimum that may be
allocated to establish a Guarantee Period Account is $1,000. If less than $1,000
is allocated, the Company reserves the right to apply that amount to the Money
Market Account. The Contract Owner may allocate amounts to any of the Guarantee
Periods available. Notwithstanding any other provision in this Prospectus, with
respect to contracts issued in the state of Pennsylvania, no amounts may be
allocated or transferred to any Guarantee Period that would extend more than six
months beyond the Annuity Date in effect on the date the allocation or transfer
is effected.
At least 45 days, but not more that 75 days prior to the end of a Guarantee
Period, the Company will notify the Contract Owner in writing of the expiration
of that Guarantee Period. At the end of a Guarantee Period the Owner may
transfer amounts to the subaccounts, the Fixed Amount or establish a new
Guarantee Period Account of any duration then offered by the Company without a
Market Value Adjustment. If reallocation instructions are not received at the
Principal Office before the end of a Guarantee Period, the account value will be
automatically applied to a new Guarantee period Account with the same duration
unless less than $1,000 remains in the Guarantee Period Account on the
expiration date unless the Guarantee Period would extend beyond the Annuity Date
or is no longer available. In such cases, the Guarantee Period Account value
will be transferred to the Money Market subaccount.
Market Value Adjustment - No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of the Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See " Death Benefit". A Market
Value Adjustment will apply to all other transfers or withdrawals, or a
surrender. Amounts applied under an annuity option are treated as withdrawals
when calculating the Market Value Adjustment. The Market Value Adjustment will
be determined by multiplying the amount taken from each Guarantee Period Account
before deduction of any Surrender Charge by the market value factor. The market
value factor for each Guarantee Period Account is equal to:
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[(1+i)/(1+j)]to the power of n/365 -1
where:
i is the Guaranteed Interest Rate expressed as a decimal (for example: 3% =
0.03) being credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate, expressed as a decimal, for a
Guarantee Period with a duration equal to the number of years remaining in
the current Guarantee Period, rounded to the next higher number of whole
years. If that rate is not available, the Company will use a suitable rate
or index allowed by the Department of Insurance; and
n is the number of days remaining from the Effective Valuation Date to the
end of the current Guarantee Period.
If the Guaranteed Interest Rate being credited is lower than the current
Guaranteed Interest Rate, the Market Value Adjustment will decrease the
Guarantee Period Account value. Similarly, if the Guaranteed Interest Rate being
credited is higher than the current Guaranteed Interest Rate, the Market Value
Adjustment will increase the Guarantee Period Account value. The Market Value
Adjustment will never result in a change to the value more than the interest
earned in excess of the Minimum Guarantee Period Account Interest Rate (see
Specifications page) compounded annually from the beginning of the current
Guarantee Period. For examples of how the Market Value Adjustment works, See
Appendix B.
Withdrawals - Prior to the Annuity Date, the Contract Owner may make withdrawals
of amounts held in the Guarantee Period Accounts. Withdrawals from these
accounts will be made in the same manner and be subject to the same rules as set
forth under "Partial Redemptions" and "Surrender." In addition, the following
provisions also apply to withdrawals from a Guarantee Period Account: a) a
market value adjustment will apply to all withdrawals, including Withdrawals
without Surrender Charge, unless made at the end of the Guarantee Period; and b)
the Company reserves the right to defer payments of amounts withdrawn from a
Guarantee Period Account for up to six ;months from the date it receives the
withdrawal request. If deferred for 30 days or more, the Company will pay
interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted or added to the amount remaining in the Guarantee Period
Account. If the entire amount in a Guarantee Period Account is requested, the
adjustment will be made to the amount payable. If a Contingent Deferred Sales
Charge applies to the withdrawal, it will be calculated as set forth under
"Contingent Deferred Sales Charge" after application of the Market Value
Adjustment.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Contract, on redemptions or
surrenders, on annuity payments, and on the economic benefit to the Contract
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the Internal
Revenue Service (IRS).
It should be recognized that the following discussion of federal income tax
aspects of amounts received under variable annuity Contracts is not exhaustive,
does not purport to cover all situations and is not intended as tax advice. A
qualified tax adviser should always be consulted with regard to the application
of law to individual circumstances.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Contracts, the Separate Account or the Subaccounts may have
upon its tax. The Separate Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes should the Separate
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
Contract Owners and with respect to each Separate Account as though that
Separate Account were a separate taxable entity.
The Separate Account is considered to be a part of and taxed with the
operations of the Company. The Company is taxed as a life insurance company
under subchapter L of the Code. The Company files a consolidated tax return with
its affiliates.
The Internal Revenue Service has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
contracts under Section 817(h) of the Internal Revenue Code ("Code"). The
regulations provide that the investments of a segregated asset account
underlying a variable annuity contract are adequately diversified if no more
than 55% of the value of its assets is represented by any one investment, no
more than 70% by any two investments, no more than 80% by any three investments,
and no more than 90% by any four investments. If the investments are not
adequately diversified, the income on a contract, for any taxable year of the
Contract Owner, would be treated as ordinary income received or accrued by the
Contract Owner. It is anticipated that the Funds of the Allmerica Investment
Trust, the Portfolios of VIP and VIP II, the Portfolio of T. Rowe and the Series
of DGPF will comply with the diversification requirements.
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A. Qualified and Non-Qualified Contracts.
From a federal tax viewpoint there are two types of variable annuity Contracts,
"qualified" Contracts and "non-qualified" Contracts. A qualified Contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Contract 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 Contract or a non-qualified Contract. For more information on the tax
provisions applicable to qualified Contracts, see Sections D through J, below.
B. Taxation of the Contracts in General.
The Company believes that the Contracts described in this Prospectus will, with
certain exceptions (see K below), be considered annuity Contracts under Section
72 of the Internal Revenue Code (the "Code"). This section provides for the
taxation of annuities. The following discussion concerns annuities subject to
Section 72. Section 72(e)(11)(A)(ii) requires that all non-qualified deferred
annuity Contracts issued by the same insurance company to the same Contract
Owner during the same calendar year be treated as a single Contract in
determining taxable distributions under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the Contract
is not taxable to the Contract Owner until it is withdrawn from the Contract. If
the Contract is surrendered or amounts are withdrawn prior to the Annuity Date,
to the extent of the amount withdrawn any investment gain in value over the cost
basis of the Contract would be taxed as ordinary income. Under the current
provisions of the Code, amounts received under a non-qualified Contract prior to
the Annuity Date (including payments made upon the death of the Annuitant or
Contract Owner), or as non-periodic payments after the Annuity Date, are
generally first attributable to any investment gains credited to the Contract
over the taxpayer's basis (if any) in the Contract. Such amounts will be treated
as income subject to federal income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59-1/2. The penalty tax will not be imposed
after age 59-1/2, or if the withdrawal follows the death of the Contract Owner
(or, if the Contract Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Annuitant. Furthermore, under Section 72 of the
Code, this penalty tax will not be imposed, irrespective of age, if the amount
received is one of a series of "substantially equal" periodic payments made at
least annually for the life or life expectancy of the payee. This requirement is
met when the Contract Owner elects to have distributions made over the Contract
Owner's life expectancy, or over the joint life expectancy of the Contract Owner
and beneficiary. The requirement that the amount be paid out as one of a series
of "substantially equal" periodic payments is met when the number of units
withdrawn to make each distribution is substantially the same.
In a private letter ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Contract's life expectancy distribution ("LED") option), and the
option could be changed or terminated at any time, the distributions failed to
qualify as part of a "series of substantially equal payments" within the meaning
of Section 72 of the Code. The distributions were therefore subject to the 10%
federal penalty tax. This private letter ruling may be applicable to a Contract
Owner who receives distributions under the LED option prior to age 59 1/2.
Subsequent private letter rulings, however, have treated LED-type withdrawal
programs as effectively avoiding the 10% penalty tax. The position of the IRS on
this issue is unclear.
If the Contract Owner transfers (assigns) the Contract to another individual as
a gift prior to the Annuity Date, the Code provides that the Contract Owner will
incur taxable income at the time of the transfer. An exception is provided for
certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the Surrender Value of the
Contract over the Contract Owner's cost basis at the time of the transfer. The
transfer is also subject to federal gift tax provisions. Where the Contract
Owner and Annuitant are different persons, the change of ownership of the
Contract to the Annuitant on the Annuity Date, as required under the Contract,
is a gift and will be taxable to the Contract Owner as such. However, the
Contract Owner will not incur taxable income. Rather the Annuitant will incur
taxable income upon receipt of annuity payments as discussed below.
When annuity payments are commenced under the Contract, generally a portion of
each payment may be excluded from gross income. The excludable portion is
generally determined by a formula that establishes the ratio that the cost basis
of the Contract bears to the expected return under the Contract. The portion of
the payment in excess of this excludable amount is taxable as ordinary income.
Once all cost basis in the Contract is recovered, the entire payment is taxable.
If the last Annuitant dies before cost basis is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.
C. Tax Withholding and Penalties.
The Code requires withholding with respect to payments or distributions from
employee benefit plans, annuities, and IRAs, unless a taxpayer elects not to
have withholding. In addition, the Code requires reporting to the IRS of the
amount of income received with respect to payment or distributions from
annuities.
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In certain situations, the Code provides for a tax penalty if, prior to death,
disability or attainment of age 59 1/2, a Contract Owner makes a withdrawal or
receives any amount under the Contract, unless the distribution is in the form
of a life annuity (including life expectancy distributions). The penalty is 10%
of the amount includible in income by the Contract Owner.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Contracts offered by this Prospectus will vary according to
whether the amount redeemed or surrendered is allocable to an investment in the
Contract made before or after certain dates.*
D. Provisions Applicable to Qualified Employer Plans.
The tax rules applicable to qualified employer plans, as defined by the Code,
vary according to the type of plan and the terms and conditions of the plan
itself. Therefore, the following is general information about the use of the
Contracts with various types of qualified plans. The rights of any person to any
benefits under such qualified plans will be subject to the terms and conditions
of the qualified plans themselves regardless of the terms and conditions of the
Contract.
A loan to a participant or beneficiary from plans qualified under Sections 401
and 403 or an assignment or pledge of an interest in such a plan is generally
treated as a distribution. This general rule does not apply to loans which
contain certain repayment terms and do not exceed a specified maximum amount, as
required under Section 72(p).
E. Qualified Employee Pension and Profit Sharing Trusts and Qualified Annuity
Plans.
When an employee (including a self-employed individual) or one or more of the
employee's beneficiaries receives a "lump sum" distribution (a distribution from
a qualified plan described in Code Section 401(a) within one taxable year equal
to the total amount payable with respect to such an employee) the taxable
portion of such distribution may qualify for special treatment under a special
five-year income averaging provision of the Code. The employee must have had at
least 5 years of participation under the plan, and the lump sum distribution
must be made after the employee has attained age 59 1/2 or on account of his or
her death, separation from the employer's service (in the case of a common-law
employee) or disability (in the case of a self-employed individual). Such
treatment can be elected for only one taxable year once the individual has
reached age 59 1/2. An employee who attained age 50 before January 1, 1986 may
elect to treat part of the taxable portion of a lump-sum distribution as
long-term capital gains and may also elect 10-year averaging instead of
five-year averaging.
The Company can provide prototype plans for certain of the pension or profit
sharing plans for review by your legal counsel. For information, ask your agent.
F. Self-Employed Individuals.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended, frequently
referred to as "H.R. 10", allows self-employed individuals and partners to
establish qualified pension and profit sharing trusts and annuity plans to
provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements applicable
to corporate qualified plans, with some special restrictions imposed on
"owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
G. Individual Retirement Account Plans.
Any individual who earns "compensation" (as defined in the Code and including
alimony payable under a court decree) from employment or self-employment,
whether or not he or she is covered by another qualified plan, may establish an
Individual Retirement Account or Annuity plan ("IRA") for the accumulation of
retirement savings on a tax-deferred basis. Income from investments is not
included in "compensation." The assets of an IRA may be invested in, among other
things, annuity Contracts including the Contracts offered by this Prospectus.
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the above-described
limit on each. An individual with an IRA may establish an additional IRA for a
non-working spouse if they file a joint return. Contributions to the two IRAs
together are deductible up to the lesser of $2,250 or 100% of compensation.
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No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be deducted,
taxes on their earnings are deferred until the earnings are distributed. The
maximum permissible non-deductible contribution is $2,000 for an individual
taxpayer and $2,250 for a taxpayer and non-working spouse. These limits are
reduced by the amount of any deductible contributions made by the taxpayer.
Contributions may be made with respect to a particular year until the due date
of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2, and failure to
make adequate distributions at this time may result in certain adverse tax
consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a
non-deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's tax
return to enable the IRS to determine the proportion of the IRA balance which
represents non-deductible contributions. If the required information is
provided, that part of the amount withdrawn which is proportionate to the
individual's aggregate non-deductible contributions over the aggregate balance
of all of the individual's IRAs, is excludable from income.
Distributions which are a return of a non-deductible contribution are
non-taxable, as they represent a return of basis. If the required information is
not provided to the IRS, distributions from an IRA to which both deductible and
non-deductible contributions have been made are presumed to be fully taxable.
H. Simplified Employee Pensions.
Employers may establish Simplified Employee Pensions ("SEPs") under Code Section
408(k) if certain requirements are met. A SEP is an IRA to which the employer
contributes under a written formula. Currently, a SEP may accept employer
contributions each year up to $30,000 or 15% of compensation (as defined),
whichever is less. To establish SEPs the employer must make a contribution for
every employee age 21 and over who has performed services for the employer for
at least three of the five immediately preceding calendar years and who has
earned at least $300 for the year.
The employer's contribution is excluded from the employee's gross income for the
taxable year for which it was made up to the $30,000/15% limit. In addition to
the employer's contribution, the employee may contribute 100% of the employee's
earned income, up to $2,000, to the SEP, but such contributions will be subject
to the rules described above in "F. Individual Retirement Account Plans."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
I. Public School Systems and Certain Tax-Exempt Organizations.
Under the provisions of Section 403(b) of the Code, payments made for annuity
Contracts purchased for employees under annuity plans adopted by public school
systems and certain organizations which are tax exempt under Section 501(c)(3)
of the Code are excludable from the gross income of such employees to the extent
that the aggregate purchase payments for such annuity Contracts in any year do
not exceed the maximum contribution permitted under the Code.
A Contract qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Contract Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax. The distribution restrictions are
effective for years beginning after December 31, 1988, but only with respect to
amounts that were not held under the Contract as of that date.
J. Texas Optional Retirement Program.
Under a Code Section 403(b) annuity contract issued as a result of participation
in the Texas Optional Retirement Program, distributions may not be received
except in the case of the participant's death, retirement or termination of
employment in the Texas public institutions of higher education. These
restrictions are imposed by reason of an opinion of the Texas Attorney General
interpreting the Texas laws governing the Optional Retirement Program.
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K. Section 457 Plans for State Governments and Tax-Exempt Entities.
Code Section 457 allows employees of a state, one of its political subdivisions,
or certain tax-exempt entities to participate in eligible government deferred
compensation plans. An eligible plan, by its terms, must not allow deferral of
more than $7,500 or 33 1/3% of a participant's includible compensation for the
taxable year, whichever is less. Includible compensation does not include
amounts excludable under the eligible deferred compensation plan or amounts paid
into a Code Section 403(b) annuity. The amount a participant may defer must be
reduced dollar-for-dollar by elective deferrals under a SEP, 401(k) plan or a
deductible employee contribution to a 501(c)(18) plan. Under eligible deferred
compensation plans the state, political subdivision, or tax-exempt entity will
be owner of the Contract.
If an employee also participates in another eligible plan or contributes to a
Code Section 403(b) annuity, a single limit of $7,500 will be applied for all
plans. Additionally, the employee must designate how much of the $7,500 or 33
1/3% limitation will be allocated among the various plans. Contributions to an
eligible plan will serve to reduce the maximum exclusion allowance for a Code
Section 403(b) annuity. Amounts received by employees under such plans generally
are includible in gross income in the year of receipt.
L. Non-individual Owners.
Non-individual Owners (e.g., a corporation) of deferred annuity contracts
generally will be currently taxed on any increase in the cash surrender value of
the deferred annuity attributable to contributions made after February 28, 1986.
This rule does not apply to immediate annuities or to deferred annuities held by
a qualified pension plan, an IRA, a 403(b) plan, estates, employers with respect
to terminated pension plans, or a nominee or agent holding a contract for the
benefit of an individual. Corporate-owned annuities may result in exposure to
the alternative minimum tax, to the extent that income on the annuities
increases the corporation's adjusted current earnings.
REPORTS
A Contract Owner is sent a report semi-annually which states certain financial
information about the Underlying Funds. The Company will also furnish an annual
report to the Contract Owner containing a statement of his or her account,
including unit values and other information as required by applicable law, rules
and regulations.
(Loan Provision for the GPA/Variable Annuity)
LOANS (QUALIFIED CONTRACTS ONLY) Loans are available to owners of TSA contracts
(i.e. contracts issued under Section 403(b) of the Internal Revenue Code) and to
contracts issued to plans qualified under Section 401(a) and 401(k) of the Code.
Loans are subject to provisions of the Code and to applicable qualified
retirement plan rules. Tax advisors and plan fiduciaries should be consulted
prior to exercising loan privileges.
Loaned amounts will first be withdrawn from Subaccount and Fixed Account values
on pro-rata basis until exhausted. Thereafter any additional amounts, if
required, will be withdrawn from the Guarantee Period Accounts (pro-rata by
durations and LIFO within each duration), subject to any applicable Market
Value Adjjustments. The maximum loan amount will be determined under the
Company's maximum loan formula. The minimum loan amount is $1,000. Loans will be
secured by a security interest in the contract and the amount borrowed will be
transferred to a loan asset account within the Company's General Account, where
it will accrue interest at a specified rate below the then current loan interest
rate. Generally, loans must be repaid within five years or less and repayments
must be made quarterly and in substantially equal amounts. Repayments will be
allocated pro-rata in accordance with the most recent payment allocation except
that any allocations to a Guarantee Period Account will instead be allocated to
the Money Market Subaccount.
CHANGES IN OPERATION OF THE VARIABLE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from any Separate Account or Subaccount to another of the
Company's variable accounts or Subaccounts having assets of the same class, (2)
to operate the variable account or any Subaccount as a management investment
company under the 1940 Act or in any other form permitted by law, (3) to
deregister the Variable account under the 1940 Act in accordance with the
requirements of the 1940 Act, (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Subaccount, in the event that Underlying Fund shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the
Subaccount, (5) to change the methodology for determining the net investment
factor and (6) to change the names of the Variable Account or of the
Subaccounts. In no event will the changes described above be made without notice
to Contract Owners in accordance with the 1940 Act.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party.
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<PAGE>
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted in this
Prospectus pursuant to the rules and regulations of the Commission. The omitted
information may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the Commission's prescribed fees.
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account are not generally subject to regulation under the
provisions of the Securities Act of 1933 or the Investment Company Act of 1940.
Disclosures regarding the fixed portion of the annuity contract and the Fixed
Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission.
The Fixed Account is made up of all of the general assets of the Company other
than those allocated to the separate account. Allocations to the Fixed Account
become part of the assets of the Company and are used to support insurance and
annuity obligations. A portion or all of net purchase payments may be allocated
to accumulate at a fixed rate of interest in the Fixed Account. Such net amounts
are guaranteed by the Company as to principal and a minimum rate of interest.
Under the Contracts, the minimum interest which may be credited on amounts
allocated to the Fixed Account is 3% compounded annually. Additional "Excess
Interest" may or may not be credited at the sole discretion of the Company.
If a Contract is surrendered, or if an Excess Amount is redeemed, while the
Contract is in force and before the Annuity Date, a contingent deferred sales
charge is imposed if such event occurs before the payments attributable to the
surrender or withdrawal have been credited to the Contract less than nine full
contract years.
-40-
<PAGE>
APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Purchase Payments are made. Assume there are no partial withdrawals
and that the free withdrawal amount is equal to the greater of 10% of the
current Account Value or the accumulated earnings in the contract. The table
below presents examples of the surrender charge resulting from a full surrender
of the Participant's Account, based on hypothetical Account Values.
<TABLE>
<CAPTION>
Hypothetical Free Surrender
Account Account Withdrawal Charge Surrender
Year Value Amount Percentage Charge
---- ----- ------ ---------- ------
<S> <C> <C> <C> <C>
1 54,000.00 5,400.00 8% 3,672.00
2 58,320.00 8,320.00 8% 3,965.76
3 62,985.60 12,985.60 7% 3,500.00
4 68,024.45 18,024.45 6% 3,000.00
5 73,466.40 23,466.40 5% 2,500.00
6 79,343.72 29,343.72 4% 2,000.00
7 85,691.21 35,691.21 3% 1,500.00
8 92,546.51 42,546.51 2% 1,000.00
9 99,950.23 49,950.23 1% 500.00
10 107,946.25 51,946.25 0% 0.00
</TABLE>
-41-
<PAGE>
PARTIAL WITHDRAWAL
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Purchase Payments are made. Assume that the free withdrawal amount
is equal to the greater of 10% of the current Account Value or the accumulated
earnings in the contract and there are partial withdrawals as detailed below.
The table below presents examples of the surrender charge resulting from partial
surrenders of the Participant's Account, based on hypothetical Account Values.
<TABLE>
<CAPTION>
Hypothetical Free Surrender
Account Account Partial Withdrawal Charge Surrender
Year Value Withdrawal Amount Percentage Charge
---- ----- ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
1 54,000.00 0.00 5,400.00 8% 0.00
2 58,320.00 0.00 8,320.00 8% 0.00
3 62,985.60 0.00 12,985.60 7% 0.00
4 68,024.45 30,000.00 18,024.45 6% 718.53
5 41,066.40 10,000.00 6,159.96 5% 192.00
6 33,551.72 5,000.00 5,032.76 4% 0.00
7 30,835.85 10,000.00 4,625.38 3% 161.24
8 22,502.72 15,000.00 3,375.41 2% 232.49
9 8,102.94 0.00 810.29 1% 0.00
10 8,751.17 0.00 875.12 0% 0.00
</TABLE>
-42-
<PAGE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is:
n/365
[(1+i)/(1+j)] -1
The following examples assume:
1. The Purchase Payment was allocated to a ten year guarantee period
with a guaranteed interest rate of 8%.
2. The date of surrender is seven years (2555 days) from the expiration
date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at
the end of three years.
4. No transfers of partial withdrawals affecting this Guarantee Period
Account have been made.
5. Surrender charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
n/365
The market value factor = [(1+i)/(1+j)] -1
2555/365
= [(1+.08)/(1+.10)] -1
7
= (.98182) -1
= -.12054
The market value adjustment = the market value factor multiplied by
the withdrawal
= -.12054*$62,985.60
= -$7,592.11
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
n/365
The market value factor = [(1+i)/(1+j)] -1
2555/365
= [(1+.08)/(1+.07)] -1
7
= (1.0093) -1
= .06694
The market value adjustment = the market value factor multiplied by
the withdrawal
= .06694*$62,985.60
= $4,216.26
-43-
<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
n/365
The market value factor = [(1+i)/(1+j)] -1
2555/365
= [(1+.08)/(1+.11)] -1
7
= (.97297) -1
= -.17454
The market value adjustment = Minimum of the market value factor
multiplied by the withdrawal or the
negative of the excess interest earned
over 3%
= Min(-.17454*$62,985.60 or -$8,349.25)
= Min(-$10,993.51 or -$8,349.25)
= -$8,349.25
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
n/365
The market value factor = [(1+i)/(1+j)] -1
2555/365
= [(1+.08)/(1+.06)] -1
7
= (1.01887) -1
= .13981
The market value adjustment = Minimum of the market value factor
multiplied by the withdrawal or the
excess interest earned over 3%
= Min(.13981*$62,985.60 or $8,349.25)
= Min($8,806.02 or $8,349.25)
= $8,349.25
-44-
<PAGE>
APPENDIX C
THE DEATH BENEFIT
PART 1: DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Purchase Payments are made. Assume there are no partial withdrawals
and that the Death Benefit Effective Annual Yield is equal to 5%. The table
below presents examples of the Death Benefit based on the hypothetical Account
Values.
<TABLE>
<CAPTION>
Hypothetical
Hypothetical Market Hypothetical
Account Value Death Death Death Death
Year Value Adjustment Benefit (a) Benefit (b) Benefit (c) Benefit
---- ----- ---------- ------------ ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
1 53,000.00 0.00 53,000.00 52,500.00 50,000.00 53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>
Death Benefit (a) is the Account Value increase by any positive Market Value
Adjustment
Death Benefit (b) is the gross payments accumulated daily at the Death Benefit
Effective Annual Yield reduced proportionately to reflect withdrawals.
Death Benefit (c) is the death benefit that would have payable on the most
recent contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c)
-45-
<PAGE>
DEATH BENEFIT ASSUMING PARTIAL WITHDRAWALS
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Purchase Payments are made. Assume there are partial withdrawals as
detailed in the table below and that the Death Benefit Effective Annual Yield is
equal to 5%. The table below presents examples of the Death Benefit based on
the hypothetical Account Values.
<TABLE>
<CAPTION>
Hypothetical
Hypothetical Market Hypothetical
Account Partial Value Death Death Death Death
Year Value Withdrawal Adjustment Benefit (a) Benefit (b) Benefit (c) Benefit
---- ----- ---------- ---------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 53,000.00 0.00 0.00 53,000.00 52,500.00 50,000.00 53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 3,816.94 3,635.18 3,883.00
4 3,494.70 0.00 500.00 3,994.70 4,007.79 3,883.00 4,007.79
5 3,844.17 0.00 0.00 3,844.17 4,208.18 4,007.79 4,208.18
6 4,228.59 0.00 500.00 4,728.59 4,418.59 4,208.18 4,728.59
7 4,651.45 0.00 0.00 4,651.45 4,639.51 4,728.59 4,728.59
8 5,116.59 0.00 500.00 5,616.59 4,871.49 4,728.59 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,115.07 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 599.51 628.25 691.07
</TABLE>
Death Benefit (a) is the Account Value increase by any positive Market Value
Adjustment
Death Benefit (b) is the gross payments accumulated daily at the Death Benefit
Effective Annual Yield reduced proportionately to reflect withdrawals.
Death Benefit (c) is the death benefit that would have payable on the most
recent contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c)
-46-
<PAGE>
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Purchase Payments are made. Assume there are no partial withdrawals
and that the Death Benefit Effective Annual Yield is equal to 5%. The table
below presents examples of the Death Benefit based on the hypothetical Account
Values.
<TABLE>
<CAPTION>
Hypothetical
Hypothetical Market Hypothetical
Account Value Death
Year Value Adjustment Benefit
---- ----- ---------- -------
<S> <C> <C> <C>
1 53,000.00 0.00 53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>
The hypothetical Death Benefit is the Account Value increase by any positive
Market Value Adjustment.
-47-
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
INDIVIDUAL VARIABLE ANNUITY POLICIES
STATEMENT OF ADDITIONAL INFORMATION
for
Individual Variable Annuity Policies Funded through Subaccounts of
Separate Account VA-K
Investing in Shares of Allmerica Investment Trust, Variable Insurance
Products Fund, Variable Insurance Products Fund II,
T. Rowe Price International Series, Inc. and
Delaware Group Premium Fund, Inc.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF THE SEPARATE ACCOUNT DATED APRIL 30, 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 APRIL 30, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY...............................................2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY..............................3
SERVICES......................................................................3
UNDERWRITERS..................................................................3
ANNUITY PAYMENTS..............................................................4
PERFORMANCE INFORMATION.......................................................5
FINANCIAL STATEMENTS..........................................................9
GENERAL INFORMATION AND HISTORY
Separate Account VA-K ("Separate Account") is a separate investment account of
Allmerica Financial Life Insurance and Annuity Company ("Company") established
by vote of the Board of Directors on November 1, 1990. The Company 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 indirect 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.
Currently, 18 Subaccounts of the Separate Account are available under the
Policies. Each Subaccount 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 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 series
investment companies. Eleven different Funds of the Trust are available under
the Policies: the Growth Fund, Investment Grade Income Fund, Money Market Fund,
Equity Index Fund, Government Bond Fund, Select International Growth Fund,
Select Aggressive Growth Fund, Select Capital Appreciation Fund, Select Growth
Fund, Select Growth and Income Fund and Small Cap Value Fund.
-2-
<PAGE>
Certain of these Funds may not be available in all states. Four Portfolios of
VIP are available under the Policies: the High Income Portfolio, Equity-Income
Portfolio, Growth Portfolio, and Overseas Portfolio. One Portfolio of VIP II is
available under the Policies: the Asset Manager Portfolio. One portfolio of T.
Rowe is available under the Policies: the International Stock Portfolio. The
International Equity Series is the only Series of DGPF available under the
Policies. Each Fund, Portfolio and Series available under the Policies
(together, the "Underlying Funds") has its own investment objectives and certain
attendant risks.
TAXATION OF THE POLICIES, SEPARATE ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
Policy, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any other
taxes that may become payable in the future in connection with the Policies or
the Separate Account.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Code and files a consolidated tax return with its parent and
affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Policies or the Separate Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Policy Owners. The Separate Account
presently is not subject to tax.
SERVICES
Custodian of Securities. The Company serves as custodian of the assets of the
Separate Account. Underlying Fund shares owned by the Subaccounts are held on an
open account basis. A Subaccount's ownership of Underlying Fund shares is
reflected on the records of the Underlying Fund and not represented by any
transferable stock certificates.
Experts. The financial statements of the Company as of December 31, 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 constitutin g part of the
Registration Statement, have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Policies.
UNDERWRITERS
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD), serves as principal underwriter and general distributor
for the Policies pursuant to a contract between Allmerica Investments, Inc., the
Company and the Separate Account. Allmerica Investments, Inc. distributes the
Policies on a best efforts basis. Allmerica Investments, Inc., 440 Lincoln
Street, Worcester, Massachusetts 01653 was organized in 1969 as a wholly-owned
subsidiary of First Allmerica and is, at present, indirectly wholly-owned by
First Allmerica.
The Policies offered by this Prospectus are offered continuously and may be
purchased from NASD registered representatives of Allmerica Investments, Inc.
and from certain independent broker-dealers which are NASD members and whose
representatives are authorized by applicable law to sell variable annuity
policies.
Commissions are paid by the Company to its licensed insurance agents on sales of
the Policies. The Company intends to recoup the commission and other sales
expense through a combination of anticipated surrender, partial redemption
-3-
<PAGE>
and/or annuitization charges, the investment earnings on amounts allocated to
accumulate on a fixed basis in excess of the interest credited on fixed
accumulations by the Company, and the profit, if any, from the mortality and
expense risk charge.
All persons selling the Policies are required to be licensed by their respective
state insurance authorities for the sale of variable annuity policies.
Registered representatives of Allmerica Investments, Inc. receive commissions
equal to 5% (4% on Policies originally issued as part of a 401(k) plan) of
Purchase Payments. Managers who supervise the agents will receive overriding
commissions ranging up to no more than 2% of purchase payments. Independent
broker-dealers receive commissions of 5%, of which a portion is paid to their
registered representatives.
The aggregate amount of commissions paid to representatives of Allmerica
Investments, Inc. with respect to sales of the Company's Variable Annuity
Policies was $_____________ in 1995, $26,842,152.00 in 1995 and $21,276,666.00
in 1993.
Commissions are paid by the Company and do not result in any charge to Policy
Owners or to the Separate Account in addition to the charges described under
"CHARGES AND DEDUCTIONS" in the Prospectus.
ANNUITY PAYMENTS
The method by which the Accumulated Value under the Policy is determined is
described in detail under "K. Computation of Policy Values and Annuity Payments"
in the Prospectus.
Illustration of Accumulation Unit Calculation Using Hypothetical Example. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Subaccount at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit value at the end of the current Valuation Period would be
calculated as follows:
(1) Accumulation Unit Value - Previous Valuation Period..............$ 1.135000
(2) Value of Assets - Beginning of Valuation Period..................$5,000,000
(3) Excess of investment income and net gains over capital losses........$1,675
(4) Adjusted Gross Investment Rate for the valuation period (3):(2)....0.000335
(5) Annual Charge (one day equivalent of 1.45% per annum)..............0.000039
(6) Net Investment Rate (4)-(5)........................................0.000296
(7) Net Investment Factor 1.000000 + (6)...............................1.000296
(8) Accumulation Unit Value - Current Period (1)x(7).................$ 1.135336
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
accumulated unit value at the end of the Valuation Period would have been
$1.134576.
The method for determining the amount of annuity payments is described in detail
under "K. Computation of Policy Values and Annuity Payments" in the Prospectus.
Illustration of Variable Annuity Payment Calculation Using Hypothetical Example.
The determination of the
-4-
<PAGE>
Annuity Unit value and the variable annuity payment may be illustrated by the
following hypothetical example: Assume an Annuitant has 40,000 Accumulation
Units in a Separate Account, and that the value of an Accumulation Unit on the
Valuation Date used to determine the amount of the first variable annuity
payment is $1.120000. Therefore, the Accumulation Value of the Policy is $44,800
(40,000 x $1.120000). Assume also that the Policy Owner elects an option for
which the first monthly payment is $6.57 per $1,000 of Accumulated Value
applied. Assuming no premium tax or contingent deferred sales charge, the first
monthly payment would be 44.800 multiplied by $6.57, or $294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3-1/2% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit values
because the former reflect the 3-1/2% assumed interest rate used in the annuity
rate calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined to be 267.5818. The value of this same number of Annuity Units will
be paid in each subsequent month under most options. Assume further that the net
investment factor for the Growth Account for the Valuation Period applicable to
the next annuity payment is 1.000190. Multiplying this factor by .999906 (the
one-day adjustment factor for the assumed interest rate of 3-1/2% per annum)
produces a factor of 1.000096. This is then multiplied by the Annuity Unit value
on the immediately preceding Valuation Date (assumed here to be $1.105000). The
result is an Annuity Unit value of $1.105106 for the current monthly payment.
The current monthly payment is then determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 267.5818 times $1.105106,
which produces a current monthly payment of $295.71.
PERFORMANCE INFORMATION
Performance information for a Subaccount may be compared, in reports and
promotional literature, to certain indices described in the prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other materials information on
various topics of interest to Policy Owners and prospective Policy Owners. These
topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, market timing, dollar cost
averaging, asset allocation, constant ratio transfer and account rebalancing),
the advantages and disadvantages of investing in tax-deferred and taxable
investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and investment
alternatives to certificates of deposit and other financial instruments,
including comparisons between the Policies and the characteristics of and market
for such financial instruments.
Total Return
"Total Return" refers to the total of the income generated by an investment in a
Subaccount and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Subaccounts asset charge and any applicable contingent deferred sales
load which would be assessed upon complete redemption of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission. The quotations are computed by
finding the average annual compounded rates of return over the specified periods
that would equate the initial amount invested to the ending redeemable values,
according to the following formula:
P(1 + T)to the power or n = ERV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
-5-
<PAGE>
n = number of years
ERV = the ending redeemable value of the $1,000 payment
at the end of the specified period
The calculation of Total Return includes the annual charges against the asset of
the Subaccount. This charge is 1.45% on an annual basis. The calculation of
ending redeemable value assumes (1) the policy was issued at the beginning of
the period and (2) a complete surrender of the policy at the end of the period.
The deduction of the contingent deferred sales charge, if any, applicable at the
end of the period is included in the calculation, according to the following
schedule:
Policy year from date of payment Charge as Percentage
in which Surrender Occurs of New Payments redeemed*
------------------------- -------------------------
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 Policy or the life
expectancy distribution, is not subject to the contingent sales load.
The calculations of Total Return include the deduction of the $30 Annual Policy
fee.
-6-
<PAGE>
Supplemental Total Return Information
The Supplemental Total Return information in this section refers to the total of
the income generated by an investment in a Subaccount and of the changes of
value of the principal invested (due to realized and unrealized capital gains or
losses) for a specified period reduced by the Subaccount's asset charges.
However, it is assumed that the investment is NOT redeemed at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
P(1 + T)to the power of n = EV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the
end of the specified period
The calculation of Supplemental Total Return reflects the 1.45% annual charge
against the assets of the Subaccounts. The ending value assumes that the policy
is NOT redeemed at the end of the specified period, and there is therefore no
-7-
<PAGE>
adjustment for the contingent deferred sales charge that would be applicable if
the policy was redeemed at the end of the period.
The calculations of Supplemental Total Return includes the deduction of the $30
Annual Policy fee.
Yield and Effective Yield - Subaccount 3 (invests in the Money
Market Fund of the Trust)
Set forth below is yield and effective yield information for Subaccount 3 for
the seven-day period ended December 31, 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 Subaccount at the
beginning of the period, subtracting a charge reflecting the annual 1.45%
deduction for mortality and expense risk and the administrative charge, dividing
the difference by the value of the account at the beginning of the same period
to obtain the base period return, and then multiplying the return for a
seven-day base period by (365/7), with the resulting yield carried to the
nearest hundredth of one percent.
-8-
<PAGE>
Subaccount 3 computes effective yield by compounding the unannualized base
period return by using the formula:
Effective Yield = [(base period return + 1)(365/7)] - 1
The calculations of yield and effective yield do not reflect the $30 Annual
Policy fee.
FINANCIAL STATEMENTS
Financial Statements are included for the Company and for the Subaccounts of
Separate Account VA-K investing in the Underlying Funds.
-9-
<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
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
----------------------------------
(a) Financial Statements
Financial Statements Included in Part A
---------------------------------------
None
Financial Statements Included in Part B
---------------------------------------
Financial Statements for Allmerica Financial Life Insurance and
Annuity Company and
Financial Statements for Separate Account UA-K of Allmerica
Financial Life Insurance and Annuity Company
----------------------------------------------------------------
Financial Statements Included in Part C
---------------------------------------
None
(b) Exhibits
Exhibit 1 - Vote Authorizing Establishment of Registrant dated November 1,
1990 was previously filed on April 1, 1991, and is
incorporated herein by reference.
Exhibit 2 - Not Applicable. Pursuant to Rule 26a-2, the Insurance Company
may hold the assets of the Registrant not pursuant to a trust
indenture or other such instrument.
Exhibit 3- Specimen Sales and Administrative Service Agreement, Schedule
of Sales Commissions were previously filed on April 1, 1991,
and are incorporated herein by reference.
Exhibit 4 - Policy Form A was previously filed on October 20, 1993, and
are incorporated herein by reference.
Specimen Generic Policy Form B was previously filed on
March 1, 1996 and is incorporated herein by reference.
Exhibit 5 - Application Form A was previously filed on October 20, 1993,
and are incorporated herein by reference.
Specimen Generic Application Form B was previously filed on
March 1, 1996 and is incorporated herein by reference.
Exhibit 6 - The Depositor's Articles of Incorporation and Bylaws, as
amended were previously filed as amended, Statement and are
incorporated by reference herein.
Exhibit 7 - Not Applicable.
Exhibit 8 - AUV Calculation Services Agreement with The Shareholder
Services Group dated March 31, 1995 was previously filed on
May 1, 1995 and is incorporated herein by reference.
(b) Services Agreement with Fidelity Management, et al.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants.
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 14 - Not Applicable.
Exhibit 15 - Consent of Newly Named Directors.
<PAGE>
Item 25. Directors and Officers of the Depositor.
----------------------------------------
The principal business address of all the following Directors and
Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------- ----------------------------------------------
Bruce C. Anderson Director of First Allmerica since 1996;
Director and Vice President Vice President, First Allmerica
Abigail M. Armstrong Secretary of First Allmerica since 1996;
Secretary and Counsel Counsel, First Allmerica
Mark R. Colborn Vice President and Controller, First Allmerica
Vice President and Controller
Kruno Huitzingh Director of First Allmerica since 1996,
Director, Vice President and Vice President & Chief Information Officer,
Chief Information Officer First Allmerican since 1993; Executive Vice
President, Chicago Board Options Exchange,
1985 to 1993
John F. Kelly Director of First Allmerica since 1996;
Director Senior Vice president, General Counsel and
Assistant Secretary, First Allmerica
John F. O'Brien Director, Chairman of the Board, President
Director and and Chief Executive Officer of First
Chairman of the Board Allmerica
Edward J. Parry, III Vice President and Treasurer, First Allmerica
Vice President and Treasurer since 1993; Assistant, Vice President to 1992
to 1993; Manager, Price Waterhouse,
1987 to 1992
Richard M. Reilly Director of First Allmerica since 1996;
Director and Vice President Vice President, First Allmerica; Director and
President, Allmerica Investments, Inc.;
Director and President Allmerica Investment
Management Company, Inc. since 1992, Director
and Executive Vice President, 1990 to 1992
Larry C. Renfro Director of First Allmerica since 1996;
Vice President First Allmerica
Theodore J. Rupley Director of First Allmerica since 1996;
Director President, The Hanover Insurance Company
since 1992; President, Fountain Powerboats,
1992; President; Metropolitan Property &
Casualty Company 1986-1992
Philip J. Soule Director of First Allmerica since 1996;
Director Vice President, First Allmerica
Eric Simonsen Director of First Allmerica since 1996;
Director, Vice President and Vice President and Chief Financial Officer,
Chief Financial Officer First Allmerica
Diane E. Wood Director of First Allmerica since 1996;
Director and Vice President Vice President, First Allmerica
<PAGE>
Item 26. Persons Under Common Control with Registrant.
---------------------------------------------
See attached organization chart.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
------------------------------------------------
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory
Worcester MA 01653 services
Allmerica Employees Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Financial Life Insurance 440 Lincoln Street Life insurance, accident
and Annuity Company Worcester MA 01653 & health insurance,
annuities, variable
annuities and variable
life insurance
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester, MA 01653
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Institutional Services, Inc. 440 Lincoln Street Accounting, marketing
Worcester MA 01653 and shareholder
services for investment
companies
Allmerica Investment Services, Inc. 440 Lincoln Street Holding Company
(formerly Allmerica Financial Worcester, MA 01653
Services, Inc.)
</TABLE>
*
<PAGE>
<TABLE>
<S> <C> <C>
Allmerica Investment Management 440 Lincoln Street Investment Advisory
Company, Inc. Worcester MA 01653 Services
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-
Worcester MA 01653 dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
(formerly SMA Investment Trust) Worcester MA 01653
Allmerica Property and Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Realty Advisors, Inc. 440 Lincoln Street Investment Advisory
Worcester MA 01653 services
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services, Inc. 440 Lincoln Street Service Company
Worcester MA 01653
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national
Worcester MA 01653 trust company
AMGRO, Inc. 472 Lincoln Street Premium financing
Worcester MA 01653
APC Funding Corp. 440 Lincoln Street Special purpose funding
Worcester MA 01653 vehicle for commercial
paper
Beltsville Drive Limited 440 Lincoln Street Real estate partnership
Partnership Worcester MA 01653
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of America 645 West Grand River Multi-line fire &
Howell MI 48843 casualty insurance
Citizens Insurance Company of Ohio 645 West Grand River Multi-line fire &
Howell MI 48843 casualty insurance
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
The Hanover American Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty insurance
The Hanover Insurance Company 100 North Parkway Multi-line fire &
Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Road Incorporated Branch
Management Company, Inc. Richardson TX 75081 Office of The Hanover
Insurance Company
Attorney-in-fact for
Hanover Lloyd's
Insurance Company
Hanover Lloyd's Insurance Company 801 East Campbell Road Multi-line fire &
Richardson TX 75081 casualty insurance
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Hollywood Center, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Linder Skokie Real Estate 440 Lincoln Street General business
Corporation Worcester MA 01653 corporation
Lloyds Credit Corporation 440 Lincoln Street Premium financing
Worcester MA 01653 service franchises
Logan Wells Water Company, Inc. 603 Heron Drive Water Company, serving
Bridgeport NJ 08014 land development
investment
Massachusetts Bay Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Somerset Square, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Sterling Risk Management Services, Inc. 100 North Parkway Risk management
Worcester MA 01605 services
</TABLE>
Item 27. Number of Contract owners.
--------------------------
As of December 31, 1995, there were 28,619 Contract holders of qualified
Contracts and 8,160 Contract holders of non-qualified Contracts.
Item 28. Indemnification.
----------------
Article VIII of the Bylaws of Allmerica Financial Life Insurance and Annuity
Company (the Depositor) states: Each Director and each Officer of the
Corporation, whether or not in office, (and his executors or administrators),
shall be indemnified or reimbursed by the Corporation against all expenses
actually and necessarily incurred by him in the defense or reasonable settlement
of any action, suit, or proceeding in which he is made a party by reason of his
being or having been a Director or Officer of the Corporation, including any
sums paid in settlement or to discharge judgement, except in relation to matters
as to which he shall be finally adjudged in such action, suit or proceeding to
be liable for negligence or misconduct in the performance of his duties as such
Director or Officer; and the foregoing right of indemnification or reimbursement
shall not affect any other rights to which he may be entitled under the Articles
of Incorporation, any statute, bylaw, agreement, vote of stockholders, or
otherwise.
Item 29. Principal Underwriters.
-----------------------
(a) Allmerica Investments, Inc. also acts as principal underwriter
for the following:
- VEL Account, VEL II Account, Separate Accounts VA-A, VA-B, VA-C, VA-G,
VA-H, VA-P, Allmerica Select Separate Account, and Inheiritage Account
of Allmerica Financial Life Insurance and Annuity Company
- Separate Account I, VA-K, VA-P, Allmerica Select Separate Account, VEL
II Account and Inheiritage Account of First Allmerica
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
Position or Office
Name with Underwriter
---- ----------------
Abigail M. Armstrong Secretary and Counsel
Philip J. Coffey Vice President
Bob A. Freelove Vice President
John F. Kelly Director
<PAGE>
John F. O'Brien Director
Stephen Parker President and CEO
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Ronald K. Smith Vice President
Mark Steinberg Senior Vice President
Item 30. Location of Accounts and Records.
---------------------------------
Each account, book or other document required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester, Massachusetts or on
behalf of the Company by First Data Investor Services Group, Inc. at 4400
Computer Drive, Westboro, Massachusetts 01581.
Item 31. Management Services.
--------------------
Effective March 31, 1995, the Company has engaged The Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts to provide daily unit value
calculations and related services for the Company's separate accounts.
Item 32. Undertakings.
-------------
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
(b) The registrant hereby undertakes to include in the prospectus a postcard
that the applicant can remove to send for a Statement of Additional Information.
(C) The registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the requirements
of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Directors, Officers and Controlling Persons of Registrant under any
registration statement, underwriting agreement or otherwise, Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, Officer or Controlling Person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 33. Representations Concerning Withdrawal Restrictions on Section 403(b)
----------------------------------------------------------------------
Plans and under the Texas Optional Retirement Program.
- ------------------------------------------------------
Registrant, a separate account of Allmerica Financial Life Insurance and Annuity
Company ("Company"), states that it is (a) relying on Rule 6c-7 under the 1940
Act with respect to withdrawal restrictions under the Texas Optional Retirement
Program ("Program") and (b) relying on the "no-action" letter (Ref. No. IP-6-88)
issued on November 28, 1988 to the American Council of Life Insurance, in
applying the withdrawal restrictions of Internal Revenue Code Section
403(b)(11).
Registrant has taken the following steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in the
prospectus of each registration statement used in connection with the
offer of the Company's variable contracts.
2. Appropriate disclosures regarding the redemption restrictions
imposed by the Program and by Section 403(b)(11)
<PAGE>
have been included in sales literature used in connection with the
offer of the Company's variable contracts.
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
restrictions imposed by the Program and by Section 403(b)(11) to the
attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (I)
the restrictions on redemption imposed by the Program and by Section
403(b)(11) and (ii) the investment alternatives available under the
employer's arrangement will be obtained from each participant who
purchases a variable annuity contract prior to or at the time of
purchase.
Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not so
denied or limited will be effected as expeditiously as possible.
<PAGE>
EXHIBIT TABLE
Exhibit 8(b) - Fidelity Services Agreement
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 10 - Consent of Independent Accountants
Exhibit 15 - Consent of Newly Named Directors
<PAGE>
Exhibit 8(b)
SERVICE AGREEMENT
This Agreement is entered into and effective as of the 1st day of
November, 1995, by and between FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS
COMPANY ("FIIOC") and ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
("Company.")
WHEREAS, FIIOC provides transfer agency and other services to Fidelity's
Variable Insurance Products Fund and Variable Insurance Products Fund II
(collectively "Funds"); and
WHEREAS, the services provided by FIIOC on behalf of the Funds include
responding to inquiries about the FUNDS, including the provisions of information
about the Funds' investment objectives, investment policies, portfolio holdings,
etc; and
WHEREAS, Company holds shares of the Funds in order to fund certain
variable annuity contracts, group annuity contracts, and/or variable life
insurance policies, the beneficial interest in which are held by individuals,
plan trustees, or other who look to Company to provide information about the
Funds similar to the information provided by FIIOC; and
WHEREAS, the Company and one or both of the Funds have entered into one or
more Participation Agreements, under which the Company agrees not to provide
information about the Funds except for information provided by the Funds or
their designees; and
WHEREAS, FIIOC and Company desire that Company be able to respond to
inquiries about the Funds from individual variable annuity owners, participants
in group annuity contracts issued by the Company, and owners and participants
under variable life insurance policies issued by the Company, and prospective
customers for any of the above; and
WHEREAS, FIIOC and Company recognize that Company's efforts in responding
to customer inquiries will reduce the burden that such inquiries would place on
FIIOC should such inquiries be directed to FIIOC.
NOW, THEREFORE, the parties do agree as follows:
1. INFORMATION TO BE PROVIDED TO COMPANY. FIIOC agrees to provide to
Company, on a periodic basis, directly or through a designee, information about
the Funds' investment objectives, investment policies, portfolio holdings,
performance, etc. The content and format of such information shall be as FIIOC,
in its sole discretion, shall choose. FIIOC may change the format and/or
content of such informational reports, and the frequency with which such
information is provided. For purposes of Section 4.2 of each of the Company's
Participation Agreement(s) with the Funds, FIIOC represents that it is the
designee of the Funds, and Company may therefore use the information provided by
FIIOC without seeking additional permission from the funds.
2. USE OF INFORMATION BY COMPANY. Company may use the information
provided by FIIOC in communications to individuals, plan trustees, or others who
have legal title or beneficial interest in the annuity or life insurance
products issued by the Company, and to prospective purchasers of such products
or beneficial interests thereunder. If such information is contained as part of
larger pieces of sales literature, advertising, etc., such pieces shall be
furnished for review to the Funds in accordance with the terms of the Company's
Participation Agreements with the Funds. Nothing herein shall give the Company
the right to expand upon, reformat or otherwise alter the information provided
by FIIOC. Company acknowledges that the information provided it by FIIOC may
need to be supplemented with additional qualifying information, regulatory
disclaimers, or other information before it may be conveyed to persons outside
the Company.
1
<PAGE>
3. COMPENSATION TO COMPANY. In recognition of the fact the Company will
respond to inquiries that otherwise would be handled by FIIOC, FIIOC agrees to
pay Company a quarterly fee computed as follows:
At the close of each calendar quarter, FIIOC will determine the Average
Daily Assets held in the Funds by the Company. Average Daily Assets shall be
the sum of the daily assets for each calendar day in the quarter divided by the
number of calendar days in the quarter. The Average Daily Assets shall be
multiplied by 0.0002 (2 basis points) and that sum shall be divided by four.
The resulting number shall be the quarterly fee for that quarter, which shall be
paid to Company during the following month.
Should the Participation Agreement(s) between Company and the Fund(s) be
terminated effective before the last day of a quarter, Company shall be entitled
to a fee for that portion of the quarter during which the Participation
Agreement was still in effect, unless such termination is due to misconduct on
the part of the Company. For such a stub quarter, Average Daily Assets shall be
the sum of the daily assets for each calendar day in the quarter through and
including the date of termination of the Participation Agreement(s), divided by
the number of calendar days in that quarter for which the Participation
Agreement was in effect. Such Average Daily Assets shall be multiplied by
0.0002 (2 basis points) and that number shall be multiplied by the number of
days in such quarter that the Participation Agreement was in effect, then
divided by three hundred sixty-five. The resulting number shall be the
quarterly fee for the stub quarter, which shall be paid to Company during the
following month.
4. TERMINATION. This Agreement may be terminated by Company at any time
upon written notice to FIIOC. FIIOC may terminate this Agreement at any time
upon ninety (90) days' written notice to Company. FIIOC may terminate this
Agreement immediately upon written notice to the Company (1) if required by any
applicable law or regulation, (2) if so required by action of the Fund(s) Board
of trustees, or (3) if Company engages in any material breach of this Agreement.
This Agreement shall terminate immediately and automatically upon the
termination of Company's Participation Agreement(s) with the Funds, and in such
event no notice need be given hereunder.
5. INDEMNIFICATION. Company agrees to indemnify and hold harmless FIIOC
for any misuse by Company, its affiliates, its agents, its brokers, and any
persons controlling Company, under common control with Company, or controlled by
Company, of the information provided by FIIOC under this Agreement.
6. APPLICABLE LAW. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
7. ASSIGNMENT. This Agreement may not be assigned, except that it shall
be assigned automatically to any successor to FIIOC as the Funds' transfer
agent, and any such successor shall be bound bu the terms of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands as of the date first
written above.
FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY
By: /s/ Virginia Meany
----------------------------
Virginia Meany
Senior Vice President
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
----------------------------
Name: Richard M. Reilly
----------------------------
Title: President
----------------------------
2
<PAGE>
Exhibit 9
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
April 25, 1996
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of Allmerica Financial Life Insurance and Annuity
Company (the "Company"), I have participated in the preparation of the
Post-Effective Amendments to the Registration Statements for Separate Account
VA-K on Form N-4 under the Securities Act of 1933 and the Investment Company Act
of 1940, with respect to the Company's qualified and non-qualified variable
annuity contracts.
I am of the following opinion:
1. Separate Account VA-K is a separate account of the Company validly
existing pursuant to the Delaware Insurance Code and the regulations
issued thereunder.
2. The assets held in Separate Account VA-K are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The individual qualified and non-qualified variable annuity contracts,
when issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company in accordance with
their terms and when sold will be legally issued, fully paid and
non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the
Post-Effective Amendments to the Registration Statements on Form N-4 under the
Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
EXEC.OPN
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b), and the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in
the City of Worcester, and Commonwealth of Massachusetts on the 25th
day of April, 1996.
Allmerica Financial Life Insurance and
Annuity Company
Separate Account VA-K
(Registrant)
By: /s/ Joseph W. MacDougall, Jr.
----------------------------
Joseph W. MacDougall, Jr.
Vice President, Associate General Counsel
and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Richard M. Reilly Director, President and
- --------------------- Chief Executive Officer April 25, 1996
Richard M. Reilly
/s/ John F. O'Brien Director and Chairman of
- ------------------- the Board April 25, 1996
John F. O'Brien
/s/ Eric A. Simonsen Director, Vice President
- -------------------- and Chief Financial Officer April 25, 1996
Eric A. Simonsen
/s/ Mark R. Cohen Vice President and
- ---------------- Controller April 25, 1996
Mark R. Cohen
/s/ Richard J. Baker Director and Vice President April 25, 1996
- --------------------
Richard J. Baker
/s/ John F. Kelly Director April 25, 1996
- -----------------
John F. Kelly
<PAGE>
Exhibit 10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 11 to the Registration
Statement on Form N-4 of our report dated February 5, 1996, relating to the
financial statements of Allmerica Financial Life Insurance and Annuity
Company and our report dated February 23, 1996, relating to the financial
statements of Separate Account VA-K ExecAnnuity Plus of Allmerica Financial
Life Insurance and Annuity Company, both of which appear in such Statement of
Additional Information. We also consent to the reference to us under the
heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 25, 1996
<PAGE>
Exhibit 15
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Consent of Newly Elected Director
Having been duly elected as a Director of Allmerica Financial Life Insurance
and Annuity Company ("Company"), effective April 30, 1996, each of the
undersigned hereby consents to being named as a Director of the Company in such
post-effective amendments to Registration Statements for the Company's variable
annuity and variable life contracts as will be filed with the Securities and
Exchange Commission on or before April 30, 1996, with an effective date on or
after April 30, 1996, pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940.
Signed this 25th day of April, 1996
/s/ Bruce C. Anderson /s/ Theodore J. Rupley
- ----------------------------------- -----------------------------------
Bruce C. Anderson Theodore J. Rupley
/s/ Kruno Huitzingh /s/ Phillip E. Soule
- ----------------------------------- -----------------------------------
Kruno Huitzingh Phillip E. Soule
/s/ Larry C. Renfro /s/ Diane E. Wood
- ----------------------------------- -----------------------------------
Larry C. Renfro Diane E. Wood
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