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File Nos. ________
811-6293
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Initial Registration
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29
SEPARATE ACCOUNT VA-K OF ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
(Exact Name of Registrant)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Name of Depositor)
440 Lincoln Street
Worcester, MA 01653
(Address of Depositor's Principal Executive Offices)
(508) 855-1000
(Depositor'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 Address of Agent for Service of Process)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
-----
on (date) pursuant to paragraph (b) of Rule 485
-----
60 days after filing pursuant to paragraph (a)(1) of Rule 485
-----
on (date) pursuant to paragraph (a)(1) of Rule 485
-----
this post-effective amendment designates a new effective
-----
date for a previously filed post-effective amendment
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("the
1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("the 1933
Act"). The Rule 24f-2 Notice for the issuer's fiscal year ended December 31,
1998 was filed on or before March 30, 1999.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall become effective in accordance with section 8(a) of the Securities Act
of 1933 or until this Registration Statement shall become effective on such
date or dates as the Commission, acting pursuant to said section 8(a), may
determine.
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Registrant is making this filing in order to register a new single payment
immediate variable annuity contract, which is the purpose of this initial
Registration Statement under the Securities Act of 1933 and amendment under
the Investment Company Act of 1940. Registrant does not intend this filing to
delete or amend any currently effective prospectus, statement of additional
information, or supplements thereto, contained in any other registration
statement of the Registration under the Securities Act of 1933.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
1 . . . . . . . . . Cover Page
2 . . . . . . . . . Special Terms
3 . . . . . . . . . Summary of Fees and Expenses; Summary of the Contract
Features
4 . . . . . . . . . Condensed Financial Information
5 . . . . . . . . . Description of the Companies, the Variable Accounts,
the Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price
International Series, Inc. and DGPF.
6 . . . . . . . . . Charges and Deductions
7 . . . . . . . . . Description of the Contract
8 . . . . . . . . . Electing the Annuity Income Date; Choosing an Income
Option; Description of Annuity Benefit Options; Variable
Annuity Payments
9 . . . . . . . . . Death Benefit
10. . . . . . . . . Variable Annuity Payments; Distribution
11. . . . . . . . . Withdrawals; Texas Optional Retirement Program
12. . . . . . . . . Federal Tax Considerations
13. . . . . . . . . Legal Matters
14. . . . . . . . . Statement of Additional Information - Table of Contents
<PAGE>
FORM N-4 ITEM NO. CAPTION IN THE STATEMENT OF ADDITIONAL INFORMATION
- ----------------- --------------------------------------------------
15. . . . . . . . . Cover Page
16. . . . . . . . . Table of Contents
17. . . . . . . . . General Information and History
18. . . . . . . . . Services
19. . . . . . . . . Underwriters
20. . . . . . . . . Underwriters
21. . . . . . . . . Performance Information
22. . . . . . . . . Annuity Benefit Payments
23. . . . . . . . . Financial Statements
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WORCESTER, MASSACHUSETTS
This Prospectus provides important information about
the Allmerica Immediate Advantage Variable Annuity
contracts issued by Allmerica Financial Life
Insurance and Annuity Company (in all jurisdictions
except New York) or by First Allmerica Financial Life
Insurance Company (in New York). The Contract is a
single payment immediate combination variable and
fixed annuity offered on both a group and individual
PLEASE READ THIS basis.
PROSPECTUS CAREFULLY
BEFORE INVESTING AND
KEEP IT FOR FUTURE
REFERENCE.
The Contract offers a Variable Income Option, which
is supported by a legally segregated separate account
of the Company called the Variable Account. The
Variable Account is subdivided into Sub-Accounts.
Each Sub-Account invests exclusively in shares of the
following funds:
<TABLE>
<CAPTION>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND
-------------------------------------------------- --------------------------------------------------
<C> <S> <C>
Select Emerging Markets Fund Overseas Portfolio
Select International Equity Fund Equity-Income Portfolio
Select Aggressive Growth Fund Growth Portfolio
Select Capital Appreciation Fund High Income Portfolio
Select Value Opportunity Fund
Select Growth Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Select Strategic Growth Fund ---------------------------------------
Growth Fund Asset Manager Portfolio
Equity Index Fund
Select Growth and Income Fund T. ROWE PRICE INTERNATIONAL SERIES, INC.
Investment Grade Income Fund ----------------------------------
Government Bond Fund T. Rowe Price International Stock Portfolio
Money Market Fund
DELAWARE GROUP PREMIUM FUND, INC.
--------------------------------
DGPF International Equity Series
</TABLE>
The Company's General Account will support the
Fixed Income Option.
THIS ANNUITY IS A Statement of Additional Information dated
NOT: ________, 1999 containing more information about
- A BANK DEPOSIT OR this annuity is on file with the Securities and
OBLIGATION; Exchange Commission and is incorporated by
- FEDERALLY INSURED; reference into this Prospectus. A copy may be
- ENDORSED BY ANY obtained free of charge by calling Allmerica
BANK OR Investments, Inc. at 1-800-533-7881. The Table of
GOVERNMENTAL Contents of the Statement of Additional
AGENCY. Information is listed on page 3 of this
Prospectus.
This Prospectus and the Statement of Additional
Information can also be obtained from the
Securities and Exchange Commission's website
(http://www.sec.gov).
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED THAT THE INFORMATION IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DATED ________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS........................................................................... 4
SUMMARY OF FEES AND EXPENSES............................................................ 6
SUMMARY OF CONTRACT FEATURES............................................................ 9
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS, THE TRUST,
FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE AND DGPF.................................. 13
INVESTMENT OBJECTIVES AND POLICIES...................................................... 14
DESCRIPTION OF THE CONTRACT............................................................. 17
A. Single Purchase Payment.......................................................... 17
B. Right to Cancel.................................................................. 17
C. Electing the Annuity Income Date................................................. 18
D. Choosing an Income Option........................................................ 18
E. Description of Annuity Benefit Options........................................... 19
F. Optional Features................................................................ 19
The Floor....................................................................... 20
The Ratchet..................................................................... 20
G. Variable Annuity Payments........................................................ 20
Net Investment Factor........................................................... 20
The Annuity Unit and Annuity Unit Value......................................... 21
Determination of the Number of Annuity Units.................................... 21
Dollar Amount of First Variable Annuity Payment................................. 21
Dollar Amount of Subsequent Variable Annuity Payments........................... 21
Payment of Annuity Payments..................................................... 22
H. Transfers of Annuity Units....................................................... 22
Automatic Account Rebalancing................................................... 22
I. Withdrawals...................................................................... 22
Present Value Determination..................................................... 23
J. Death Benefit.................................................................... 24
Death of an Owner or an Annuitant Before the Annuity Income Date................ 24
Payment of the Death Benefit.................................................... 24
The Spouse of the Deceased Owner as Beneficiary................................. 24
Death of the Owner or the Annuitant After the Annuity Income Date............... 24
K. General Restrictions on Payments................................................. 25
L. Telephone Authorization.......................................................... 25
M. Assignment........................................................................ 25
N. NORRIS Decision.................................................................. 25
CHARGES AND DEDUCTIONS.................................................................. 26
A. Variable Account Deductions...................................................... 26
Mortality and Expense Risk Charge............................................... 26
Administrative Expense Charge................................................... 26
Expenses of the Underlying Funds................................................ 26
B. Optional Feature Charges......................................................... 26
C. Premium Taxes.................................................................... 27
D. Transfer Charge.................................................................. 27
FEDERAL TAX CONSIDERATIONS.............................................................. 27
A. Annuity Contracts in General..................................................... 28
B. Tax on Annuity Payments.......................................................... 28
C. Tax on Withdrawals............................................................... 28
D. Exchanges........................................................................ 29
E. Tax Withholding.................................................................. 29
F. Diversification and Control of Underlying Assets................................. 29
</TABLE>
2
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<TABLE>
<S> <C>
STATEMENTS AND REPORTS.................................................................. 29
LOANS................................................................................... 30
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS....................................... 30
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................... 31
VOTING RIGHTS........................................................................... 31
DISTRIBUTION............................................................................ 31
SERVICES................................................................................ 31
LEGAL MATTERS........................................................................... 32
YEAR 2000 COMPLIANCE.................................................................... 32
FURTHER INFORMATION..................................................................... 32
APPENDIX A -- CONDENSED FINANCIAL INFORMATION........................................... A-1
APPENDIX B -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS............. B-1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY.........................................................
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE COMPANY..........................
SERVICES................................................................................
UNDERWRITERS............................................................................
ANNUITY BENEFIT PAYMENTS................................................................
EXCHANGE OFFER..........................................................................
PERFORMANCE INFORMATION.................................................................
FINANCIAL STATEMENTS.................................................................... F-1
</TABLE>
3
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SPECIAL TERMS
ANNUITANT: the person who must be alive for annuity payments to be made (unless
payments are guaranteed). Joint Annuitants are permitted and, unless otherwise
indicated, any reference to Annuitant shall include Joint Annuitants. In
contrast, the person to whom annuity payments are made is the Owner (or a person
requested by the Owner). The Annuitant and the Owner may be the same individual.
ANNUITY INCOME DATE: the date annuity payments begin. The Annuity Income Date
must be within twelve months of the Contract's Issue Date.
ANNUITY UNIT: a measure used to calculate annuity payments under a Variable
Income Option.
ASSUMED INVESTMENT RETURN (AIR): used to calculate the initial variable annuity
payment and to determine how the payment will change over time in response to
the investment performance of the selected Sub-Accounts.
BENEFICIARY: the person, persons or entity entitled to the Death Benefit upon
the death of the Owner prior to the Annuity Income Date or remaining annuity
payments, if any, upon the death of the Owner on or after the Annuity Income
Date.
CHANGE FREQUENCY: the frequency (monthly, quarterly, semi-annually or annually)
that the dollar value of an annuity payment under a Variable Income Option will
change due to investment performance.
COMPANY (OR WE, US OR OUR): Allmerica Financial Life Insurance and Annuity
Company (in all jurisdictions except New York) or First Allmerica Financial Life
Insurance Company (in New York).
CONTRACT VALUE: the Present Value of all remaining annuity payments. (See the
section entitled "Present Value Determination.")
CONTRACT YEAR: a period of twelve consecutive months starting on the Contract's
Issue Date or on any anniversary of the Issue Date.
DATE OF FIRST CHANGE: The date on which your variable annuity payment will
change in value for the first time.
FIXED INCOME OPTION: an income option with annuity payments that are fixed in
amount (unless a withdrawal is taken or as a result of the death of the first
Joint Annuitant).
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
ISSUE DATE: the date the Contract is issued and the date that is used to
determine Contract days, Contract months, Contract years and anniversaries.
NET PAYMENT: the Single Purchase Payment less any premium tax.
OWNER (OR YOU OR YOUR): the person, persons (Joint Owners) or entity entitled to
exercise the rights and privileges under this Contract. Unless otherwise
indicated, any reference to You and Your shall include Joint Owners.
SUB-ACCOUNT: a subdivision of the Variable Account. Each Sub-Account available
under the Contract invests exclusively in the shares of a corresponding fund of
Allmerica Investment Trust ("Trust"), a corresponding portfolio of the Variable
Insurance Products Fund ("Fidelity VIP"), the Variable Insurance Products Fund
II ("Fidelity VIP II") or the T. Rowe Price International Stock Portfolio of T.
Rowe Price International
4
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Series, Inc. ("T. Rowe Price"); or a corresponding series of the Delaware Group
Premium Fund, Inc. ("DGPF").
UNDERLYING FUND: an investment portfolio of the Trust, Fidelity VIP, Fidelity
VIP II, T. Rowe Price or DGPF in which a Sub-Account invests.
VALUATION DATE: a day on which the net asset value of the unit values of the
Sub-Accounts are determined. Valuation Dates currently occur on each day on
which the New York Stock Exchange is open for trading.
VALUATION PERIOD: a period used in measuring the investment experience of a
Sub-Account. The Valuation Period begins at the close of one Valuation Date and
ends at the close of the next succeeding Valuation Date.
VARIABLE ACCOUNT: one of our separate accounts, which we call Separate Account
VA-K, consisting of assets segregated from our other assets. The investment
performance of the assets of each of our separate accounts (and, under the
Contract, each Sub-Account) is determined separately from our other assets and
the assets are not chargeable with liabilities arising out of any other business
which we may conduct.
VARIABLE INCOME OPTION: an income option providing for annuity payments varying
in amount in accordance with the investment experience of the Underlying Funds
selected.
VARIABLE INCOME OPTION RATE: the factor applied to the portion of the Net
Payment allocated to the Variable Income Option and used to determine the number
of Annuity Units in each annuity payment. The factor takes into account the
Issue Date, the Annuity Income Date, annuity benefit option (including any
optional features), the Assumed Investment Return, the Change Frequency and Date
of First Change.
5
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SUMMARY OF FEES AND EXPENSES
There are certain fees and expenses that you will bear under the Allmerica
Immediate Advantage Variable Annuity Contract. The purpose of the following
tables is to assist you in understanding these fees and expenses. The tables
show (1) charges under the Contract, including (2) annual expenses of the
Sub-Accounts, and (3) annual expenses of the Funds. Contract charges including
the annual Sub-Account expenses are specified under the terms of the Contract.
Annual Fund expenses are not fixed or specified under the terms of the Contract
and will vary from year to year. In addition to the charges and expenses
described below, premium taxes are applicable in some states and deducted as
described under "C. Premium Taxes" under CHARGES AND DEDUCTIONS.
<TABLE>
<CAPTION>
(1) CONTRACT CHARGES: CHARGE
- ------------------------------------------------------------------------------------------------------ ---------
<S> <C>
WITHDRAWAL CHARGE:
If you select either the Payment for a Certain Number of Years, Life Annuity with Payment for a
Certain Number of Years, or Life Annuity with Cash Back annuity benefit options, you may request
withdrawals which represent a percentage of the Present Value of the remaining guaranteed annuity
payments. See "I. Withdrawals" for additional information. The Assumed Investment Return you have
chosen (in the case of a Variable Income Option) or the interest rate (in the case of a Fixed Income
Option) used to determine the Present Value is adjusted in the following manner:
Adjustment to AIR or Interest Rate:
Within 5 years of Issue Date:
15 or more years of annuity payments being valued 1.00%
10-14 years of annuity payments being valued 1.50%
Less than 10 years of annuity payments being valued 2.00%
The adjustment to the Assumed Investment Return or the interest rate used to determine the Present
Value results in lower future annuity payments than if the adjustment had not been made.
TRANSFER CHARGE: None
We currently do not charge for processing transfers and guarantee that the first 12 transfers in a
Contract year will not be subject to a transfer charge. For each subsequent transfer, we reserve the
right to assess a charge, guaranteed never to exceed $25, to reimburse us for the costs of
processing the transfer.
OPTIONAL FEATURE CHARGE:
There is no periodic charge for the optional features. Instead, lower Variable Income Option Rates
are used to determine the initial annuity payment. As a result, the first annuity payment is lower
than it would have been had this feature not been selected. Future annuity payments will also be
lower except when the benefits under a feature provide a greater payment. See "B. Optional Feature
Charges" for additional information regarding the benefits and costs of these features.
(2) ANNUAL SUB-ACCOUNT EXPENSES:
- ------------------------------------------------------------------------------------------------------
(on an annual basis as a percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.20%
---------
Total Asset Charges: 1.45%
</TABLE>
(3) ANNUAL UNDERLYING FUND EXPENSES: In addition to the charges described
above, certain fees and expenses are deducted from the assets of the Underlying
Funds. The levels of fees and expenses vary among the Underlying Funds. The
following table shows the expenses of the Underlying Funds as a percentage of
average daily net assets for the year ended December 31, 1998, as adjusted for
material changes. For more information concerning fees and expenses, see the
prospectuses of the Underlying Funds.
6
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<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER TOTAL FUND EXPENSES
(AFTER ANY VOLUNTARY EXPENSES (AFTER (AFTER ANY WAIVERS/
FUND WAIVERS) ANY REIMBURSEMENTS) REIMBURSEMENTS)
- --------------------------------------------------- --------------------- --------------------- ----------------------
<S> <C> <C> <C>
Select Emerging Markets Fund(@).................... 1.00%(1)* 1.19% 2.19%(1)(2)*
Select International Equity Fund................... 0.90% 0.12% 1.02%(1)(2)
DGPF International Equity Series................... 0.82% 0.13% 0.95%(3)
Fidelity VIP Overseas Portfolio.................... 0.74% 0.17% 0.91%(4)
T. Rowe Price International Stock Portfolio........ 1.05% 0.00% 1.05%
Select Aggressive Growth Fund...................... 0.88% 0.07% 0.95%(1)(2)
Select Capital Appreciation Fund................... 0.94% 0.10% 1.04%(1)(2)
Select Value Opportunity Fund...................... 0.90%(1)* 0.08% 0.98%(1)(2)*
Select Growth Fund................................. 0.81%(**) 0.05% 0.86%(1)(2)**
Select Strategic Growth Fund@...................... 0.39%(*) 0.81% 1.20%(1)(2)*
Growth Fund........................................ 0.44% 0.05% 0.49%(1)(2)
Fidelity VIP Growth Portfolio...................... 0.59% 0.09% 0.68%(4)
Equity Index Fund.................................. 0.29% 0.07% 0.36%(1)
Select Growth and Income Fund...................... 0.68% 0.05% 0.73%(1)(2)
Fidelity VIP Equity-Income Portfolio............... 0.49% 0.09% 0.58%(4)
Fidelity VIP II Asset Manager Portfolio............ 0.54% 0.10% 0.64%(4)
Fidelity VIP High Income Portfolio................. 0.58% 0.12% 0.70%
Investment Grade Income Fund....................... 0.43% 0.09% 0.52%(1)
Government Bond Fund............................... 0.50% 0.14% 0.64%(1)
Money Market Fund.................................. 0.26% 0.06% 0.32%(1)
</TABLE>
(@) Select Emerging Markets Fund commenced operations on February 20, 1998.
Expenses shown are annualized.
(*) Amount has been adjusted to reflect a voluntary expense limitation currently
in effect for Select Emerging Markets Fund, Select Value Opportunity Fund and
Select Strategic Growth Fund. Without these adjustments, the Management Fees and
Total Fund Expenses would have been 1.35% and 2.54%, respectively, for Select
Emerging Markets Fund, 0.91% and 0.99%, respectively, for Select Value
Opportunity Fund, and 0.85% and 1.66%, respectively, for Select Strategic Growth
Fund.
(**) Effective June 1, 1998, the management fee rate for the Select Growth Fund
was revised. The Management Fee and Total Fund Expense ratios shown in the table
above have been adjusted to assume that the revised rates took effect January 1,
1998.
(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. ("AFIMS") has declared a voluntary expense limitation of 1.35% of average
net assets for Select Aggressive Growth Fund and Select Capital Appreciation
Fund, 1.25% for Select Value Opportunity Fund, 1.50% for Select International
Equity Fund, 1.20% for Growth Fund and Select Growth Fund, 1.10% for Select
Growth and Income Fund, 1.00% for Investment Grade Income Fund and Government
Bond Fund, and 0.60% for Money Market Fund and Equity Index Fund. The total
operating expenses of these Funds of the Trust were less than their respective
expense limitations throughout 1998.
Until further notice, AFIMS has declared a voluntary expense limitation of 1.20%
of average daily net assets for the Select Strategic Growth Fund. In addition,
AFIMS has agreed to voluntarily waive its management fee to the extent that
expenses of the Select Emerging Markets Fund exceed 2.00% of the Fund's average
daily net assets, except that such waiver shall not exceed the net amount of
management fees earned by AFIMS from the Fund after subtracting fees paid by
AFIMS to a sub-advisor.
Until further notice, the Select Value Opportunity Fund's management fee rate
has been voluntarily limited to an annual rate of 0.90% of average daily net
assets, and total expenses are limited to 1.25% of average daily net assets.
The declaration of a voluntary management fee or expense limitation in any year
does not bind AFIMS to declare future expense limitations with respect to these
Funds. These limitations may be terminated at any time.
(2) These Funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. Had these amounts been treated as reductions of
expenses, the total annual fund operating expenses would have been 2.19% for
Select Emerging Markets Fund, 0.92% for Select Aggressive Growth Fund,
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1.02% for Select Capital Appreciation Fund, 0.94% for Select Value Opportunity
Fund, 1.01% for Select International Equity Fund, 0.84% for Select Growth Fund,
1.14% for Select Strategic Growth Fund, 0.70% for Select Growth and Income Fund
and 0.46% for Growth Fund.
(3) Effective May 1, 1999, Delaware International Advisers Ltd., the investment
adviser for the International Equity Series, has agreed to limit total annual
expenses of the fund to 0.95%. This limitation replaces a prior limitation of
0.95% that expired on April 30, 1999. The new limitation will be in effect
through October 31, 1999. For the fiscal year ended December 31, 1998, the
actual ratio of total annual expenses was 0.88%.
(4) A portion of the brokerage commissions that certain funds paid was used to
reduce fund expenses. In addition, certain funds, or Fidelity Management &
Research Company on behalf of certain funds, have entered into arrangements with
their custodian whereby credits realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, total
operating expenses would have been 0.89% for the Fidelity VIP Overseas
Portfolio; 0.57% for the Fidelity VIP Equity-Income Portfolio; 0.63% for the
Fidelity VIP II Asset Manager Portfolio and 0.66% for the Fidelity VIP Growth
Portfolio.
The Underlying Fund information above was provided by the Underlying Funds and
was not independently verified by the Company.
Expense limitations described above may not include extraordinary expenses, such
as litigation.
EXPENSE EXAMPLES. The following examples demonstrate the cumulative expenses
which an Owner would pay at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
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 an
Owner on an investment in the various Sub-Accounts.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND IS NOT A REPRESENTATION OF PAST OR FUTURE
RETURNS.
(1)(a) At the end of the applicable time period, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
FUNDS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund................................................. $ 36 $ 111 $ 187 $ 387
Select International Equity Fund............................................. $ 25 $ 76 $ 130 $ 277
DGPF International Equity Series............................................. $ 24 $ 74 $ 126 $ 270
Fidelity VIP Overseas Portfolio.............................................. $ 24 $ 73 $ 124 $ 266
T. Rowe Price International Stock Portfolio.................................. $ 25 $ 77 $ 131 $ 280
Select Aggressive Growth Fund................................................ $ 24 $ 74 $ 126 $ 270
Select Capital Appreciation Fund............................................. $ 25 $ 77 $ 131 $ 279
Select Value Opportunity Fund................................................ $ 24 $ 75 $ 128 $ 273
Select Growth Fund........................................................... $ 23 $ 71 $ 122 $ 261
Select Strategic Growth Fund................................................. $ 19 $ 60 $ 103 $ 223
Growth Fund.................................................................. $ 21 $ 66 $ 113 $ 243
Fidelity VIP Growth Portfolio................................................ $ 18 $ 56 $ 96 $ 209
Equity Index Fund............................................................ $ 22 $ 67 $ 115 $ 248
Select Growth and Income Fund................................................ $ 20 $ 63 $ 108 $ 232
Fidelity Equity-Income Portfolio............................................. $ 21 $ 65 $ 111 $ 239
Fidelity VIP II Asset Manager Portfolio...................................... $ 22 $ 66 $ 114 $ 245
Fidelity VIP High Income Portfolio........................................... $ 20 $ 61 $ 105 $ 226
Investment Grade Income Fund................................................. $ 21 $ 65 $ 111 $ 239
Government Bond Fund......................................................... $ 18 $ 55 $ 94 $ 205
Money Market Fund............................................................ $ 27 $ 81 $ 139 $ 295
</TABLE>
8
<PAGE>
SUMMARY OF CONTRACT FEATURES
WHAT IS THE ALLMERICA IMMEDIATE ADVANTAGE VARIABLE ANNUITY?
The Allmerica Immediate Advantage Variable Annuity contract ("Contract") is an
insurance contract designed to provide you, the Owner, with monthly annuity
income during the lifetime of the Annuitant or Joint Annuitants, or for a period
of years. The Contract combines the concept of professional money management
with the attributes of an annuity contract. Features available through the
Contract include:
- - A menu of investment options that you can customize to support your annuity
payments;
- - Underlying Funds managed by experienced professional investment advisers;
- - Income that you can receive for life;
- - Access to your money through withdrawals;
- - The ability to tailor your income stream by choosing from multiple annuity
benefit options and selecting the first date the amount of your payments will
change; and
- - Guarantees that can protect your beneficiaries and income stream.
You may allocate your Net Payment to the Fixed Income Option or the Variable
Income Option, or a combination of both. If you select the Variable Income
Option, you may allocate your money to the Sub-Accounts investing in the
Underlying Funds. You select the investment allocation most appropriate for your
income needs. As those needs change, you may also change your allocation without
incurring any tax consequences.
WHAT CHOICES DO I MAKE WHEN I PURCHASE THE CONTRACT?
At the time you apply for the Contract, you choose:
- - the date annuity payments begin, which must be within twelve months of the
Contract's Issue Date;
- - the annuity benefit option;
- - whether you want variable annuity payments based on the investment performance
of the Underlying Funds (the Variable Income Option), fixed annuity payments
with payment amounts guaranteed by the Company (the Fixed Income Option), or a
combination of fixed and variable annuity payments;
- - a Change Frequency, if you allocate any portion of the Net Payment to the
Variable Income Option (and you may select the first date your annuity payment
will change);
- - one of the available assumed investment returns ("AIR") for a Variable Income
Option; and
- - whether you want certain protections provided under optional features for a
Variable Income Option.
On the Annuity Income Date, you, or the payee you designate, will begin to
receive income based on one of the several annuity benefit options available
under the Contract.
THE FLOOR AND THE RATCHET. Two optional features are available if you select
the Variable Income Option:
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(1) The Floor provides that the amount of your monthly variable annuity payments
will never fall below a specified amount;
(2) The Ratchet provides that annuity payments will never decrease as a result
of investment performance.
The guarantees provided by both optional features will be reduced for
withdrawals and, upon the death of an Annuitant, joint life annuities with
survivor benefits of 66.67% and 50%.
For more information on these optional features, see "F. Optional Features"
under DESCRIPTION OF THE CONTRACT.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner"), and us, Allmerica Financial Life
Insurance and Annuity Company (for contracts issued in all jurisdictions except
New York) or First Allmerica Financial Life Insurance Company (for contracts
issued in New York). Each Contract has an Owner (or Joint Owners), an Annuitant
(or Joint Annuitants) and one or more Beneficiaries. As Owner, you:
- - select the Annuitant(s)
- - choose the income option
- - choose the annuity benefit option
- - receive annuity payments (or designate someone else to receive annuity
payments)
- - select the Beneficiary(ies)
The Annuitant is the person whose life is used to determine the duration of
annuity payments involving a life contingency, unless payments are guaranteed
for a certain number of years. The Beneficiary is the person, persons or entity
entitled to the Death Benefit upon the death of the Owner prior to the Annuity
Income Date or remaining annuity payments, if any, upon the death of the Owner
on or after the Annuity Income Date. If the contract has Joint Owners and one
Owner dies, the surviving Joint Owner is the primary Beneficiary.
HOW MUCH CAN I INVEST?
You may make a single purchase payment to the Contract. This payment is subject
to a $75,000 minimum. The maximum single purchase payment is $5,000,000 without
our prior approval. No additional payments may be made.
WHAT ARE MY INVESTMENT CHOICES?
You may allocate the Net Payment to the Fixed Income Option, the Variable Income
Option, or a combination of both. Once selected, the Income Option may not be
changed. If you select the Variable Income Option, you can allocate the Net
Payment among the Sub-Accounts investing in the Underlying Funds.
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VARIABLE INCOME OPTION: You have a choice of Sub-Accounts investing in the
following Underlying Funds:
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Select Emerging Markets Fund Overseas Portfolio
Select International Equity Fund Equity-Income Portfolio
Select Aggressive Growth Fund Growth Portfolio
Select Capital Appreciation Fund High Income Portfolio
Select Value Opportunity Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Select Growth Fund Asset Manager Portfolio
Select Strategic Growth Fund T. ROWE PRICE INTERNATIONAL SERIES, INC.
Growth Fund T. Rowe Price International Stock Portfolio
Equity Index Fund DELAWARE GROUP PREMIUM FUND, INC.
Select Growth and Income Fund DGPF International Equity Series
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
</TABLE>
FOR A MORE DETAILED DESCRIPTION OF THE UNDERLYING FUNDS, SEE "INVESTMENT
OBJECTIVES AND POLICIES."
FIXED INCOME OPTION: If you select the Fixed Income Option, your money will be
supported by the General Account, which consists of all the Company's assets
other than those allocated to the Variable Account and any other separate
account.
CAN I MAKE TRANSFERS AMONG THE VARIABLE SUB-ACCOUNTS?
If you select the Variable Income Option, you may transfer among the
Sub-Accounts investing in the Underlying Funds. You will incur no current taxes
on transfers while your money remains in the Contract. See "H. Transfers of
Annuity Units" under DESCRIPTION OF THE CONTRACT.
WHAT IF I NEED TO MAKE A WITHDRAWAL?
You have the right, based on the annuity benefit option selected, to make
withdrawals. Each calendar year, you can request a withdrawal up to an amount
equal to ten times the value of an annuity payment. Each withdrawal reduces
future annuity payments.
Additionally, if you selected the Payment for a Certain Number of Years option,
the Life Annuity with Payment for a Certain Number of Years option, or the Life
Annuity with Cash Back option, you may request a Present Value Withdrawal, which
represents a percentage of the Present Value of the remaining guaranteed annuity
payments. Each Present Value Withdrawal reduces future guaranteed annuity
payments.
For a more detailed description of either withdrawal option, see "I.
Withdrawals" under DESCRIPTION OF THE CONTRACT.
WHAT HAPPENS UPON DEATH OF THE OWNER OR THE ANNUITANT?
Before the Annuity Income Date, if an Owner or an Annuitant dies, a death
benefit will be paid.
After the Annuity Income Date, if an Owner or an Annuitant dies, we will
continue to pay remaining annuity payments, if any, in accordance with the terms
of the annuity benefit option selected. See "J. Death Benefit" under DESCRIPTION
OF THE CONTRACT.
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WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
We will deduct, on a daily basis, an annual mortality and expense risk charge
and administrative expense charge equal to 1.25% and 0.20%, respectively, of the
average daily net assets invested in each Fund. The Funds will incur certain
management fees and expenses that are described in "Other Charges" and in the
Fund prospectuses accompanying this Prospectus. Also, depending upon the state
in which you live, a deduction for state and local premium taxes, if any, may be
made as described under "C. Premium Taxes" under DESCRIPTION OF THE CONTRACT.
Under certain annuity options, you may request a Present Value Withdrawal, which
represents a percentage of the Present Value of the remaining guaranteed annuity
payments. Any Present Value Withdrawal available to you within five years of the
Issue Date is based on the adjusted Present Value of the annuity payments.
The adjustment to the AIR or the interest rate used to determine the Present
Value results in lower future annuity payments than if the adjustment had not
been made. See "I. Withdrawals" under DESCRIPTION OF THE CONTRACT for additional
information.
Subject to state availability, we offer two optional features, the Floor and the
Ratchet. While there is no periodic charge if you elect one of these optional
features, lower Variable Income Option Rates are used to determine your first
payment. See "F. Optional Features" under DESCRIPTION OF THE CONTRACT for
information about how these two optional features work.
For more information regarding the charges applied to your Contract, see CHARGES
AND DEDUCTIONS.
CAN I EXAMINE THE CONTRACT?
Your Contract will be delivered to you after your purchase. If you return the
Contract to the Company within ninety days of receipt, the Contract will be
canceled. See the "Right to Examine" provision on the cover of your Contract. If
you cancel the Contract within ninety days after you received it, you will
receive a refund of the Contract Value on the date the Contract is returned to
us, plus any premium tax deducted on the Issue Date. However, if state law
requires or if the Contract was issued as an Individual Retirement Annuity
("IRA"), and if you return the Contract within ten days after you have received
it, you will receive a refund of the Single Purchase Payment less any annuity
payments made and/or withdrawals taken. See "B. Right to Cancel" under
DESCRIPTION OF THE CONTRACT.
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
You can make several changes after receiving your Contract:
- - You may change the Beneficiary, unless you have designated a Beneficiary
irrevocably;
- - You may change the person(s) you have designated to receive your annuity
payments;
- - If you selected the Variable Income Option, you may make transfers among your
current investments without any tax consequences;
- - You may make withdrawals; and
- - You may cancel the Contract within ninety days of delivery.
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DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS,
THE TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE, AND DGPF
THE COMPANIES. Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial") is a life insurance company organized under the laws of
Delaware in July 1974. Its Principal Office is located at 440 Lincoln Street,
Worcester, MA 01653, telephone 508-855-1000. Allmerica Financial 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, Allmerica
Financial is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1998,
Allmerica Financial had over $14 billion in assets and over $26 billion of life
insurance in force.
Effective October 1, 1995, Allmerica Financial changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
Allmerica Financial is a wholly owned subsidiary of First Allmerica Financial
Life Insurance Company that, in turn, is a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC").
First Allmerica Financial Life Insurance Company ("First Allmerica"), organized
under the laws of Massachusetts in 1844, is among the five oldest life insurance
companies in America. As of December 31, 1998, First Allmerica and its
subsidiaries had over $27 billion in combined assets and over $48 billion of
life insurance in force. Effective October 16, 1995, First Allmerica converted
from a mutual life insurance company known as State Mutual Life Assurance
Company of America to a stock life insurance company and adopted its present
name. First Allmerica is a wholly owned subsidiary of AFC. First Allmerica's
principal office ("Principal Office") is located at 440 Lincoln Street,
Worcester MA 01653, telephone 508-855-1000.
First Allmerica is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, First Allmerica is subject to the insurance laws
and regulations of other states and jurisdictions in which it is licensed to
operate.
Both Allmerica Financial and First Allmerica are charter members of the
Insurance Marketplace Standards Association ("IMSA"). Companies that belong to
IMSA subscribe to a rigorous set of standards that cover the various aspects of
sales and service for individually sold life insurance and annuities. IMSA
members have adopted policies and procedures that demonstrate a commitment to
honesty, fairness and integrity in all customer contacts involving sales and
service of individual life insurance and annuity products.
THE VARIABLE ACCOUNTS. Each Company maintains a separate account called
Separate Account VA-K (the "Variable Account"). The Variable Account of
Allmerica Financial was authorized by vote of our Board of Directors on November
1, 1990. The Variable Account of First Allmerica was authorized by vote of our
Board of Directors on November 1, 1990. Each Variable Account is registered with
the SEC as a unit investment trust under the 1940 Act. This registration does
not involve the supervision or management of investment practices or policies of
the Variable Accounts or the Company by the SEC.
Separate Account VA-K is a separate investment account of the Company. The
assets used to fund the variable portions of the Contracts are set aside in the
Sub-Accounts of the Variable Account, and are kept separate and apart from the
general assets of the Company. Each Sub-Account is administered and accounted
for as part of our general business, but the income, capital gains, or capital
losses of each Sub-Account are allocated to such Sub-Account, without regard to
other income, capital gains, or capital losses of the Company. Obligations under
the Contracts are our obligations. Under Delaware and Massachusetts law, the
assets of the Variable Account may not be charged with any liabilities arising
out of any other business of the Company.
We reserve the right, subject to compliance with applicable law, to change the
names of the Variable Account and the Sub-Accounts. We also offer other variable
annuity contracts investing in the Variable Account which are not discussed in
this Prospectus. In addition the Variable Account may invest in other underlying
funds which are not available to the Contracts described in this Prospectus.
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ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust (the "Trust") is an
open-end, diversified management investment company registered with the SEC
under the 1940 Act. Thirteen investment portfolios of the Trust are currently
available under the Contract, 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 Emerging Markets Fund,
Select Strategic Growth Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Growth Fund, Select Growth and Income Fund and Select
Value Opportunity Fund. Shares of the Trust are not offered to the general
public but solely to such variable accounts.
Allmerica Financial Investment Management Services, Inc. ("AFIMS") serves as the
investment adviser of the Trust and has entered into sub-advisory agreements
with other investment managers ("Sub-Advisers") who manage the investments of
the Funds.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND. Fidelity Variable Insurance Products
Fund ("Fidelity VIP") managed by Fidelity Management & Research Company ("FMR"),
is an open-end, diversified management investment company registered with the
SEC under the 1940 Act. Four of its investment portfolios are available under
the Contract: Fidelity VIP High Income Portfolio, Fidelity VIP Equity-Income
Portfolio, Fidelity VIP Growth Portfolio and Fidelity VIP Overseas Portfolio.
FMR is one of America's largest investment management organizations and has its
principal business address at 82 Devonshire Street, Boston, Massachusetts. It
provides a number of mutual funds and other clients with investment research and
portfolio management services.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II. Fidelity Variable Insurance
Products Fund II ("Fidelity VIP II"), managed by FMR (see discussion above) is
an open-end, diversified management investment company registered with the SEC
under the 1940 Act. One of its investment portfolios is available under the
Contract: Fidelity VIP II 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"), is an open-end, diversified management investment company
registered with the SEC under the 1940 Act. One of its investment portfolios is
available under the Contracts: the T. Rowe Price International Stock Portfolio.
One of its affiliates, T. Rowe Price Associates, Inc., serves as the Sub-Adviser
to the Select Capital Appreciation Fund.
DELAWARE GROUP PREMIUM FUND, INC. Delaware Group Premium Fund, Inc. ("DGPF") is
an open-end, diversified, management investment company registered with the SEC
under the 1940 Act. DGPF was established to provide a vehicle for the investment
of assets of various separate accounts supporting variable insurance contracts.
One investment portfolio is available under the Contract, the International
Equity Series. The investment adviser for the International Equity Series is
Delaware International Advisers Ltd. ("Delaware International").
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds is set forth
below. The Underlying Funds are listed by general investment risk
characteristics. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS AND OTHER RELEVANT
INFORMATION REGARDING THE UNDERLYING INVESTMENT COMPANIES MAY BE FOUND IN THEIR
RESPECTIVE PROSPECTUSES, WHICH ACCOMPANY THIS PROSPECTUS AND 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.
SELECT EMERGING MARKETS FUND -- The Select Emerging Markets Fund seeks long-term
growth of capital by investing in the world's emerging markets.
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<PAGE>
SELECT INTERNATIONAL EQUITY FUND -- 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.
DGPF INTERNATIONAL EQUITY SERIES -- The International Equity Series of DGPF
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.
FIDELITY VIP OVERSEAS PORTFOLIO -- The Overseas Portfolio of Fidelity VIP seeks
long-term growth of capital primarily through investments in foreign securities
and provides a means to diversify their own portfolios by participating in
companies and economies outside of the United States.
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.
SELECT AGGRESSIVE GROWTH FUND -- 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.
SELECT CAPITAL APPRECIATION FUND -- The Select Capital Appreciation Fund seeks
long-term growth 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 invests primarily in common
stock of industries and companies which are believed to be experiencing
favorable demand for their products and services, and which operate in a
favorable competitive environment and regulatory climate.
SELECT VALUE OPPORTUNITY FUND -- The Select Value Opportunity Fund seeks
long-term growth by investing principally in a diversified portfolio of common
stocks of small and mid-size companies whose securities at the time of purchase
are considered by the Sub-Adviser to be undervalued.
SELECT GROWTH FUND -- 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.
SELECT STRATEGIC GROWTH FUND -- The Select Strategic Growth Fund seeks long-term
growth of capital by investing primarily in common stocks of established
companies.
GROWTH FUND -- 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.
FIDELITY VIP GROWTH PORTFOLIO -- The Growth Portfolio of Fidelity VIP 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 also may be found in other types of securities, including bonds and
preferred stocks.
EQUITY INDEX FUND -- The Equity Index Fund seeks to provide investment results
that correspond to the aggregate price and yield performance of a representative
selection of United States publicly traded common stocks. The Equity Index Fund
seeks to achieve its objective by attempting to replicate the aggregate price
and yield performance of the Standard & Poor's Composite Index of 500 Stocks.
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<PAGE>
SELECT GROWTH AND INCOME FUND -- 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.
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- The Equity-Income Portfolio of Fidelity
VIP seeks reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio also will 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 S&P 500.
FIDELITY VIP II ASSET MANAGER PORTFOLIO -- The Asset Manager Portfolio of
Fidelity VIP II seeks high total return with reduced risk over the long term by
allocating its assets among domestic and foreign stocks, bonds and short-term
money market instruments.
FIDELITY VIP HIGH INCOME PORTFOLIO -- The High Income Portfolio of Fidelity VIP
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 often
are considered to be speculative, and involve greater risk of default or price
changes than securities assigned a high quality rating.
INVESTMENT GRADE INCOME FUND -- 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 capital appreciation)
as is consistent with prudent investment management.
GOVERNMENT BOND FUND -- The Government Bond Fund has the investment objectives
of seeking high income, preservation of capital and maintenance of liquidity,
primarily through investments in debt instruments issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, and in related options,
futures and repurchase agreements.
MONEY MARKET FUND -- The Money Market Fund is invested in a diversified
portfolio of high-quality, short-term money market instruments with the
objective of obtaining maximum current income consistent with the preservation
of capital and liquidity.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUB-ACCOUNTS WHICH
BEST MEET YOUR INDIVIDUAL NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE AND DGPF, ALONG WITH
THIS PROSPECTUS. IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE
AVAILABILITY OF PARTICULAR SUB-ACCOUNTS. THE INVESTMENT ADVISER OR SUB-ADVISER
OF AN UNDERLYING FUND MAY MANAGE OTHER MUTUAL FUNDS THAT HAVE SIMILAR NAMES,
GOALS, AND/OR STRATEGIES AS THOSE OF AN UNDERLYING FUND. DESPITE THESE
SIMILARITIES, THERE MAY BE DIFFERENCES BETWEEN THE UNDERLYING FUND AND THE OTHER
FUND MANAGED BY THE SAME ADVISER, WHICH COULD RESULT IN DIFFERENCES IN THE RISKS
AND RETURNS OF THE TWO FUNDS. NO REPRESENTATION IS MADE THAT ANY UNDERLYING FUND
IS SIMILAR TO OR DIFFERENT FROM OTHER FUNDS MANAGED BY THE SAME ADVISER. FOR
INFORMATION ON AN UNDERLYING FUND, CONSULT ITS PROSPECTUS.
If there is a material change in the investment objective of a Fund, you will be
notified of the change. If a portion of your Variable Income Option is allocated
to that Fund, you may transfer this amount without charge to another Fund. We
must receive your written request within 60 days of the latest of the:
- - effective date of the change in the investment objective or
- - receipt of the notice of your right to transfer.
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DESCRIPTION OF THE CONTRACT
Subject to certain restrictions discussed below, you have the right:
- - to select the annuity benefit option under which annuity payments are to be
made;
- - to determine whether those payments are to be made on a fixed basis (the Fixed
Income Option), a variable basis (the Variable Income Option), or a
combination fixed and variable basis;
- - to allocate any portion of the Net Payment to the Variable Income Option, and
you must choose:
- how to allocate the Net Payment;
- a Change Frequency (you may select the first date your annuity payment
will change);
- one of the available assumed investment returns for a Variable Income
Option (see "G. Variable Annuity Payments" below for details);
- if you wish to elect an optional feature -- the Floor or the Ratchet; and
- - to elect how the Beneficiary should receive annuity payments, if any.
A. SINGLE PURCHASE PAYMENT
You may make a single purchase payment to buy the Contract. This payment is
subject to a $75,000 minimum. The maximum single purchase payment is $5,000,000
without our prior approval. No additional payments may be made.
The Company issues the Contract when its underwriting requirements are met.
These requirements include receipt of the initial payment and allocation
instructions by the Company at its Principal Office. These requirements also may
include the proper completion of an application; however, where permitted, the
Company may issue a Contract without completion of an application and/or
signature for certain classes of Contracts.
Payments are to be made payable to the Company. The Net Payment is credited to
the Contract and allocated as requested as of the date that all issue
requirements are properly met. If all issue requirements are not completed
within five business days of the Company's receipt of the single purchase
payment, the payment will be returned immediately unless the Owner specifically
consents to the holding of it pending completion of the outstanding issue
requirements.
B. RIGHT TO CANCEL
If you return the Contract to the Company within 90 days of receipt, the
Contract will be cancelled.
If you purchase a Contract intended to qualify as an IRA or if you purchase the
Contract in a state that requires a full refund, you may cancel the Contract and
receive a refund as specified below.
Refund Within Ten Days of Receipt. If you return the Contract within ten
days (or longer if required by law) after you have received it, we will
refund the Single Purchase Payment less the total amount of all annuity
payments made or withdrawals taken.
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<PAGE>
Refund after Ten Days but Within Ninety Days. If you return the Contract
after ten days but within ninety days after the Issue Date, we will pay to
you the Contract Value as of the date the Contract is returned to us plus
any premium tax deducted on the Issue Date.
If you purchase a Contract that is not intended to qualify as an IRA or if you
purchase the Contract in a state that does not require a full refund, you may
cancel the Contract at any time within 90 days after receipt of the Contract and
receive a refund. If you return the Contract, we will pay to you the Contract
Value as of the date the Contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
At the time the Contract is issued, the "Right to Examine" provision on the
cover of the Contract will specifically indicate what the refund will be and the
time period allowed to exercise the right to cancel.
In order to cancel the contract, you must mail or deliver the Contract to the
agent through whom it was purchased, to our Principal Office at 440 Lincoln
Street, Worcester, MA 01653, or to any local agent of the Company. Mailing or
delivery must occur within ten or ninety days, as applicable, after receipt of
the Contract for cancellation to be effective. We ordinarily will send you a
refund within seven days.
C. ELECTING THE ANNUITY INCOME DATE
Annuity payments under the Contract will begin on the Annuity Income Date. You
select the Annuity Income Date at the time of issue. The Annuity Income Date
must be within twelve months of the Contract's Issue Date. You may not select
the 29th, 30th or 31st day of the month for the Annuity Income Date.
The Internal Revenue Code (the "Code") and/or the terms of qualified plans may
impose limitations on the age at which annuity payments may commence and the
type of annuity benefit option that may be elected. You should carefully review
the Annuity Income Date and the annuity benefit options with your tax advisor.
See also FEDERAL TAX CONSIDERATIONS for further information.
D. CHOOSING AN INCOME OPTION
You may choose a Fixed Income Option, a Variable Income Option or a combination
of Fixed and Variable.
If you select a Fixed Income Option, each monthly annuity payment will be equal
to the first (unless a withdrawal is made or as a result of the death of the
first Joint Annuitant). Any portion of the Net Payment allocated to the Fixed
Income Option will become part of our General Account.
If you select a Variable Income Option, you will receive monthly annuity
payments based on the value of the Annuity Units in the chosen Sub-Account(s).
Since the value of an Annuity Unit in a Sub-Account reflects the investment
performance of the Sub-Account, the amount of annuity payments will vary. Under
this Contract, you may choose the frequency with which you want annuity payments
to vary (the Change Frequency), which may be monthly, quarterly, semi-annually,
or annually. The Change Frequency is the frequency that changes due to the
Sub-Account's investment performance will be reflected in the dollar value of a
variable annuity payment. For example, if a monthly Change Frequency is in
effect, payments may vary on a monthly basis. If a quarterly Change Frequency is
selected, the amount of each monthly payment may change every three months and
will be level within each three month cycle.
The amount of your annuity payment will change for the first time one Change
Frequency Cycle after the Issue Date. (For example, if a quarterly Change
Frequency is chosen, your annuity payments will change for the first time three
months after the Annuity Income Date.) However, if you would like the amount of
the payment to change sooner, you can indicate the desired month.
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E. DESCRIPTION OF ANNUITY BENEFIT OPTIONS
The Company currently provides the following annuity benefit options:
LIFE ANNUITY OPTIONS
- - SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life. Payments
cease with the last annuity payment due prior to the Annuitant's death.
- - JOINT LIFE ANNUITY WITH SURVIVOR BENEFIT -- Monthly payments during the Joint
Annuitants' lifetimes. Upon the first death, payments will continue to you or
the Beneficiary (whichever is applicable) for the survivor's remaining
lifetime based on the previously elected level of 100%, two-thirds (66.67%) or
one-half (50%) of the total number of Annuity Units for a Variable Income
Option or the annuity payment for a Fixed Income Option.
LIFE ANNUITY WITH PAYMENT FOR A CERTAIN NUMBER OF YEARS OPTIONS
- - SINGLE LIFE ANNUITY -- Monthly payments guaranteed for a specified number of
years and continuing thereafter during the Annuitant's lifetime. If the
Annuitant dies before all guaranteed payments have been made, the remaining
payments continue to you or the Beneficiary (whichever is applicable).
- - JOINT LIFE ANNUITY WITH SURVIVOR BENEFIT -- Monthly payments guaranteed for a
specified number of years and continuing during the Joint Annuitants'
lifetimes. Upon the first death, payments continue for the survivor's
remaining lifetime based on the previously elected level of 100%, two-thirds
(66.67%) or one-half (50%) of the total number of Annuity Units for a Variable
Income Option or the annuity payment for a Fixed Income Option. If the
surviving Annuitant dies before all guaranteed payments have been made, the
remaining payments continue to you or the Beneficiary (whichever is
applicable).
LIFE ANNUITY WITH CASH BACK OPTIONS
- - SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life. At the
Annuitant's death, any excess of the Net Payment, over the total amount of
annuity payments made and withdrawals taken, will be paid to you or the
Beneficiary (whichever is applicable).
- - JOINT LIFE ANNUITY WITH SURVIVOR BENEFIT -- Monthly payments during the Joint
Annuitants' lifetimes. Upon the first death, payments continue for the
survivor's remaining lifetime based on the previously elected level of 100%,
two-thirds (66.67%) or one-half (50%) of the total number of Annuity Units for
a Variable Income Option or the annuity payment for a Fixed Income Option. At
the surviving Annuitant's death, any excess of the Net Payment, over the total
amount of annuity payments made and withdrawals taken, will be paid to you or
the Beneficiary (whichever is applicable).
PAYMENT FOR A CERTAIN NUMBER OF YEARS OPTION
Monthly annuity payments for a chosen number of years ranging from five to
thirty are paid. The Payment for a Certain Number of Years option does not
involve a life contingency. In the computation of the annuity payments under
this option, the charge for annuity rate guarantees, which includes a factor for
mortality risks, is made.
F. OPTIONAL FEATURES
The following optional features are available under the Contract:
- - The Floor
19
<PAGE>
- - The Ratchet
THE FLOOR. If you elect a Variable Income Option, the Floor is an optional
feature that is available in most jurisdictions. The Floor guarantees that each
monthly annuity payment will never be less than a payment based on the value of
the Annuity Units on the Issue Date (the "Floor Amount"). The Floor Amount may
be less than the value of the first annuity payment.
The Floor is subject to the conditions outlined below:
If a withdrawal is taken while the Floor is in effect, the Floor Amount will be
reduced in the same manner that the withdrawal reduces the number of Annuity
Units.
After the death of the first Annuitant under a Joint Life Annuity with Survivor
Benefit option, the Floor Amount will be reduced to 66.67% or 50%, as may be
applicable.
There is no periodic charge for the Floor. However, because lower Variable
Income Option Rates will be used under the Floor, the first annuity payment will
be lower than it would have been without the Floor. Subsequent payments will
also be lower unless the guarantee provided by the Floor is triggered, at which
time payments may be higher than if the Floor had not been elected.
THE RATCHET. If you elect a Variable Income Option, the Ratchet is an optional
feature that is available in most jurisdictions. The Ratchet is only available
with an annual Change Frequency.
The Ratchet guarantees that annuity payments will never decrease as a result of
investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to equal
or exceed the value of the Annuity Units on the Issue Date, assuming no
withdrawals are taken (the "Initial Ratchet Amount"). All other annuity payments
are guaranteed to equal or exceed the amount of the last annuity payment in the
previous Change Frequency Cycle (the "Current Ratchet Amount"). Annuity payments
are limited so that they will not exceed the applicable Ratchet amount by more
than 10% of the Current Ratchet Amount.
The Ratchet is subject to the conditions outlined below:
- - If a withdrawal is taken, the Initial Ratchet Amount (if the withdrawal is
taken prior to the Date of First Change) or the Current Ratchet Amount (if the
withdrawal is taken at any other time) will be reduced in the same manner that
the withdrawal reduces the number of Annuity Units.
- - After the death of the first Annuitant under a Joint Life with Survivor
Benefit option, the Ratchet amount is adjusted to 66.67% or 50%, as may be
applicable.
There is no periodic charge for the Ratchet. However, lower Variable Income
Option Rates are used to determine the initial annuity payment. If the Ratchet
is in effect, the first annuity payment will be lower than it would have been
without the Ratchet. Subsequent payments will also be lower except when the
protection provided by this feature results in a greater benefit.
For an example of how the Floor and the Ratchet would affect annuity payments,
see "B. Optional Feature Charges" under CHARGES AND DEDUCTIONS.
G. VARIABLE ANNUITY PAYMENTS
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 of dividing (1) by (2) and
subtracting (3) and (4) where:
20
<PAGE>
(1) 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;
(2) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(3) 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
(4) is an administrative charge equal to 0.20% on an annual basis of the
daily value of the Sub-Account's assets.
THE ANNUITY UNIT AND ANNUITY UNIT VALUE. The Annuity Unit is a measure used to
value the monthly annuity payments under a Variable Income Option. The value of
an Annuity Unit in each Sub-Account on its inception date was set at $1.00. The
value of an Annuity Unit under a Sub-Account on any Valuation Date thereafter is
equal to the value of the Annuity Unit on the immediately preceding Valuation
Date multiplied by the product of:
(1) a discount factor equivalent to the Assumed Investment Return ("AIR") and
(2) the Net Investment Factor of the Sub-Account funding the annuity payments
for the applicable Valuation Period.
Subject to the chosen Change Frequency, annuity payments will increase if the
annualized Net Investment Factor during that period is greater than the AIR and
will decrease if it is less than the AIR. Where permitted by law, the Owner may
select an AIR of 3%, 5%, or 7%. A higher AIR will result in a higher initial
payment. However, subsequent payments will increase more slowly during periods
when actual investment performance exceeds the AIR and will decrease more
rapidly during periods when investment performance is less than the AIR.
DETERMINATION OF THE NUMBER OF ANNUITY UNITS. We have Variable Income Option
Rates that determine the dollar amount of the first monthly payment under each
Variable Income Option for each $1,000 of Net Payment. We calculate this amount
assuming there is no change in the Annuity Unit Value. We then divide the amount
of the first annuity payment attributable to a particular Sub-Account by the
Annuity Unit Value of that Sub-Account to determine the number of Annuity Units
credited to your Contract. This number of Annuity Units remains fixed under all
annuity benefit options, except Joint and Survivor annuity benefit options that
reduce the number of Annuity Units upon the first death. However, the number of
variable annuity units under any annuity benefit option could change if
transfers or withdrawals are made.
DOLLAR AMOUNT OF FIRST VARIABLE ANNUITY PAYMENT. The dollar amount of the first
variable annuity payment will equal the number of Annuity Units of each
Sub-Account multiplied by the value of an Annuity Unit of that Sub-Account on
the applicable Valuation Date. The benefit of any optional feature will be taken
into account.
DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY PAYMENTS. The dollar amount of
subsequent variable annuity payments will vary with the Annuity Unit Value of
the selected Sub-Account(s) on certain dates. The dollar amount of variable
annuity payments remains level until the Date of First Change and within each
Change Frequency cycle. On the Date of First Change and as of the start of each
Change Frequency cycle, the dollar amount of the variable annuity payment is
determined by multiplying the number of Annuity Units of each Sub-Account by the
Annuity Unit Value of that Sub-Account on the applicable Valuation Date. The
benefit of any optional feature will be taken into account.
For an illustration of the calculation of a variable annuity payment using a
hypothetical example, see "Annuity Payments" in the SAI.
21
<PAGE>
PAYMENT OF ANNUITY PAYMENTS. You will receive the annuity payments unless you
request in writing that payments be made to another person, persons, or entity.
If you (or, if there are Joint Owners, the surviving Joint Owner) die on or
after the Annuity Income Date, the Beneficiary will become the Owner of the
Contract. Any remaining guaranteed annuity payments will continue to the
Beneficiary in accordance with the terms of the annuity benefit option selected.
If there are Joint Owners on or after the Annuity Income Date, upon the first
Owner's death, any remaining guaranteed annuity payments will continue to the
surviving Joint Owner in accordance with the terms of the annuity benefit option
selected.
If the Annuitant dies on or after the Annuity Income Date, but before all
guaranteed annuity payments have been made, any remaining guaranteed payments
will continue to be paid to you or the payee you have designated. Unless
otherwise indicated by you, after the death of the Annuitant, the Present Value
of any remaining guaranteed annuity payments may be paid in a single sum to you.
For discussion of Present Value calculation, see "Present Value Determination"
below.
H. TRANSFERS OF ANNUITY UNITS
You may transfer among the available Sub-Accounts upon written or telephone
request to us. Transfers may be made (a) before the Annuity Income Date and
before the death of an Owner; or (b) after the Annuity Income Date and as long
as annuity payments are payable under the annuity benefit option selected. A
properly completed authorization form must be on file before telephone requests
will be honored. See "K. Telephone Authorization" under DESCRIPTION OF THE
CONTRACT for more information. A designated number of Annuity Units equal to the
dollar amount of the transfer requested will be exchanged for an equivalent
dollar amount of Annuity Units of another Sub-Account. Transfer values will be
based on the Annuity Unit Value next computed after receipt of the transfer
request.
Currently, we do not charge for transfers. The first 12 transfers in a Contract
year are guaranteed to be free of any transfer charge. For each subsequent
transfer in a Contract year, we reserve the right to assess a charge, guaranteed
never to exceed $25, to reimburse us for the expense of processing transfers.
Any transfer made because of a material change in the investment objective of a
Sub-Account will not count towards the 12 free transfers, nor will we charge you
a transfer fee. As of the date of this Prospectus, transfers may be made to all
of the Sub-Accounts. However, we reserve the right to establish and impose
reasonable rules restricting transfers. All transfers are subject to our
consent.
AUTOMATIC ACCOUNT REBALANCING. You may request automatic rebalancing of
Sub-Account allocations on a monthly, bi-monthly, quarterly, semi-annual or
annual basis in accordance with your specified percentage allocations. Each
rebalancing will result in a change in the number of Annuity Units. As
frequently as you elect, we will review the percentage allocations in the Funds
and, if necessary, transfer amounts to ensure conformity with the designated
percentage allocation mix. If the amount necessary to re-establish the mix on
any scheduled date is less than $100, no transfer will be made.
Automatic Account Rebalancing will continue until we receive and record your
request to terminate.
I. WITHDRAWALS
You have the right, based on the annuity benefit option selected, to make
withdrawals. Withdrawals may be made (a) before the Annuity Income Date and
before the death of an Owner or an Annuitant, or (b) after the Annuity Income
Date and as long as annuity payments are payable under the annuity benefit
option selected. Two withdrawal options may be available to you: a Payment
Withdrawal Amount option or a Present Value Withdrawal option.
The minimum amount of a withdrawal is $100. Any withdrawal is normally payable
within seven days following our receipt of the withdrawal request.
22
<PAGE>
Withdrawals are not available under Qualified Plans, Contracts funding Section
457 Deferred Compensation Plans, and Contracts under which the Beneficiary has
elected to receive a lump sum instead of an income stream.
WITHDRAWALS AFTER THE ANNUITY INCOME DATE MAY HAVE ADVERSE TAX CONSEQUENCES. SEE
FEDERAL TAX CONSIDERATIONS, "C. TAX ON WITHDRAWALS".
We reserve the right to defer withdrawals of amounts allocated to our General
Account for a period not to exceed six months. Deferred amounts will receive
interest during the deferral period at a rate of at least 3%.
PAYMENT WITHDRAWAL AMOUNT OPTION. Once each calendar year, you may withdraw up
to 10 (the Payment Withdrawal Amount) times the value of the previous annuity
payment. If the withdrawal is taken prior to the Annuity Income Date, you may
withdraw up to 10 times the value of the previous annuity payment, if one were
to be paid, on the day we receive your request.
For the Payment for a Certain Number of Years annuity benefit option, the
withdrawal may not exceed the number of remaining guaranteed payments. Any
withdrawal proportionately reduces the number of Annuity Units (for Variable
Income Options) and/or the dollar amount (for Fixed Income Options) of each
future annuity payment. The proportionate reduction is calculated by multiplying
the number of Annuity Units or the dollar amount (whichever is applicable) in
each future annuity payment, determined immediately prior to the withdrawal, by
the following fraction:
Amount of the variable or fixed withdrawal
------------------------------------------------
Present Value of all remaining variable or fixed annuity
payments immediately prior to the withdrawal.
PRESENT VALUE WITHDRAWAL OPTION. In addition to the Payment Withdrawal Amount
Option, if you have elected the Payment for a Certain Number of Years, Life
Annuity with Payment for a Certain Number of Years or Life Annuity with Cash
Back annuity benefit option and there are remaining guaranteed payments, the
Owner may withdraw once each calendar year a portion of the adjusted Present
Value of those remaining guaranteed annuity payments (See "Present Value
Determination" below). Whenever a withdrawal is taken under this provision, we
record the percentage withdrawn. (See proportionate reduction calculation
below). Over the life of the Contract, the total percentage withdrawn cannot
exceed a maximum of 75% of the present value of the remaining guaranteed annuity
payments (the Present Value Withdrawal Amount).
Each withdrawal proportionately reduces the number of units in future guaranteed
variable annuity payments and the dollar amount for future guaranteed fixed
annuity payments. This proportionate reduction is calculated by multiplying the
number of Annuity Units or the dollar amount (whichever is applicable) in each
future annuity payment, determined immediately prior to the withdrawal, by the
following fraction:
Amount of the variable or fixed withdrawal
----------------------------------------------------------
Present Value of all remaining variable or fixed guaranteed annuity
payments immediately prior to the withdrawal.
If the Annuitant is still living after the guaranteed payments have been made,
the number of Annuity Units used in calculating the annuity payment prior to any
withdrawal will be restored as if no Present Value Withdrawal(s) had taken
place. However, the number of Annuity Units may be lower than the original
amount since they will be adjusted for any transfers, withdrawals taken under
the Payment Withdrawal Amount option, or adjusted after the death of the first
Joint Annuitant, if applicable.
PRESENT VALUE DETERMINATION. Present values of either all future annuity
payments or future guaranteed annuity payments are calculated based on the
Annuity 2000 Mortality Table (male, female or unisex rates as
23
<PAGE>
appropriate), and the interest rate or AIR used to determine the annuity
payments, increased by the following adjustments:
- - Death of the Annuitant -- 0.00% Adjustment
- - Withdrawals 5 or more years after Issue Date -- 0.00% Adjustment
- - Withdrawals within 5 years of Issue Date:
15 or more years of annuity payments being valued -- 1.00% Adjustment
10-14 years of annuity payments being valued -- 1.50% Adjustment
Less than 10 years of annuity payments being valued -- 2.00%
Adjustment
- - Determination of Contract Value* -- 0.00% Adjustment
*If an optional feature was selected, annuity payments used in determining this
Present Value will be the amount that would have been payable had you not
selected the optional feature.
J. DEATH BENEFIT
DEATH OF AN OWNER OR AN ANNUITANT BEFORE THE ANNUITY INCOME DATE
If an Owner or an Annuitant dies before the Annuity Income Date, we will pay a
death benefit equal to the Contract Value determined as of the Valuation Date on
which we receive due proof of death. The death benefit will be paid to the Owner
of the Contract. If there is no Owner or Joint Owner, we will pay the death
benefit to the Beneficiary.
PAYMENT OF THE DEATH BENEFIT
Unless you have specified otherwise, the death benefit generally will be paid in
one lump sum after receipt at the Principal Office of due proof of death.
Instead of payment in one lump sum, the person entitled to the death benefit
may, by written request, elect to receive a life annuity or an annuity for a
certain number of years not extending beyond such person's life expectancy with
annuity payments beginning no later than one year from the date of death.
THE SPOUSE OF THE DECEASED OWNER AS BENEFICIARY
The deceased Owner's spouse, if named as the sole Beneficiary, may by written
request continue the Contract in lieu of receiving the death benefit upon the
death of the Owner. Upon such election, the spouse becomes the Owner and
Annuitant. As of the date of such election, annuity payments will be adjusted to
reflect any change of Annuitant and Annuity Income Date. The new Annuity Income
Date must be within twelve months of the Issue Date. Any subsequent spouse of
the new Owner, if named as the Beneficiary, may not continue this Contract.
DEATH OF THE OWNER OR THE ANNUITANT AFTER THE ANNUITY INCOME DATE
If the Owner or the Annuitant dies after the Annuity Income Date, we will pay
the remaining annuity payments, if any, in accordance with the terms of the
annuity benefit option selected. Any remaining annuity payments will be paid to
the Owner of the Contract. If there is no Owner or Joint Owner, then the
Beneficiary will receive the payments and become the Owner of the Contract. The
Beneficiary may elect to receive the Present Value of any remaining payments in
one lump sum.
24
<PAGE>
K. GENERAL RESTRICTIONS ON PAYMENTS
For purposes of making annuity payments or payment of other benefits based on
the value of a Sub-Account, the value of an Annuity Unit is determined as of the
end of a Valuation Date, which is currently 4:00 p.m., Eastern time.
Withdrawals, transfers, or payment of a death benefit from amounts under a
Variable Income Option are usually paid within seven days of a request in proper
form or, in the case of a death benefit, after we have received all necessary
documentation.
We reserve the right to defer payment on withdrawals, transfers, or payment of a
death benefit from amounts in each Sub-Account in any period during which:
- - 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;
- - the SEC has by order permitted such suspension; or
- - an emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of a Sub-Account is not reasonably
practicable.
L. TELEPHONE AUTHORIZATION
In order for the Owner to be able to initiate transactions over the telephone, 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 we
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. Such procedures may include, among others, requiring some form of
personal identification prior to acting upon instructions received by telephone.
All telephone instructions are tape-recorded.
M. ASSIGNMENT
The Contract may not be assigned.
N. 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 unisex rates.
25
<PAGE>
CHARGES AND DEDUCTIONS
Deductions under the Contract and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Funds are described in the prospectuses and SAIs of the Trust,
Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF.
A. VARIABLE ACCOUNT DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE. We assess a charge against the assets of
each Sub-Account to compensate for certain mortality and expense risks we have
assumed. The mortality risk arises from our guarantee that we 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 benefit option selected), no matter how long the Annuitant lives and no
matter how long all Annuitants as a class live. The mortality charge is deducted
for any annuity benefit option selected on all Contracts, including those that
do not involve a life contingency, even though we do not bear direct mortality
risk with respect to variable annuity settlement options that do not involve
life contingencies. The expense risk arises from our guarantee that the charges
we make will not exceed the limits described in the Contract and in this
Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, we will absorb the losses. To the extent this
charge results in a profit to us, such profit will be available for use by us
for, among other things, the payment of distribution, sales and other expenses.
The mortality and expense risk charge is assessed daily at an annual rate of
1.25% of each Sub-Account's assets. This charge may not be increased.
ADMINISTRATIVE EXPENSE CHARGE. We assess each Sub-Account with a daily charge
at an annual rate of 0.20% of the average daily net assets of the Sub-Account.
The daily Administrative Expense Charge is assessed to help defray
administrative expenses incurred in the administration of the Sub-Account.
Deductions for the Administrative Expense Charge are designed to reimburse us
for the cost of administration and related expenses. The administrative
functions and expense assumed by us in connection with the Variable Account and
the Contract 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.
EXPENSES OF THE UNDERLYING FUNDS. Because the Sub-Accounts purchase shares of
the Underlying Funds, the value of the net assets of the Sub-Accounts will
reflect the investment advisory fee and other expenses incurred by the
Underlying Funds. These fees and expenses may vary each year. They are not fixed
or specified under the terms of the Contract, and they are not the
responsibility of the Company. The prospectuses and SAI's of the Trust, Fidelity
VIP, Fidelity VIP II, T. Rowe Price and DGPF contain additional information
concerning expenses of the Underlying Funds.
B. OPTIONAL FEATURE CHARGES
Subject to state availability, we offer two optional features that you may elect
at issue. No periodic charges are assessed for these features. Instead, lower
Variable Income Option Rates are used to determine the amount of the first
annuity payment. As a result, the first annuity payment is lower than it would
have been had the feature not been selected. Future annuity payments will also
be lower except when the feature provides a greater benefit.
The chart below is intended to help you understand the benefits and costs of the
Floor Benefit and Ratchet Feature. We have used the Growth Fund to portray what
the annuity payments would have been if someone had
26
<PAGE>
purchased the Contract at the inception of the Growth Fund. Even though the
Contract was not available at that time, this chart can help you understand how
annuity payments work under the Contract, how optional features work, and how
payments are affected by a Fund's total return. We have assumed that an investor
purchased the Contract at age 65 and is male. We have further assumed that the
investor selects a life only annuity benefit option with an AIR of 3%. The reset
frequency is annual for the Ratchet Rider and monthly for the no rider and Floor
Rider.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CONTRACT ANNUITY BENEFIT
<S> <C> <C> <C>
Month No Rider Floor Rider Ratchet Rider
0 426.75 384.08 362.74
1 445.83 401.25 362.74
2 452.78 407.5 362.74
3 454.33 408.9 362.74
4 448.81 403.93 362.74
5 431.76 388.59 362.74
6 444.27 399.84 362.74
7 472.99 425.7 362.74
8 483.62 435.26 362.74
9 489.09 440.18 362.74
10 516.03 464.43 362.74
11 549.09 494.18 362.74
12 530.04 477.04 399.01
13 554.01 498.61 399.01
14 559.55 503.59 399.01
15 524.18 471.76 399.01
16 572.45 515.21 399.01
17 544.54 490.09 399.01
18 563.35 507.02 399.01
19 580.79 522.71 399.01
20 555.31 499.78 399.01
21 620.19 558.17 399.01
22 641.49 577.34 399.01
23 658.91 593.02 399.01
24 652.88 587.59 438.91
25 654.98 589.48 438.91
26 683.16 614.84 438.91
27 724.95 652.45 438.91
28 738.78 664.9 438.91
29 729.44 656.49 438.91
30 544.71 490.24 438.91
31 506.36 455.72 438.91
32 543.7 489.33 438.91
33 568.66 511.8 438.91
34 611.51 550.35 438.91
35 610.24 549.22 438.91
36 602.34 542.11 482.8
37 602.48 542.23 482.8
38 639.39 575.45 482.8
39 625.31 562.78 482.8
40 601.5 541.35 482.8
41 622.52 560.27 482.8
42 627.69 564.92 482.8
43 617.94 556.14 482.8
44 628.55 565.7 482.8
45 670.33 603.3 482.8
46 649.42 584.47 482.8
47 659.93 593.93 482.8
48 686.21 617.59 531.08
49 715.66 644.1 531.08
50 698.33 628.5 531.08
51 756.31 680.68 531.08
52 776.77 699.09 531.08
53 776.87 699.18 531.08
54 748.45 673.6 531.08
55 755.63 680.07 531.08
56 755.96 680.36 531.08
57 699.49 629.54 531.08
58 709.21 638.29 531.08
59 725.36 652.82 531.08
60 710.18 639.16 584.19
61 776.79 699.11 584.19
62 779.76 701.78 584.19
63 771.61 694.45 584.19
64 698.89 629 584.19
65 658.33 592.5 584.19
66 653.03 587.73 584.19
67 696.37 626.73 584.19
68 721.18 649.06 584.19
69 762.06 685.86 584.19
70 818.26 736.43 584.19
71 834.44 751 584.19
72 834.3 750.87 642.61
73 871.35 784.22 642.61
74 826.26 743.64 642.61
75 869.56 782.6 642.61
76 896.47 806.82 642.61
77 871.81 784.63 642.61
78 898.44 808.6 642.61
79 851.5 766.35 642.61
80 969.68 872.71 642.61
81 940.68 846.62 642.61
82 955.25 859.73 642.61
83 925.83 833.25 642.61
84 932.14 838.92 706.87
85 940.81 846.73 706.87
86 915.59 824.03 706.87
87 946.02 851.42 706.87
88 927.17 834.46 706.87
89 938.11 844.3 706.87
90 945.25 850.72 706.87
91 984.31 885.88 706.87
92 993.76 894.38 706.87
93 999.63 899.67 706.87
94 976.52 878.87 706.87
95 999.44 899.5 706.87
96 958.09 862.28 777.56
97 981.91 883.72 777.56
98 983.21 884.89 777.56
99 984.51 886.06 777.56
100 1,013.41 912.07 777.56
101 999.48 899.53 777.56
102 1,012.77 911.49 777.56
103 997.03 897.33 777.56
104 1,014.46 913.02 777.56
105 1,045.76 941.18 777.56
106 1,021.17 919.05 777.56
107 966.59 869.93 777.56
108 978.09 880.28 831.38
109 982.21 883.99 831.38
110 958.92 863.03 831.38
111 984.87 886.38 831.38
112 1,018.30 916.47 831.38
113 984.5 886.05 831.38
114 997.29 897.56 831.38
115 967.07 870.36 831.38
116 972.3 875.07 831.38
117 982.61 884.35 831.38
118 1,016.84 915.16 831.38
119 1,043.55 939.19 831.38
120 1,063.14 956.83 903.67
121 1,109.09 998.18 903.67
122 1,124.17 1,011.75 903.67
123 1,156.60 1,040.94 903.67
124 1,155.25 1,039.72 903.67
125 1,190.77 1,071.69 903.67
126 1,173.10 1,055.79 903.67
127 1,217.13 1,095.42 903.67
128 1,236.10 1,112.49 903.67
129 1,271.77 1,144.59 903.67
130 1,290.20 1,161.18 903.67
131 1,294.61 1,165.14 903.67
132 1,310.14 1,179.12 994.04
133 1,333.95 1,200.56 994.04
134 1,330.79 1,197.72 994.04
135 1,247.73 1,122.95 994.04
136 1,270.78 1,143.70 994.04
137 1,325.83 1,193.25 994.04
138 1,362.76 1,226.49 994.04
139 1,442.60 1,298.34 994.04
140 1,421.91 1,279.72 994.04
141 1,496.98 1,347.28 994.04
142 1,504.19 1,353.77 994.04
143 1,438.80 1,294.92 994.04
144 1,487.78 1,339.00 1,093.44
145 1,580.28 1,422.25 1,093.44
146 1,630.45 1,467.41 1,093.44
147 1,729.70 1,556.73 1,093.44
148 1,676.26 1,508.63 1,093.44
149 1,743.86 1,569.47 1,093.44
150 1,647.70 1,482.93 1,093.44
151 1,681.77 1,513.59 1,093.44
152 1,703.28 1,532.96 1,093.44
153 1,695.68 1,526.11 1,093.44
154 1,832.40 1,649.16 1,093.44
155 1,910.31 1,719.28 1,093.44
156 1,911.70 1,720.53 1,202.79
157 1,864.45 1,678.01 1,202.79
158 1,914.90 1,723.41 1,202.79
159 1,888.97 1,700.07 1,202.79
160 1,554.17 1,398.76 1,202.79
161 1,618.71 1,456.84 1,202.79
162 1,747.93 1,573.13 1,202.79
163 1,846.49 1,661.84 1,202.79
164 1,945.44 1,750.90 1,202.79
</TABLE>
For a description of the optional features, see "F. Optional Features" under
DESCRIPTION OF THE CONTRACT, above.
C. PREMIUM TAXES
Some states and municipalities impose a premium tax on variable annuity
contracts. State premium taxes currently range up to 3.5%. We assess a charge
for state and municipal premium taxes, when applicable, and deduct the amount
paid as a premium tax charge. Our current practice is to deduct the premium tax
charge when the Single Purchase Payment is received.
D. TRANSFER CHARGE
We currently do not charge for processing transfers. We guarantee that the first
12 transfers in a Contract year will be free of transfer charge, but reserve the
right to assess a charge, guaranteed never to exceed $25, for each subsequent
transfer in a Contract year to reimburse us for the expense of processing
transfers. For more information, see "H. Transfers of Annuity Units" under
DESCRIPTION OF THE CONTRACT.
FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the federal income tax consequences of
investing in this Contract. It is based upon the Company's understanding of
current U.S. federal tax laws and does not address any state or local tax
issues. THE DISCUSSION IS NOT INTENDED TO BE COMPLETE, NOR IS IT INTENDED AS TAX
ADVICE TO ANY INDIVIDUAL. YOU SHOULD CONSULT YOUR TAX ADVISOR ABOUT YOUR OWN
CIRCUMSTANCES, INCLUDING ANY POSSIBLE APPLICATION OF SPECIAL RULES NOT DISCUSSED
HERE.
27
<PAGE>
The Company intends to assess a charge for any effect which the income, assets,
or existence of the Contract, the Variable Account or the Sub-Accounts may have
upon its tax. The Variable Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes should the Variable
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
Owners and with respect to each separate account as though that separate account
were a separate taxable entity.
A. ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs and for
providing a series of periodic payments for life or a fixed number of years.
Congress has provided special rules in the Internal Revenue Code ("Code") for
how you will be taxed on these periodic payments. There are also special rules
for withdrawals from an annuity that are not in the form of periodic payments.
The rules may apply differently to Qualified Contracts (a retirement plan which
meets the requirements of Code Sections 401, 403, 408 or 408A) and to
Non-Qualified Contracts.
As the Contract Owner, you may be taxed when a distribution occurs, either as an
annuity payment or as a withdrawal.
B. TAX ON ANNUITY PAYMENTS
When amounts are received as annuity payments, a portion of each annuity payment
is treated as a partial return of your single purchase payment and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your single
purchase payment are fully includible in income.
The Code imposes a penalty tax of 10% of the amount includible in income upon
certain distributions from annuity contracts occurring before the owner reaches
age 59 1/2. One of the exceptions from this penalty applies to amounts received
as annuity payments under an immediate annuity. To qualify as an immediate
annuity, a contract must, among other things, provide for a series of
substantially equal periodic payments during the annuity period, and must have
an annuity starting date (that is, the Annuity Income Date) that is no later
than one year from the contract's issue date. We believe that the Contract
should be treated as an immediate annuity, so there should be no penalty
applicable to amounts paid as annuity payments, regardless of the age of the
Contract Owner.
C. TAX ON WITHDRAWALS
When you make a withdrawal, the amount you receive will not be divided into
taxable and non-taxable portions in the same way as an annuity payment. All
Non-Qualified contracts issued by the Company to you during the same calendar
year will be aggregated to determine the taxable amount of any withdrawal.
WITHDRAWALS FROM NON-QUALIFIED CONTRACTS
If the value of your Contract exceeds your single purchase payment, any
distributions (that is, any withdrawals) will be included in your taxable
income to the extent of earnings in your Contract. These distributions may
also be subject to a penalty tax equal to 10% of the amount that is
includible in income. Some distributions are exempt from the 10% penalty
tax, including: (1) distributions paid on or after you reach age 59 1/2; (2)
distributions paid on or after your death; and (3) distributions paid if you
become disabled (as defined in the Code).
The Code does not specifically address refunds or withdrawals from immediate
annuity contracts. The IRS has issued one private letter ruling concluding
that the right to make these withdrawals does not
28
<PAGE>
prevent an annuity contract from qualifying as an immediate annuity.
However, the ruling does not clearly state the effect of an actual
withdrawal on the tax treatment of annuity payments made before and after
the withdrawal. If, as a result of a withdrawal, distributions from a
Contract after the annuity starting date were not substantially equal, there
is a risk that the Contract could fail to qualify as an immediate annuity.
In that case, the portion includible in income of each annuity payment
received prior to your attaining age 59 1/2 would be subject to a 10%
penalty tax (unless another exception to the penalty tax is applied). While
we currently believe that a withdrawal will not adversely affect the
favorable tax treatment of annuity payments received before or after the
withdrawal and we intend to perform our tax reporting functions accordingly,
there can be no assurance that the IRS will not take a contrary position.
You should obtain competent tax advice prior to making a withdrawal from
your Contract.
WITHDRAWALS FROM QUALIFIED CONTRACTS
No withdrawals may be made from a Qualified Contract.
D. EXCHANGES
You may exchange another annuity contract to acquire a Contract. For tax
purposes, the contract Issue Date will be the purchase date of the annuity
contract you exchange. Accordingly, in order for your Contract to qualify as an
immediate annuity, your Annuity Income Date must be no later than one year after
the purchase date of the contract you are exchanging.
If you exchange your Contract in exchange for another annuity contract with the
same Annuitant and Owner, the exchange will generally be treated as a tax-free
exchange. An exchange for a contract with a different Annuitant or Owner would
generally be treated as a taxable exchange.
E. TAX WITHHOLDING
The Company is required to withhold taxes from any payment made from
Non-Qualified and Qualified Contracts, including IRAs, unless you direct
otherwise. You may not direct the Company to refrain from withholding taxes on
certain distributions from a Qualified Contract that is part of a retirement
plan under Code Section 401 or 403. In addition, the Company is required to
report distributions from both Qualified and Non-Qualified Contracts to the IRS.
F. DIVERSIFICATION AND CONTROL OF UNDERLYING ASSETS
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order for the contract to be
treated as an annuity contract. The Underlying Funds have committed to us that
they will comply with these requirements.
In addition, Treasury regulations provide that a contract may not be treated as
an annuity contract for tax purposes if the contract owner has control over the
assets underlying the contract. The IRS has not yet issued guidance on whether
the degree of control you exercise over the underlying investments could cause
you to be considered the owner of the Fund shares. If you, rather than the
Company, were considered the owner of the Fund shares, your Contract would not
be treated as an annuity. We believe that we will be the owner of the Fund
shares for tax purposes; however, future IRS guidance may affect this conclusion
and may have retroactive effect. This may affect whether the Underlying Funds
will be able to continue to operate as described in the Funds' prospectus.
Moreover, we reserve the right, but have no obligation, to modify the Contracts
as we deem necessary or appropriate to ensure that the Contracts continue to
qualify as annuities for tax purposes.
STATEMENTS AND REPORTS
You are sent a report semi-annually which provides certain financial information
about the Underlying Funds. At least annually, but possibly as frequent as
quarterly, we will furnish a statement to you containing
29
<PAGE>
information about your Contract, including information as required by applicable
law, rules and regulations. We will also send a confirmation statement to you
each time a transaction is made. (Certain transactions made under recurring
payment plans such as Automatic Account Rebalancing may in the future be
confirmed quarterly rather than by immediate confirmations.) You should review
the information in all statements carefully. All errors or corrections must be
reported to us immediately to assure proper crediting to the Contract. We will
assume that all transactions are accurately reported on confirmation statements
and quarterly/annual statements unless you notify the Principal Office in
writing within 30 days after receipt of the statement.
LOANS
Loans will not be permitted under this contract.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to: (1)
transfer assets from the Variable Account or any of its Sub-Accounts to another
of our separate accounts or sub-accounts having assets of the same class; (2) to
operate the Variable Account or any Sub-Account 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 or other investment medium for the Underlying Fund
shares held by a Sub-Account, in the event that Underlying Fund shares are
unavailable for investment, or if we determine that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the Sub-
Account; (5) to change the methodology for determining the Net Investment
Factor; and (6) to change the names of the Variable Account or of the
Sub-Accounts. In no event will the changes described above be made without
notice to you in accordance with the 1940 Act.
We also reserve the right to establish additional sub-accounts 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 SEC approval, we may, in
our sole discretion, establish new sub-accounts or eliminate one or more
Sub-Accounts if marketing needs, tax considerations or investment conditions
warrant. Any new sub-accounts may be made available to existing Owners on a
basis which we will determine.
Shares of the Underlying Funds also are issued to the separate accounts of the
Company and our affiliates which issue variable life contracts ("mixed
funding"). Shares of the Funds also are 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 owners or
variable annuity owners. Although neither we nor any of the underlying
investment companies currently foresee any such disadvantages to either variable
life owners or variable annuity owners, we and the respective trustees intend to
monitor events in order to identify any material conflicts between such 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, we will bear the attendant
expenses.
If any of these substitutions or changes is made, we may endorse the Contracts
to reflect the substitution or change, and will notify you of all such changes.
If we deem it to be in the best interest of Owners, and subject to any approvals
that may be required under applicable law, the Variable Account or any
Sub-Accounts 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 Sub-Accounts or our other separate accounts.
30
<PAGE>
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
We reserve the right, without the consent of Owners, to suspend sales of the
Contract as presently offered, and to make any change to provisions of the
Contract to comply with, or give you the benefit of, any federal or state
statute, rule or regulation, including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation. Any such changes will apply uniformly to all
Contracts that are affected. You will be given written notice of such changes.
VOTING RIGHTS
We will vote Underlying Fund shares held by each Sub-Account in accordance with
instructions received from you. Each person having a voting interest in a
Sub-Account will be provided with proxy materials of the Underlying Fund,
together with a form with which to give voting instructions to us. Shares for
which no timely instructions are received will be voted in proportion to the
instructions that are received. We also will vote shares in a Sub-Account that
we own and which are not attributable to the Contract 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 we
determine that we are permitted to vote shares in our own right, whether or not
such shares are attributable to the Contract, we reserve the right to do so.
The number of votes that you may cast will be determined by us as of the record
date established by the Underlying Fund. The number of Underlying Fund shares
will be determined by dividing the reserve held in each Sub-Account for the
Variable Annuity by the net asset value of one Underlying Fund share.
Ordinarily, voting interest in the Underlying Fund will decrease as the reserve
for the Variable Annuity is depleted.
DISTRIBUTION
The Contracts offered by this 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, MA 01653, is also the principal underwriter and distributor and is an
indirect wholly owned subsidiary of First Allmerica. The Contract also may be
purchased from certain independent broker-dealers that are NASD members.
We pay commissions, not to exceed 5.0% of payments, to registered
representatives of Allmerica Investments, Inc. Alternative commission schedules
are available with varying initial commission amounts based on the Single
Purchase Payment, plus ongoing annual compensation of up to 4% of annuity
payments.
We intend to recoup commissions and other sales expenses through anticipated
profits from our General Account, which may include amounts derived from
mortality and expense risk charges. Commissions paid on the Contract, including
additional incentives or payments, do not result in any additional charge to you
or to the Variable Account. You may direct any inquiries to your financial
representative or to Annuity Client Services, Allmerica Financial Life Insurance
and Annuity Company, 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-533-7881.
SERVICES
We receive fees from the investment advisers or other service providers of
certain Funds in return for providing certain services to Owners. Currently, we
receive service fees with respect to the Fidelity VIP Overseas Portfolio,
Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio, Fidelity
VIP High Income Portfolio, and Fidelity VIP II Asset Manager Portfolio, at an
annual rate of 0.10% of the aggregate net asset value, respectively, of the
shares of such Funds held by the Variable Account. With respect to the T. Rowe
Price International Stock Portfolio, we receive service fees at an annual rate
of 0.15% of the aggregate net asset value of shares held by the Variable
Account. We may in the future render services for which we will receive
compensation from the investment advisers or other service providers of other
Funds.
31
<PAGE>
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party,
or to which the assets of the Variable Account are subject. The Company and the
Principal Underwriter are not involved in any litigation that is of material
importance in relation to their total assets or that relates to the Variable
Account.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of our computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
Based on a third party assessment, we determined that significant portions of
its software required modification or replacement to enable its computer systems
to properly process dates beyond December 31, 1999. We are presently completing
the process of modifying or replacing existing software and believes that this
action will resolve the Year 2000 issue. However, if such modifications and
conversions are not made, or are not completed timely, or should there be
serious unanticipated interruptions from unknown sources, the Year 2000 issue
could have a material adverse impact on our operations. Specifically, we could
experience, among other things, an interruption in our ability to collect and
process premiums, process claim payments, safeguard and manage our invested
assets, accurately maintain policyholder information, accurately maintain
accounting records, and perform customer service. Any of these specific events,
depending on duration, could have a material adverse impact on the results of
operations and our financial position.
We have initiated formal communications with all of our suppliers to determine
the extent to which we are vulnerable to those third parties' failure to
remediate their own Year 2000 issue. Our total Year 2000 project cost and
estimates to complete the project include the estimated costs and time
associated with our involvement on a third party's Year 2000 issue, and are
based on presently available information. However, there can be no guarantee
that the systems of other companies on which our systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with our systems, would not have material adverse effect on us.
We do not believe that we have material exposure to contingencies related to the
Year 2000 issue for the products we have sold. Although we do not believe that
there is a material contingency associated with the Year 2000 project, there can
be no assurance that exposure for material contingencies will not arise.
The cost of the Year 2000 project will be expensed as incurred and is being
funded primarily through a reallocation of resources from discretionary projects
and a reduction in systems maintenance and support costs. Therefore, the Year
2000 project is not expected to result in any significant incremental technology
cost and is not expected to have a material effect on the results of operations.
We and our affiliates have incurred and expensed approximately $54 million
related to the assessment, plan development and substantial completion of the
Year 2000 project, through December 31, 1998. The total remaining cost of the
project is estimated between $20-30 million.
FURTHER INFORMATION
A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted in this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC's
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
32
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT VA-K
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
SUB-ACCOUNTS 1998 1997 1996 1995 1994 1993 1992
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECT INTERNATIONAL EQUITY FUND
Accumulation Unit Value:
Beginning of Period................. 1.398 1.355 1.127 0.956 1.000 N/A N/A
End of Period....................... 1.605 1.398 1.355 1.127 0.956 N/A N/A
Units Outstanding at End of Period (in
thousands).......................... 130,011 115,585 77,485 37,680 12,530 N/A N/A
DGPF INTERNATIONAL EQUITY SERIES
Accumulation Unit Value:
Beginning of Period................. 1.596 1.519 1.284 1.143 1.129 1.000 N/A
End of Period....................... 1.736 1.596 1.519 1.284 1.143 1.129 N/A
Units Outstanding at End of Period (in
thousands).......................... 68,279 62,134 44,416 34,692 26,924 6,681 N/A
FIDELITY VIP OVERSEAS PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 1.632 1.484 1.330 1.230 1.226 0.906 1.030
End of Period....................... 1.814 1.632 1.484 1.330 1.230 1.226 0.906
Units Outstanding at End of Period (in
thousands).......................... 59,052 56,689 63,050 65,256 59,774 25,395 6,728
T. ROWE PRICE INTERNATIONAL STOCK
PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 1.222 1.203 1.064 1.000 N/A N/A N/A
End of Period....................... 1.396 1.222 1.203 1.064 N/A N/A N/A
Units Outstanding at End of Period (in
thousands).......................... 68,367 59,832 35,915 10,882 N/A N/A N/A
SELECT AGGRESSIVE GROWTH FUND
Accumulation Unit Value:
Beginning of Period................. 2.305 1.970 1.686 1.292 1.342 1.139 1.000
End of Period....................... 2.513 2.305 1.970 1.686 1.292 1.342 1.139
Units Outstanding at End of Period (in
thousands).......................... 125,758 106,790 89,974 70,349 54,288 26,158 2,019
SELECT CAPITAL APPRECIATION FUND
Accumulation Unit Value:
Beginning of Period................. 1.670 1.482 1.383 1.000 N/A N/A N/A
End of Period....................... 1.875 1.670 1.482 1.383 N/A N/A N/A
Units Outstanding at End of Period (in
thousands).......................... 80,048 70,932 52,927 16,096 N/A N/A N/A
SELECT VALUE OPPORTUNITY FUND
Accumulation Unit Value:
Beginning of Period................. 1.945 1.580 1.249 1.075 1.167 1.000 N/A
End of Period....................... 2.011 1.945 1.580 1.249 1.075 1.167 N/A
Units Outstanding at End of Period (in
thousands).......................... 99,750 85,126 60,145 43,433 33,049 9,902 N/A
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
SUB-ACCOUNTS 1998 1997 1996 1995 1994 1993 1992
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECT GROWTH FUND
Accumulation Unit Value:
Beginning of Period................. 2.001 1.514 1.259 1.024 1.055 1.058 1.000
End of Period....................... 2.671 2.001 1.514 1.259 1.024 1.055 1.058
Units Outstanding at End of Period (in
thousands).......................... 121,005 96,643 62,633 47,078 38,415 26,064 3,039
GROWTH FUND
Accumulation Unit Value:
Beginning of Period................. 2.336 1.894 1.599 1.221 1.236 1.175 1.111
End of Period....................... 2.748 2.336 1.894 1.599 1.221 1.236 1.175
Units Outstanding at End of Period (in
thousands).......................... 164,914 156,173 135,573 116,008 102,399 72,609 34,373
FIDELITY VIP GROWTH PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 2.608 2.143 1.895 1.419 1.440 1.224 1.135
End of Period....................... 3.586 2.608 2.143 1.895 1.419 1.440 1.224
Units Outstanding at End of Period (in
thousands).......................... 149,009 148,211 142,450 116,485 90,717 49,136 18,253
EQUITY INDEX FUND
Accumulation Unit Value:
Beginning of Period................. 2.581 1.977 1.640 1.221 1.266 1.135 1.074
End of Period....................... 3.265 2.581 1.977 1.640 1.221 1.226 1.135
Units Outstanding at End of Period (in
thousands).......................... 107,625 85,344 57,428 39,534 29,176 22,466 9,535
SELECT GROWTH AND INCOME FUND
Accumulation Unit Value:
Beginning of Period................. 1.978 1.638 1.370 1.066 1.074 0.987 1.000
End of Period....................... 2.270 1.978 1.638 1.370 1.066 1.074 0.987
Units Outstanding at End of Period (in
thousands).......................... 119,107 103,543 82,434 63,841 51,098 31,846 4,711
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 2.824 2.236 1.185 1.490 1.412 1.211 1.051
End of Period....................... 3.107 2.824 2.236 1.185 1.490 1.412 1.211
Units Outstanding at End of Period (in
thousands).......................... 187,989 180,001 167,000 139,145 104,356 61,264 17,855
FIDELITY VIP II ASSET MANAGER
PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 1.514 1.273 1.127 0.977 1.000 N/A N/A
End of Period....................... 1.717 1.514 1.273 1.127 0.977 N/A N/A
Units Outstanding at End of Period (in
thousands).......................... 69,704 55,551 42,415 33,444 20,720 N/A N/A
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
SUB-ACCOUNTS 1998 1997 1996 1995 1994 1993 1992
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY VIP HIGH INCOME PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 2.272 1.958 1.743 1.465 1.510 1.270 1.047
End of Period....................... 2.142 2.272 1.958 1.743 1.465 1.510 1.270
Units Outstanding at End of Period (in
thousands).......................... 97,829 76,343 53,956 38,042 27,041 13,583 3,625
INVESTMENT GRADE INCOME FUND
Accumulation Unit Value:
Beginning of Period................. 1.530 1.418 1.390 1.073 1.250 1.145 1.073
End of Period....................... 1.629 1.530 1.418 1.390 1.196 1.250 1.145
Units Outstanding at End of Period (in
thousands).......................... 102,088 86,816 79,054 69,168 57,454 48,488 15,428
GOVERNMENT BOND FUND
Accumulation Unit Value:
Beginning of Period................. 1.384 1.311 1.285 1.152 1.179 1.112 1.075
End of Period....................... 1.469 1.384 1.311 1.285 1.152 1.179 1.112
Units Outstanding at End of Period (in
thousands).......................... 48,930 35,261 30,921 31,710 32,519 60,265 29,844
MONEY MARKET FUND
Accumulation Unit Value:
Beginning of Period................. 1.214 1.167 1.124 1.077 1.051 1.035 1.013
End of Period....................... 1.262 1.214 1.167 1.124 1.077 1.051 1.035
Units Outstanding at End of Period (in
thousands).......................... 128,730 91,676 92,354 69,311 37,668 30,815 30,778
</TABLE>
A-3
<PAGE>
CONDENSED FINANCIAL INFORMATION
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-K
<TABLE>
<CAPTION>
SUB-ACCOUNTS 1998 1997 1996 1995 1994
- -------------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECT INTERNATIONAL EQUITY FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.398 1.355 1.128 0.956 1.000
End of Period..................................................... 1.605 1.398 1.355 1.128 0.956
Number of Units Outstanding at End of Period (in thousands)......... 9,713 8,076 5,068 2,093 446
DGPF INTERNATIONAL EQUITY SERIES
Accumulation Unit Value:
Beginning of Period............................................... 1.387 1.319 1.115 0.993 1.000
End of Period..................................................... 1.508 1.387 1.319 1.115 0.993
Number of Units Outstanding at End of Period (in thousands)......... 4,148 3,266 2,023 1,304 667
FIDELITY VIP OVERSEAS PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 1.298 1.180 1.058 0.978 1.000
End of Period..................................................... 1.443 1.298 1.180 1.058 0.978
Number of Units Outstanding at End of Period (in thousands)......... 4,358 3,601 3,114 2,804 1,697
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 1.222 1.203 1.064 1.000 N/A
End of Period..................................................... 1.396 1.222 1.203 1.064 N/A
Number of Units Outstanding at End of Period (in thousands)......... 5,670 4,536 2,506 542 N/A
SELECT AGGRESSIVE GROWTH FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.825 1.560 1.335 1.023 1.000
End of Period..................................................... 1.989 1.825 1.560 1.335 1.023
Number of Units Outstanding at End of Period (in thousands)......... 10,282 7,947 5,681 2,907 1,211
SELECT CAPITAL APPRECIATION FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.670 1.482 1.115 1.000 N/A
End of Period..................................................... 1.875 1.670 1.482 1.115 N/A
Number of Units Outstanding at End of Period (in thousands)......... 5,947 5,197 3,849 1,069 N/A
SELECT VALUE OPPORTUNITY FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.764 1.433 1.131 0.975 1.000
End of Period..................................................... 1.823 1.764 1.433 1.131 0.975
Number of Units Outstanding at End of Period (in thousands)......... 7,243 5,466 3,037 1,614 795
SELECT GROWTH FUND
Accumulation Unit Value:
Beginning of Period............................................... 2.064 1.562 1.229 1.057 1.000
End of Period..................................................... 2.756 2.064 1.562 1.229 1.057
Number of Units Outstanding at End of Period (in thousands)......... 8,389 5,589 2,645 1,278 406
GROWTH FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.986 1.610 1.359 1.037 1.000
End of Period..................................................... 2.336 1.986 1.610 1.359 1.037
Number of Units Outstanding at End of Period (in thousands)......... 9,224 7,404 4,652 2,436 947
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNTS 1998 1997 1996 1995 1994
- -------------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
FIDELITY VIP GROWTH PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 1.972 1.620 1.433 1.073 1.073
End of Period..................................................... 2.712 1.972 1.620 1.433 1.073
Number of Units Outstanding at End of Period (in thousands)......... 13,035 11,575 9,342 4,952 1,944
EQUITY INDEX FUND
Accumulation Unit Value:
Beginning of Period............................................... 2.187 1.675 1.390 1.035 1.000
End of Period..................................................... 2.766 2.187 1.675 1.390 1.035
Number of Units Outstanding at End of Period (in thousands)......... 8,479 5,712 2,417 947 189
SELECT GROWTH AND INCOME FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.911 1.582 1.324 1.030 1.000
End of Period..................................................... 2.193 1.911 1.582 1.324 1.030
Number of Units Outstanding at End of Period (in thousands)......... 7,519 6,124 3,759 2,173 832
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 2.034 1.610 1.430 1.073 1.000
End of Period..................................................... 2.238 2.034 1.610 1.430 1.073
Number of Units Outstanding at End of Period (in thousands)......... 16,111 12,959 9,957 5,738 2,214
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 1.527 1.284 1.137 0.985 1.000
End of Period..................................................... 1.732 1.527 1.284 1.137 0.985
Number of Units Outstanding at End of Period (in thousands)......... 3,514 3,125 2,735 2,025 1,240
FIDELITY VIP HIGH INCOME PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 1.543 1.330 1.184 0.995 1.000
End of Period..................................................... 1.455 1.543 1.330 1.184 0.995
Number of Units Outstanding at End of Period (in thousands)......... 14,203 9,794 5,635 2,530 985
INVESTMENT GRADE INCOME FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.267 1.174 1.151 0.990 1.000
End of Period..................................................... 1.348 1.267 1.174 1.151 0.990
Number of Units Outstanding at End of Period (in thousands)......... 5,160 3,889 2,854 1,677 1,677
GOVERNMENT BOND FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.199 1.136 1.113 0.998 1.000
End of Period..................................................... 1.273 1.199 1.136 1.113 0.998
Number of Units Outstanding at End of Period (in thousands)......... 2,605 1,694 1,629 1,098 363
MONEY MARKET FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.149 1.105 1.064 1.020 1.000
End of Period..................................................... 1.195 1.149 1.105 1.064 1.020
Number of Units Outstanding at End of Period (in thousands)......... 8,683 8,628 7,379 4,194 1,837
</TABLE>
No information is shown above for Sub-Accounts that commenced operations after
December 31, 1998.
A-5
<PAGE>
APPENDIX B
EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS
Assume a payment of $250,000 is made by a 65 year old male. Further assume that
he selects a variable annuity payout option of Life with 10 years guaranteed. An
AIR of 3% and an annual change frequency is also selected. Assume that the
initial payment purchases 1,370 annuity units and the first monthly payment is
equal to $1,370. The following examples assume a gross return of 8%.
PRESENT VALUE WITHDRAWAL OPTION
1. Assume that the owner has taken no previous withdrawals would like to
take the maximum liquidity available at the beginning of the third
contract year.
Annuity Units before withdrawal = 1,370
Monthly Annuity Benefit before withdrawal = $1,506.24
Present Value of Future Guaranteed Annuity Benefit Payments =
$108,367.55
Discount Rate = 5% (3% AIR plus 2% Adjustment)
Maximum Liquidity = $81,275.66 ($108,367.55 * 75%)
Annuity Units after withdrawal = 342.50
Monthly Annuity Benefit after withdrawal = $376.56
Please note that the number of Annuity Units will increase to 1,370 after
the end of the guaranteed period.
2. Assume that the owner has taken no previous withdrawals and would like
to take the maximum liquidity available at the beginning of the eighth
contract year.
Annuity Units before withdrawal = 1,370
Monthly Annuity Benefit before withdrawal = $1,909.09
Present Value of Future Guaranteed Annuity Benefit Payments =
$53,409.64
Discount Rate = 3% (3% AIR)
Maximum Liquidity = $40,057.23 ($53,409.64 * 75%)
Annuity Units after withdrawal = 342.50
Monthly Annuity Benefit after withdrawal = $477.27
Please note that the number of Annuity Units will increase to 1,370 after
the end of the guaranteed period.
PAYMENT WITHDRAWAL AMOUNT OPTION
3. Assume that the owner has taken no previous withdrawals and would like
to take a withdrawal of 10 Monthly Annuity Benefit payments at the
beginning of the third contract year.
Annuity Units before withdrawal = 1,370
Monthly Annuity Benefit before withdrawal = $1,506.24
Withdrawal = $15,062.40
Present Value of Future Annuity Benefit Payments = $234,482.77
Discount Rate = 4% (3% AIR plus 1% Adjustment)
Annuity Units after withdrawal = 1,282.00 (1,370 * (1 -
(15,062.40/234,482.77)))
Monthly Annuity Benefit after withdrawal = $1,409.48
4. Assume that the owner has taken no previous withdrawals and would like
to take a withdrawal of 10 Monthly Annuity Benefit payments at the
beginning of the eighth contract year.
Annuity Units before withdrawal = 1,370
Monthly Annuity Benefit before withdrawal = $1,909.09
Withdrawal = $19,090.90
Present Value of Future Guaranteed Annuity Benefit Payments =
$268,826.18
Discount Rate = 3% (3% AIR)
Annuity Units after withdrawal = 1,272.71 (1,370* (1 -
(19,090.90/268,826.18)))
Monthly Annuity Benefit after withdrawal = $477.27
B-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
SUB-ACCOUNTS 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 ALLMERICA IMMEDIATE ADVANTAGE VARIABLE ANNUITY
PROSPECTUS FOR THE ABOVE SUB-ACCOUNTS OF SEPARATE ACCOUNT VA-K (EXECANNUITY
PLUS/ALLMERICA ADVANTAGE) DATED ________, 1999 ("THE PROSPECTUS"). THE
PROSPECTUS MAY BE OBTAINED FROM ANNUITY CLIENT SERVICES, ALLMERICA FINANCIAL
LIFE INSURANCE AND ANNUITY COMPANY, 440 LINCOLN STREET, WORCESTER,
MASSACHUSETTS 01653, TELEPHONE 1-800-533-7881.
DATED ______, 1999
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY . . . . . . . . . . . . . . . . . . . 2
THE VARIABLE ACCOUNT
AND THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . 3
SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ANNUITY BENEFIT PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . 5
EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 6
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . F-1
GENERAL INFORMATION AND HISTORY
Separate Account VA-K (the "Variable Account") is a separate investment account
of Allmerica Financial Life Insurance and Annuity Company (the "Company")
established by vote of its 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 (the "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, 1998, the
Company had over $14 billion in assets and over $26 billion of life insurance in
force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirectly wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company, and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company and adopted its present name on
October 16, 1995. First Allmerica is among the five oldest life insurance
companies in America. As of December 31, 1998, First Allmerica and its
subsidiaries (including the Company) had over $27 billion in combined assets and
over $48 billion in life insurance in force.
Currently, 20 Sub-Accounts of the Variable Account are available under the
Allmerica Immediate Advantage Variable Annuity contract (the "Contract").
Each Sub-Account invests in a corresponding investment portfolio of Allmerica
Investment Trust ("Trust"), Variable Insurance Products Fund ("Fidelity
VIP"), Variable Insurance Products Fund II ("Fidelity VIP II"), T. Rowe Price
International Series, Inc. ("T. Rowe Price"), or Delaware Group Premium Fund,
Inc. ("DGPF").
2
<PAGE>
The Trust is managed by Allmerica Financial Investment Management Services,
Inc. Fidelity VIP and Fidelity VIP II are managed by Fidelity Management &
Research Company ("FMR"). The T. Rowe Price International Stock Portfolio of
T. Rowe Price is managed by Rowe Price-Fleming International, Inc.
("Price-Fleming"). The International Equity Series of DGPF is managed by
Delaware International Advisers Ltd. ("International Advisers").
The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF are
open-end, diversified management investment companies. Thirteen different
funds of the Trust are available under the Contract: the Select Emerging
Markets Fund, Growth Fund, Select Strategic 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 Select Value Opportunity Fund. Certain of these Funds may not be
available in all states. Four portfolios of Fidelity VIP are available under
the Contract: the Fidelity VIP High Income Portfolio, Fidelity VIP
Equity-Income Portfolio, Fidelity VIP Growth Portfolio, and Fidelity VIP
Overseas Portfolio. One portfolio of Fidelity VIP II is available under the
Contract: the Fidelity VIP II Asset Manager Portfolio. One portfolio of T.
Rowe Price is available under the Contract: the T. Rowe Price International
Stock Portfolio. The International Equity Series is the only Series of DGPF
available under the Contract. Each Fund, Portfolio and Series available
under the Contract (together, the "Underlying Funds") has its own investment
objectives and certain attendant risks.
TAXATION OF THE CONTRACT, THE VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
contracts, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any
other taxes that may become payable in the future in connection with the
contracts or the Variable Account.
The Variable Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Internal Revenue Code (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 the Contract or the Variable Account may have upon its
tax. Such charge for taxes, if any, will be assessed on a fair and equitable
basis in order to preserve equity among classes of Contract Owners ("Owners").
The Variable Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Variable Account. Underlying Fund shares owned by the Sub-Accounts are held on
an open account basis. A Sub-Account's ownership of Underlying Fund shares is
reflected on the records of the Underlying Fund and is not represented by any
transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998, and
the financial statements of Separate Account VA-K Allmerica Advantage Variable
Annuity and ExecAnnuity Plus Variable Annuity of the Company as of December 31,
1998 and for the periods indicated, included in this Statement of Additional
Information constituting part of this Registration Statement, have been so
included in reliance on the reports of PricewaterhouseCoopers 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
Contract.
3
<PAGE>
UNDERWRITERS
Allmerica Investments, Inc. ("Allmerica Investments"), a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. ("NASD"), serves as principal
underwriter and general distributor for the Contract pursuant to a contract with
Allmerica Investments, the Company and the Variable Account. Allmerica
Investments distributes the Contract 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 presently
is indirectly wholly owned by First Allmerica.
The Contract offered by this Prospectus is offered continuously, and may be
purchased from NASD registered representatives of Allmerica Investments and from
certain independent broker-dealers which are NASD members and whose
representatives are authorized by applicable law to sell variable annuity
contracts.
Commissions are paid by the Company to its licensed insurance agents on sales
of the Contract. The Company intends to recoup the commission and other
sales expense through a combination of anticipated withdrawal and/or
annuitization charges, profits from the Company's general account, including
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 Contract are required to be licensed by their respective
state insurance authorities for the sale of variable annuity policies.
Registered representatives of Allmerica Investments receive commissions equal to
5% (4% on contracts originally issued as part of a 401(k) plan) of purchase
payments. Independent broker-dealers receive commissions of 5%, of which a
portion is paid to their registered representatives.
The aggregate amounts of commissions paid to representatives of Allmerica
Investments, Inc. with respect to sales of the contracts were $36,853,600.78 in
1998, $34,693,060.08 in 1997 and $32,954,782.25 in 1996.
No commissions were paid for sales of Contract Form A3027-98 since it was not
offered until _____________.
Commissions are paid by the Company, and do not result in any charge to Owners
or to the Variable Account in addition to the charges described under "CHARGES
AND DEDUCTIONS" in the Prospectus.
4
<PAGE>
ANNUITY BENEFIT PAYMENTS
ILLUSTRATION OF VARIABLE ANNUITY BENEFIT PAYMENT CALCULATION USING
HYPOTHETICAL EXAMPLE. The determination of the Annuity Unit value and the
variable annuity benefit payment may be illustrated by the following
hypothetical example: Assume an Annuitant has 40,000 Accumulation Units in a
Variable Account, and that the value of an Accumulation Unit on the Valuation
Date used to determine the amount of the first variable annuity benefit
payment is $1.120000. Therefore, the Accumulation Value of the Contract is
$44,800 (40,000 x $1.120000). Assume also that the Owner elects an option
for which the first monthly payment is $6.57 per $1,000 of Accumulated Value
applied. Assuming no premium tax, 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 3.0% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. 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 Valuation Period applicable to the
next annuity benefit payment is 1.000190. Multiplying this factor by .999919
(the one-day adjustment factor for the assumed interest rate of 3.0% per
annum) produces a factor of 1.000109. This then is 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 $1.105120 for the current
monthly payment. The current monthly payment then is determined by
multiplying the number of Annuity Units by the current Annuity Unit value, or
267.5818 times $1.105120, which produces a current monthly payment of $295.71.
5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
ALLMERICA IMMEDIATE ALLMERICA ADVANTAGE EXEC ANNUITY PLUS '93 EXEC ANNUITY PLUS '91
ADVANTAGE (A3029-99) (A3025-96) (3021-93) (3018-91)
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
What are the Rates are current only - The first payment is The first payment is The first payment is
Annuitization Rates no guarantee rates. based on the greater of based on the greater of based on the greater of
that apply to variable the rates guaranteed in the rates guaranteed in the rates guaranteed in
annuity payments? the contract or the the contract or the the contract or the
current rates. current rates. current rates.
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
What is the Assumed The owner has a choice The Assumed Investment The Assumed Investment The Assumed Investment
Investment Return (AIR)? of 3%, 5% or 7% Return is 3.5% Return is 3.5% Return is 3.5%
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Are there any Optional Yes, both a Ratchet and No No No
Features that can be Floor Features can be
added to my contract? added.
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
If my contract has joint The surviving owner is The contract will never The contract will never The contract will never
owners, who is the always the primary have joint owners after have joint owners after have joint owners after
primary beneficiary on beneficiary. the Annuity Date. the Annuity Date. the Annuity Date.
the death of the first
owner?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Can I take withdrawals? Yes No No No
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Will a surrender charge No Yes, for any commutable Yes, for any commutable Yes, for any commutable
be assessed when I period certain options period certain options period certain options
annuitize? are any period certain are any period certain are any period certain
option under 10 years. option under 10 years. option under 10 years.
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Is a cash back annuity Yes No No No
option available?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Is a unit refund annuity No Yes No No
option available?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
How many investment 20 4 4 4
choices do I have?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Can I make transfers? Yes No No No
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Is Automatic Account Yes No No No
Rebalancing (AAR)
available?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Are commutable annuity No. But limited Commutable period Commutable period Commutable period
options available. commutation is available certain options are certain options are certain options are
for certain options. available. available. available.
(see Liquidity)
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
</TABLE>
6
<PAGE>
<TABLE>
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Can I choose to have my Yes (see Change No No No
variable annuity payments Frequency, page ____0
level for a certain
period of time?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Can I choose when I Yes (see Date of First No No No
would like the value of Change, page _____)
my variable annuity
payments to change for
the first time?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
What period certain 5-30 years 1-30 years 1-30 years 1-30 years
annuity options are
available?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Can I reverse my decision Yes. For 90 days after No No No
to annuitize? you have received your
contract you reverse
your decision to
annuitize. (see Right
to Examine Contract,
page___)
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Does the annuitant become No Yes Yes Yes
the owner of the contract
on the Annuity Date?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
What is the minimum $100 $50 $50 $50
annuity payment?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Who will receive the The owner The annuitant The annuitant The annuitant
annuity payments?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
How frequently will I Monthly Monthly, Quarterly, Monthly, Quarterly, Monthly, Quarterly,
receive annuity Semi-annually, Annually Semi-annually, Annually Semi-annually, Annually
payments?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
</TABLE>
7
<PAGE>
PERFORMANCE INFORMATION
The Contract was first offered to the public in 1999. However, in order to
help people understand how investment performance can affect money invested
in the Sub-Accounts, the Company may advertise "total return" and "average
annual total return" performance information based on (1) the periods that
the Sub-Accounts have been in existence and (2) the periods that the
Underlying Funds have been in existence. Performance results in Tables 1A and
2A are calculated with all charges assumed to be those applicable to the
Contract, 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 Sub-Account refers to the total of the income
generated by an investment in the Sub-Account 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 Variable Account charges, and expressed as a
percentage. The "average annual total return" represents the average annual
percentage change in the value of an investment in the Sub-Account over a
given period of time. It represents averaged figures as opposed to the actual
performance of a Sub-Account, which will vary from year to year.
The yield of the Sub-Account investing in the Money Market Fund refers to the
income generated by an investment in the Sub-Account 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 Sub-Account
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 yield of a Sub-Account investing in a Fund other than the Money Market
Fund refers to the annualized income generated by an investment in the
Sub-Account over a specified 30-day or one-month period. The yield is
calculated by assuming that the income generated by the investment during
that 30-day or one-month period is generated each period over a 12-month
period and is shown as a percentage of the investment.
Quotations of average annual total return as shown in Table 1A and 2A are
calculated in the manner prescribed by the SEC and show the percentage rate
of return of a hypothetical initial investment of $1,000 for the most recent
one, five and ten year period or for a period covering the time the
Sub-Account has been in existence, if less than the prescribed periods. The
calculation is adjusted to reflect the deduction of the annual Sub-Account
asset charge of 1.45% and the Underlying Fund charges which would be assessed
if the investment were completely withdrawn at the end of the specified
period.
The performance shown in Table 2A is calculated in exactly the same manner as
that in Table 1A; however, the period of time is based on the Underlying
Fund's lifetime, which may predate the Sub-Account's inception date. These
performance calculations are based on the assumption that the Sub-Account
corresponding to the applicable Underlying Fund was actually in existence
throughout the stated period and that the contractual charges and expenses
during that period were equal to those currently assessed under the Contract.
For more detailed information about these performance calculations, including
actual formulas, see the SAI.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF
A HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH
THE CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN
LIGHT OF THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF
THE UNDERLYING FUND IN WHICH THE SUB-ACCOUNT 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.
8
<PAGE>
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson
Lehman Aggregate Bond Index or other unmanaged indices so that investors may
compare the Sub-Account results with those of a group of unmanaged securities
widely regarded by investors as representative of the securities markets in
general; (2) other groups of variable annuity separate accounts or other
investment products tracked by Lipper, Inc., 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, who rank such investment
products on overall performance or other criteria; or (3) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Sub-Account. Unmanaged indices may assume the reinvestment
of dividends but generally do not reflect deductions for administrative and
management costs and expenses. In addition, relevant broad-based indices and
performance from independent sources may be used to illustrate the
performance of certain contract features.
At times, we may also advertise the ratings and other information assigned to
it by independent rating organizations such as A.M. Best Company ("A.M.
Best"), Moody's Investors Service ("Moody's"), Standard & Poor's Insurance
Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's ratings
reflect their current opinion of our relative financial strength and
operating performance in comparison to the norms of the life/health insurance
industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues
and do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the
Underlying Funds.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment
in a Sub-Account and of the changes of value of the principal invested (due
to realized and unrealized capital gains or losses) for a specified period,
reduced by the Sub-Account's asset charge.
Total Return figures are calculated by standardized methods prescribed by
rules of the Securities and Exchange Commission (the "SEC"). 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:
(n)
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the Variable Account
of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at
the end of the specified period
The calculation of Total Return includes the annual charges against the assets
of the Sub-Account. This charge is 1.45% on an annual basis. The calculation
of ending redeemable value assumes (1) the Contract was issued at the beginning
of the period, and (2) a complete surrender of the Contract at the end of the
period.
9
<PAGE>
PERFORMANCE TABLES
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF SUB-ACCOUNT
<TABLE>
<CAPTION>
FOR YEAR SINCE
SUB-ACCOUNT ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/98 5 YEARS SUB-ACCOUNT
- ---------------------------------------- -------------- -------- ------- ------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund .......................
Select International Equity Fund ...................
DGPF International Equity Series ...................
Fidelity VIP Overseas Portfolio ....................
T. Rowe Price International Stock Portfolio ........
Select Aggressive Growth Fund ......................
Select Capital Appreciation Fund ...................
Select Value Opportunity Fund ......................
Select Growth Fund .................................
Select Strategic Growth Fund .......................
Growth Fund ........................................
Fidelity VIP Growth Portfolio ......................
Equity Index Fund ..................................
Select Growth and Income Fund ......................
Fidelity VIP Equity-Income Portfolio ...............
Fidelity VIP II Asset Manager Portfolio ............
Fidelity VIP High Income Portfolio .................
Investment Grade Income Fund ......................
Government Bond Fund ...............................
Money Market Fund ..................................
</TABLE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF UNDERLYING FUND
<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR
UNDERLYING FUND ENDED SINCE INCEPTION
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/98 5 YEARS IF LESS
- ---------------------------------------- -------------- -------- ------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund ........................ 2/20/98 N/A N/A -22.43%
Select International Equity Fund .................... 5/2/94 6.63% N/A 9.75%
DGPF International Equity Series .................... 10/29/92 0.80% 8.14% 9.13%
Fidelity VIP Overseas Portfolio ..................... 1/28/87 3.02% 7.26% 8.41%
T. Rowe Price International Stock Portfolio ......... 3/31/94 6.11% N/A 7.21%
Select Aggressive Growth Fund ....................... 8/21/92 0.89% 12.52% 16.02%
Select Capital Appreciation Fund .................... 4/28/95 4.12% N/A 17.48%
Select Value Opportunity Fund ....................... 4/30/93 -4.23% 10.69% 12.57%
Select Growth Fund .................................. 8/21/92 25.33% 19.80% 17.14%
Select Strategic Growth Fund ........................ 2/20/98 N/A N/A -3.67%
Growth Fund ......................................... 4/29/85 9.34% 16.55% 15.18%
Fidelity VIP Growth Portfolio ....................... 10/9/86 29.18% 19.24% 17.51%
Equity Index Fund ................................... 9/28/90 18.32% 21.05% 18.84%
Select Growth and Income Fund ....................... 8/21/92 6.60% 15.46% 13.50%
Fidelity VIP Equity-Income Portfolio ................ 10/9/86 1.79% 16.26% 13.73%
Fidelity VIP II Asset Manager Portfolio ............. 9/6/89 5.34% 9.47% 10.91%
Fidelity VIP High Income Portfolio .................. 9/19/85 -12.63% 6.34% 9.39%
Investment Grade Income Fund ....................... 4/29/85 -1.33% 4.49% 7.52%
Government Bond Fund ................................ 8/26/91 -1.54% 3.59% 4.95%
Money Market Fund ................................... 4/29/85 -3.52% 2.80% 4.08%
</TABLE>
10
<PAGE>
YIELD AND EFFECTIVE YIELD - THE MONEY MARKET SUB-ACCOUNT
Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven-day period ended December 31, 1998:
Yield 3.67%
Effective Yield 3.74%
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the SEC. Under those methods, the yield quotation is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Sub-Account at the beginning of the period, 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.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
(365/7)
Effective Yield = [ (base period return + 1) ] - 1
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Separate Account VA-K.
11
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Allmerica Financial Life Insurance and Annuity Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholder's equity
and cash flows present fairly, in all material respects, the financial position
of Allmerica Financial Life Insurance and Annuity Company (the "Company") at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 1999, except for paragraph 2 of Note 12,
which is as of March 19, 1999
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
----------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums................................... $ 0.5 $ 22.8 $ 32.7
Universal life and investment product
policy fees.............................. 267.4 212.2 176.2
Net investment income...................... 151.3 164.2 171.7
Net realized investment gains (losses)..... 20.0 2.9 (3.6)
Other income............................... 0.6 1.4 0.9
------- ------- -------
Total revenues......................... 439.8 403.5 377.9
------- ------- -------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 153.9 187.8 192.6
Policy acquisition expenses................ 64.6 2.8 49.9
Sales practice litigation.................. 21.0 -- --
Loss from cession of disability income
business................................. -- 53.9 --
Other operating expenses................... 104.1 101.3 86.6
------- ------- -------
Total benefits, losses and expenses.... 343.6 345.8 329.1
------- ------- -------
Income before federal income taxes............. 96.2 57.7 48.8
------- ------- -------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 22.1 13.9 26.9
Deferred................................... 11.8 7.1 (9.8)
------- ------- -------
Total federal income tax expense....... 33.9 21.0 17.1
------- ------- -------
Net income..................................... $ 62.3 $ 36.7 $ 31.7
------- ------- -------
------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
-------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,284.6 and $1,340.5)............................ $ 1,330.4 $ 1,402.5
Equity securities at fair value (cost of $27.4 and
$34.4)............................................ 31.8 54.0
Mortgage loans...................................... 230.0 228.2
Real estate......................................... 14.5 12.0
Policy loans........................................ 151.5 140.1
Other long-term investments......................... 9.1 20.3
---------- ----------
Total investments............................... 1,767.3 1,857.1
---------- ----------
Cash and cash equivalents............................. 217.9 31.1
Accrued investment income............................. 33.5 34.2
Deferred policy acquisition costs..................... 950.5 765.3
Reinsurance receivables on paid and unpaid losses,
future policy benefits and unearned premiums........ 308.0 251.1
Other assets.......................................... 46.9 10.7
Separate account assets............................... 11,020.4 7,567.3
---------- ----------
Total assets.................................... $ 14,344.5 $ 10,516.8
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,284.8 $ 2,097.3
Outstanding claims, losses and loss adjustment
expenses.......................................... 17.9 18.5
Unearned premiums................................... 2.7 1.8
Contractholder deposit funds and other policy
liabilities....................................... 38.1 32.5
---------- ----------
Total policy liabilities and accruals........... 2,343.5 2,150.1
---------- ----------
Expenses and taxes payable............................ 146.2 77.6
Reinsurance premiums payable.......................... 45.7 4.9
Deferred federal income taxes......................... 78.8 75.9
Separate account liabilities.......................... 11,020.4 7,567.3
---------- ----------
Total liabilities............................... 13,634.6 9,875.8
---------- ----------
Commitments and contingencies (Note 12)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,524 and 2,521 shares issued and
outstanding......................................... 2.5 2.5
Additional paid-in capital............................ 407.9 386.9
Accumulated other comprehensive income................ 24.1 38.5
Retained earnings..................................... 275.4 213.1
---------- ----------
Total shareholder's equity...................... 709.9 641.0
---------- ----------
Total liabilities and shareholder's equity...... $ 14,344.5 $ 10,516.8
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
COMMON STOCK................................... $ 2.5 $ 2.5 $ 2.5
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 386.9 346.3 324.3
Issuance of common stock................... 21.0 40.6 22.0
-------- -------- --------
Balance at end of period................... 407.9 386.9 346.3
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net unrealized appreciation on investments:
Balance at beginning of period............. 38.5 20.5 23.8
Appreciation (depreciation) during the
period:
Net (depreciation) appreciation on
available-for-sale securities........ (23.4) 27.0 (5.1)
Benefit (provision) for deferred
federal income taxes................. 9.0 (9.0) 1.8
-------- -------- --------
(14.4) 18.0 (3.3)
-------- -------- --------
Balance at end of period................... 24.1 38.5 20.5
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of period............. 213.1 176.4 144.7
Net income................................. 62.3 36.7 31.7
-------- -------- --------
Balance at end of period................... 275.4 213.1 176.4
-------- -------- --------
Total shareholder's equity............. $ 709.9 $ 641.0 $ 545.7
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
-------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net income.................................. $ 62.3 $ 36.7 $ 31.7
Other comprehensive income:
Net (depreciation) appreciation on
available-for-sale securities......... (23.4) 27.0 (5.1)
Benefit (provision) for deferred federal
income taxes.......................... 9.0 (9.0) 1.8
------- ------- -------
Other comprehensive income.......... (14.4) 18.0 (3.3)
------- ------- -------
Comprehensive income.................... 47.9 $ 54.7 $ 28.4
------- ------- -------
------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
-------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 62.3 $ 36.7 $ 31.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized gains.................. (20.0) (2.9) 3.6
Net amortization and depreciation... (7.1) -- 3.5
Sales practice litigation expense... 21.0
Loss from cession of disability
income business................... -- 53.9 --
Deferred federal income taxes....... 11.8 7.1 (9.8)
Payment related to cession of
disability income business........ -- (207.0) --
Change in deferred acquisition
costs............................. (177.8) (181.3) (66.8)
Change in reinsurance premiums
payable........................... 40.8 3.9 (0.2)
Change in accrued investment
income............................ 0.7 3.5 1.2
Change in policy liabilities and
accruals, net..................... 193.1 (72.4) (39.9)
Change in reinsurance receivable.... (56.9) 22.1 (1.5)
Change in expenses and taxes
payable........................... 55.4 0.2 32.3
Separate account activity, net...... (0.5) 1.6 8.0
Other, net.......................... (28.0) (8.7) 2.3
-------- -------- --------
Net cash provided by (used in)
operating activities.......... 94.8 (343.3) (35.6)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 187.0 909.7 809.4
Proceeds from disposals of equity
securities............................ 53.3 2.4 1.5
Proceeds from disposals of other
investments........................... 22.7 23.7 17.4
Proceeds from mortgages matured or
collected............................. 60.1 62.9 34.0
Purchase of available-for-sale fixed
maturities............................ (136.0) (579.7) (795.8)
Purchase of equity securities........... (30.6) (3.2) (13.2)
Purchase of other investments........... (22.7) (9.0) (13.9)
Purchase of mortgages................... (58.9) (70.4) (22.3)
Other investing activities, net......... (3.9) -- (2.0)
-------- -------- --------
Net cash provided by investing
activities........................ 71.0 336.4 15.1
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
capital paid in....................... 21.0 19.2 22.0
-------- -------- --------
Net cash provided by financing
activities........................ 21.0 19.2 22.0
-------- -------- --------
Net change in cash and cash equivalents..... 186.8 12.3 1.5
Cash and cash equivalents, beginning of
period..................................... 31.1 18.8 17.3
-------- -------- --------
Cash and cash equivalents, end of period.... $ 217.9 $ 31.1 $ 18.8
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 0.6 $ -- $ 3.4
Income taxes paid....................... $ 36.2 $ 5.4 $ 16.5
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC" or the
"Company") is organized as a stock life insurance company, and is a wholly owned
subsidiary of SMA Financial Corporation ("SMAFCO"), which is wholly owned by
First Allmerica Financial Life Insurance Company ("FAFLIC"). FAFLIC is a wholly
owned subsidiary of Allmerica Financial Corporation ("AFC").
The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company, which was transferred from
SMAFCO effective November 30, 1997 and dissolved as a subsidiary, effective
November 30, 1998. Its results of operations are included for 11 months of 1998
and for the month of December, 1997.
The Statutory stockholder's equity of the Company is being maintained at a
minimum level of 5% of general account assets by FAFLIC in accordance with a
policy established by vote of FAFLIC's Board of Directors.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company 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.
B. VALUATION OF INVESTMENTS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115 ("Statement No. 115"), "Accounting for Certain Investments in Debt and
Equity Securities", the Company is required to classify its investments into one
of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and re-evaluates such designation as of each balance sheet date.
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholder's equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by the Company 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 the Company believes may not be collectible in
full. In establishing reserves, the Company considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company adopted to a plan to dispose of all real estate assets
by the end of 1998. As of December 31, 1998, there was 1 property remaining in
the Company's real estate portfolio, which is being actively marketed. As a
result of the Plan, real estate held by the Company and real estate joint
ventures were written down to the estimated fair value less cost of disposal.
Depreciation is not recorded on this asset while it is held for disposal.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans are included
in realized investment gains or losses.
C. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
E. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Acquisition costs related to universal life products, variable annuities and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits from investment yields, mortality, surrender charges and
expense margins over the expected life of the contracts. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods based upon the
same assumptions used in estimating the liability for future policy benefits.
Deferred acquisition costs for each product are reviewed to determine if they
are recoverable from future income, including investment income. If such costs
are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, the Company believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
F. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. 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 contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.
G. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, disability income and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. The liabilities associated
with traditional life insurance products are computed using the net level
premium method for
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
individual life and annuity policies, and are based upon estimates as to future
investment yield, mortality and withdrawals that include provisions for adverse
deviation. Future policy benefits for individual life insurance and annuity
policies are computed using interest rates ranging from 3% to 6% for life
insurance and 3 1/2% to 9 1/2% for annuities. Mortality, morbidity and
withdrawal assumptions for all policies are based on the Company's own
experience and industry standards. Liabilities for universal life include
deposits received from customers and investment earnings on their fund balances,
less administrative charges. Universal life fund balances are also assessed
mortality and surrender charges.
Individual disability income benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future morbidity,
withdrawals and interest which provide a margin for adverse deviation. Benefit
liabilities for disabled lives are estimated using the present value of benefits
method and experience assumptions as to claim terminations, expenses and
interest.
Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made for reported claims and estimates of claims
incurred but not reported for individual life and disability income policies.
These estimates are continually reviewed and adjusted as necessary; such
adjustments are reflected in current operations.
Contractholder deposit funds and other policy liabilities include
investment-related products and consist of deposits received from customers and
investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, the Company
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.
H. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and individual annuity products, excluding
universal life and investment-related products, are considered revenue when due.
Individual disability income insurance premiums are recognized as revenue over
the related contract periods. The unexpired portion of these premiums is
recorded as unearned premiums. Benefits, losses and related expenses are matched
with premiums, resulting in their recognition over the lives of the contracts.
This matching is accomplished through the provision for future benefits,
estimated and unpaid losses and amortization of deferred policy acquisition
costs. Revenues for investment-related products consist of net investment income
and contract charges assessed against the fund values. Related benefit expenses
primarily consist of net investment income credited to the fund values after
deduction for investment and risk charges. Revenues for universal life and group
variable universal life products consist of net investment income, with
mortality, administration and surrender charges assessed against the fund
values. Related benefit expenses include universal life benefit claims in excess
of fund values and net investment income credited to universal life fund values.
Certain policy charges that represent compensation for services to be provided
in future periods are deferred and amortized over the period benefited using the
same assumptions used to amortize capitalized acquisition costs.
I. FEDERAL INCOME TAXES
AFC and its domestic subsidiaries file a consolidated United States federal
income tax return. Entities included within the consolidated group are
segregated into either a life insurance or non-life insurance company subgroup.
The consolidation of these subgroups is subject to certain statutory
restrictions on the percentage of eligible non-life tax losses that can be
applied to offset life insurance company taxable income.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate federal income tax allocation policies and
procedures, which are subject to written agreement between the
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement
No. 109). These differences result primarily from policy reserves, policy
acquisition expenses, and unrealized appreciation or depreciation on
investments.
J. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which establishes
accounting and reporting standards for derivative instruments. Statement No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges; fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investment in foreign operations. This statement is effective for fiscal years
beginning after June 15, 1999. The Company is currently assessing the impact of
adoption of Statement No. 133.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter, the Company adopted
SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax income
of $9.8 million through December 31, 1998. The adoption of SoP 98-1 did not have
a material effect on the results of operations or financial position for the
three months ended March 31, 1998.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments" ("SoP 97-3"). SoP 97-3 provides
guidance when a liability should be recognized for guaranty fund and other
assessments and how to measure the liability. This statement allows for the
discounting of the liability if the amount and timing of the cash payments are
fixed and determinable. In addition, it provides criteria for when an asset may
be recognized for a portion or all of the assessment liability or paid
assessment that can be recovered through premium tax offsets or policy
surcharges. This statement is effective for fiscal years beginning after
December 15, 1998. The Company believes that the adoption of this statement will
not have a material effect on the results of operations or financial position.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("Statement No. 131"). This statement
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement No. 131 requires
that all public enterprises report financial and descriptive information about
their reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This statement
is effective for fiscal years
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
beginning after December 15, 1997. AFLIAC consists of one segment, Allmerica
Financial Services, which underwrites and distributes variable annuities and
variable universal life via retail channels.
In June 1997, the FASB also issued Statement No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"), which established standards for the reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. All items that are required to be
recognized under accounting standards as components of comprehensive income are
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement stipulates that
comprehensive income reflect the change in equity of an enterprise during a
period from transactions and other events and circumstances from non-owner
sources. This statement is effective for fiscal years beginning after December
15, 1997. The Company adopted Statement No. 130 for the first quarter of 1998,
which resulted primarily in reporting unrealized gains and losses on investments
in debt and equity securities in comprehensive income.
2. SIGNIFICANT TRANSACTIONS
Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on the universal life and
variable universal life blocks of business. The agreement does not have a
material effect on the results of operations or financial position of the
Company.
On April 14, 1997, the Company entered into an agreement in principle to cede
substantially all of the Company's individual disability income line of business
under a 100% coinsurance agreement with a highly rated reinsurer. The
coinsurance agreement became effective October 1, 1997. The transaction has
resulted in the recognition of a $53.9 million pre-tax loss in the first quarter
of 1997.
During 1998, 1997 and 1996 , SMAFCO contributed $21.0 million, $40.6 million and
$22.0 million, respectively, of additional paid-in capital to the Company. The
nature of the 1997 contribution was $19.2 million in cash and $21.4 million in
other assets including Somerset Square, Inc.
3. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with the provisions of Statement No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1998
----------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 5.8 $ 0.8 $-- $ 6.6
States and political subdivisions....... 2.7 0.2 -- 2.9
Foreign governments..................... 48.8 1.6 1.5 48.9
Corporate fixed maturities.............. 1,096.0 58.0 17.7 1,136.3
Mortgage-backed securities.............. 131.3 5.8 1.4 135.7
--------- ----- ----- --------
Total fixed maturities.................. $ 1,284.6 $66.4 $20.6 $1,330.4
--------- ----- ----- --------
--------- ----- ----- --------
Equity securities....................... $ 27.4 $ 8.9 $ 4.5 $ 31.8
--------- ----- ----- --------
--------- ----- ----- --------
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
1997
----------------------------------------------
<CAPTION>
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 6.3 $ 0.5 $-- $ 6.8
States and political subdivisions....... 2.8 0.2 -- 3.0
Foreign governments..................... 50.1 2.0 -- 52.1
Corporate fixed maturities.............. 1,147.5 58.7 3.3 1,202.9
Mortgage-backed securities.............. 133.8 5.2 1.3 137.7
--------- ----- ----- --------
Total fixed maturities.................. $ 1,340.5 $66.6 $ 4.6 $1,402.5
--------- ----- ----- --------
--------- ----- ----- --------
Equity securities....................... $ 34.4 $19.9 $ 0.3 $ 54.0
--------- ----- ----- --------
--------- ----- ----- --------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC 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 liabilities of AFLIAC for New
York policyholders, claimants and creditors. At December 31, 1998, the amortized
cost and market value of these assets on deposit in New York were $268.5 million
and $284.1 million, respectively. At December 31, 1997, the amortized cost and
market value of assets on deposit were $276.8 million and $291.7 million,
respectively. In addition, fixed maturities, excluding those securities on
deposit in New York, with an amortized cost of $4.2 million were on deposit with
various state and governmental authorities at December 31, 1998 and 1997.
There were no contractual fixed maturity investment commitments at December 31,
1998 and 1997, respectively.
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may 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
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1998
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 97.7 $ 98.9
Due after one year through five years....................... 269.1 278.3
Due after five years through ten years...................... 638.2 658.5
Due after ten years......................................... 279.6 294.7
--------- --------
Total....................................................... $ 1,284.6 $1,330.4
--------- --------
--------- --------
</TABLE>
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, PROCEEDS FROM GROSS GROSS
(IN MILLIONS) VOLUNTARY SALES GAINS LOSSES
- ------------------------------------------------------------ --------------- ----- ------
<S> <C> <C> <C>
1998
Fixed maturities............................................ $ 60.0 $ 2.0 $ 2.0
Equity securities........................................... $ 52.6 $17.5 $ 0.9
1997
Fixed maturities............................................ $702.9 $11.4 $ 5.0
Equity securities........................................... $ 1.3 $ 0.5 $ --
1996
Fixed maturities............................................ $496.6 $ 4.3 $ 8.3
Equity securities........................................... $ 1.5 $ 0.4 $ 0.1
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- -------
<S> <C> <C> <C>
1998
Net appreciation, beginning of year......................... $ 22.1 $ 16.4 $ 38.5
---------- ------ -------
Net depreciation on available-for-sale securities........... (16.2) (14.3) (30.5)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 7.1 -- 7.1
Benefit from deferred federal income taxes.................. 3.2 5.8 9.0
---------- ------ -------
(5.9) (8.5) (14.4)
---------- ------ -------
Net appreciation, end of year............................... $ 16.2 $ 7.9 $ 24.1
---------- ------ -------
---------- ------ -------
1997
Net appreciation, beginning of year......................... $ 12.7 $ 7.8 $ 20.5
---------- ------ -------
Net appreciation on available-for-sale securities........... 24.3 12.5 36.8
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (9.8) -- (9.8)
Provision for deferred federal income taxes................. (5.1) (3.9) (9.0)
---------- ------ -------
9.4 8.6 18.0
---------- ------ -------
Net appreciation, end of year............................... $ 22.1 $ 16.4 $ 38.5
---------- ------ -------
---------- ------ -------
1996
Net appreciation, beginning of year......................... $ 20.4 $ 3.4 $ 23.8
---------- ------ -------
Net (depreciation) appreciation on available-for-sale
securities................................................. (20.8) 6.7 (14.1)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 9.0 -- 9.0
Benefit (provision) for deferred federal income taxes....... 4.1 (2.3) 1.8
---------- ------ -------
(7.7) 4.4 (3.3)
---------- ------ -------
Net appreciation, end of year............................... $ 12.7 $ 7.8 $ 20.5
---------- ------ -------
---------- ------ -------
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) Includes net appreciation on other investments of $.9 million, $1.3 million,
and $2.2 million in 1998, 1997, and 1996, respectively.
B. MORTGAGE LOANS AND REAL ESTATE
AFLIAC's mortgage loans and real estate 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
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------- -------
<S> <C> <C>
Mortgage loans.............................................. $ 230.0 $ 228.2
Real estate held for sale................................... 14.5 12.0
------- -------
Total mortgage loans and real estate........................ $ 244.5 $ 240.2
------- -------
------- -------
</TABLE>
Reserves for mortgage loans were $3.3 million and $9.4 million at December 31,
1998 and 1997, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. At December 31, 1998, there was 1 property remaining
in the Company's real estate portfolio, which is being actively marketed. As a
result of the Plan, during 1997, real estate assets with a carrying amount of
$15.7 million were written down to the estimated fair value less cost to sell of
$12.0 million, and a net realized investment loss of $3.7 million was
recognized. Depreciation was not recorded on these assets while they were held
for disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1998 and 1997. During 1996, non-cash
investing activities included real estate acquired through foreclosure of
mortgage loans, which had a fair value of $0.9 million.
There were no contractual commitments to extend credit under commercial mortgage
loan agreements at December 31, 1998. These commitments generally expire within
one year.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Property type:
Office building........................................... $129.2 $101.7
Residential............................................... 18.9 19.3
Retail.................................................... 37.4 42.2
Industrial/warehouse...................................... 59.2 61.9
Other..................................................... 3.1 24.5
Valuation allowances...................................... (3.3) (9.4)
------ ------
Total....................................................... $244.5 $240.2
------ ------
------ ------
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
Geographic region:
<S> <C> <C>
South Atlantic............................................ $ 55.5 $ 68.7
Pacific................................................... 80.0 56.6
East North Central........................................ 41.4 61.4
Middle Atlantic........................................... 22.5 29.8
West South Central........................................ 6.7 6.9
New England............................................... 26.9 12.4
Other..................................................... 14.8 13.8
Valuation allowances...................................... (3.3) (9.4)
------ ------
Total....................................................... $244.5 $240.2
------ ------
------ ------
</TABLE>
At December 31, 1998, scheduled mortgage loan maturities were as follows: 1999
- -- $24.8 million; 2000 -- $43.5 million; 2001 -- $6.6 million; 2002 -- $11.5
million; 2003 -- $0.6 million; and $143.0 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1998, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances, which have been deducted in arriving at
investment carrying values as presented in the balance sheet and changes thereto
are shown below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 PROVISIONS WRITE-OFFS DECEMBER 31
- ------------------------------------------------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998
Mortgage loans.............................................. $ 9.4 $(4.5) $1.6 $ 3.3
----- ----- --- -----
----- ----- --- -----
1997
Mortgage loans.............................................. $ 9.5 $ 1.1 $1.2 $ 9.4
Real estate................................................. 1.7 3.7 5.4 --
----- ----- --- -----
Total................................................... $11.2 $ 4.8 $6.6 $ 9.4
----- ----- --- -----
----- ----- --- -----
1996
Mortgage loans.............................................. $12.5 $ 4.5 $7.5 $ 9.5
Real estate................................................. 2.1 -- 0.4 1.7
----- ----- --- -----
Total................................................... $14.6 $ 4.5 $7.9 $11.2
----- ----- --- -----
----- ----- --- -----
</TABLE>
Provisions on mortgages during 1998 reflect the release of redundant reserves.
Write-offs of $5.4 million to the investment valuation allowance related to real
estate in 1997 primarily reflect write downs to the estimated fair value less
cost to sell pursuant to the aforementioned 1997 plan of disposal.
The carrying value of impaired loans was $15.3 million and $20.6 million, with
related reserves of $1.5 million and $7.1 million as of December 31, 1998 and
1997, respectively. All impaired loans were reserved as of December 31, 1998 and
1997.
The average carrying value of impaired loans was $17.0 million, $19.8 million
and $26.3 million, with related interest income while such loans were impaired
of $2.0 million, $2.2 million and $3.4 million as of December 31, 1998, 1997 and
1996, respectively.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. OTHER
At December 31, 1998, AFLIAC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $107.7 $130.0 $137.2
Mortgage loans.............................................. 25.5 20.4 22.0
Equity securities........................................... 0.3 1.3 0.7
Policy loans................................................ 11.7 10.8 10.2
Real estate................................................. 3.3 3.9 6.2
Other long-term investments................................. 1.5 1.0 0.8
Short-term investments...................................... 4.2 1.4 1.4
------ ------ ------
Gross investment income..................................... 154.2 168.8 178.5
Less investment expenses.................................... (2.9) (4.6) (6.8)
------ ------ ------
Net investment income....................................... $151.3 $164.2 $171.7
------ ------ ------
------ ------ ------
</TABLE>
There were no mortgage loans or fixed maturities on non-accrual status at
December 31, 1998. The effect of non-accruals, compared with amounts that would
have been recognized in accordance with the original terms of the investment,
had no impact in 1998 and 1997, and reduced net income by $0.1 million in 1996.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $12.6 million, $21.1 million and $25.4 million at December 31,
1998, 1997 and 1996, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $1.4 million, $1.9 million and $3.6 million in 1998,
1997, and 1996, respectively. Actual interest income on these loans included in
net investment income aggregated $1.8 million, $2.1 million and $2.2 million in
1998, 1997, and 1996, respectively.
There were no fixed maturities or mortgage loans which, were non-income
producing for the twelve months ended December 31, 1998.
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $ (6.1) $ 3.0 $ (3.3)
Mortgage loans.............................................. 8.0 (1.1) (3.2)
Equity securities........................................... 15.7 0.5 0.3
Real estate................................................. 2.4 (1.5) 2.5
Other....................................................... -- 2.0 0.1
------ ------ ------
Net realized investment gains (losses)...................... $ 20.0 $ 2.9 $ (3.6)
------ ------ ------
------ ------ ------
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. OTHER COMPREHENSIVE INCOME RECONCILIATION
The following table provides a reconciliation of gross unrealized gains to the
net balance shown in the Statement of Comprehensive income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period (net of taxes
of $(5.6) million, $10.2 million and $(2.9) million in
1998, 1997 and 1996 respectively).......................... $ (8.2) $ 20.3 $ (5.3)
Less: reclassification adjustment for gains included in net
income (net of taxes of $3.4 million, $1.2 million and
$(1.0) million in 1998, 1997 and 1996 respectively)........ 6.2 2.3 (2.0)
------- ------- -------
Other comprehensive income.................................. $ (14.4) $ 18.0 $ (3.3)
------- ------- -------
------- ------- -------
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures about Fair Value of Financial Instruments"
("Statement No, 107"), 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 realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses, which utilize current interest
rates for similar financial instruments, which have comparable terms and credit
quality.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
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.
EQUITY SECURITIES
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.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
POLICY LOANS
The carrying amount reported in the balance sheet approximates fair value since
policy loans have no defined maturity dates and are inseparable from the
insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under investment type contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 217.9 $ 217.9 $ 31.1 $ 31.1
Fixed maturities.......................................... 1,330.4 1,330.4 1,402.5 1,402.5
Equity securities......................................... 31.8 31.8 54.0 54.0
Mortgage loans............................................ 230.0 241.9 228.2 239.8
Policy loans.............................................. 151.5 151.5 140.1 140.1
--------- --------- --------- ---------
$ 1,961.6 $ 1,973.5 $ 1,855.9 $ 1,867.5
--------- --------- --------- ---------
--------- --------- --------- ---------
FINANCIAL LIABILITIES
Individual fixed annuity contracts........................ $ 1,069.4 $ 1,034.6 $ 876.0 $ 850.6
Supplemental contracts without life Contingencies......... 16.6 16.6 15.3 15.3
--------- --------- --------- ---------
$ 1,086.0 $ 1,051.2 $ 891.3 $ 865.9
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of Statement No. 109. A summary of the federal income tax expense
(benefit) in the statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ----- ----- -----
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current................................................... $22.1 $13.9 $26.9
Deferred.................................................. 11.8 7.1 (9.8)
----- ----- -----
Total....................................................... $33.9 $21.0 $17.1
----- ----- -----
----- ----- -----
</TABLE>
The provision for federal income taxes does not materially differ from the
amount of federal income tax determined by applying the appropriate U.S.
statutory income tax rate to income before federal income taxes.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The deferred tax liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Deferred tax (assets) liabilities
Policy reserves........................................... $ (205.1) $ (175.8)
Deferred acquisition costs................................ 278.8 226.4
Investments, net.......................................... 12.5 27.0
Sales practice litigation................................. (7.4) --
Bad debt reserve.......................................... (0.4) (2.0)
Other, net................................................ 0.4 0.3
-------- --------
Deferred tax liability, net................................. $ 78.8 $ 75.9
-------- --------
-------- --------
</TABLE>
Gross deferred income tax liabilities totaled $291.7 million and $253.7 million
at December 31, 1998 and 1997, respectively. Gross deferred income tax assets
totaled $212.9 million and $177.8 at December 31, 1998 and 1997, respectively.
The Company believes, based on its recent earnings history and its future
expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, the Company considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary.
The Company's federal income tax returns are routinely audited by the IRS, and
provisions are routinely made in the financial statements in anticipation of the
results of these audits. The IRS has examined the consolidated group's federal
income tax returns through 1994. The Company has appealed certain adjustments
proposed by the IRS with respect to the consolidated group's federal income tax
returns for 1992, 1993, and 1994. Also, certain adjustments proposed by the IRS
with respect to FAFLIC/AFLIAC's federal income tax returns for 1982 and 1983
remain unresolved. If upheld, these adjustments would result in additional
payments; however, the Company will vigorously defend its position with respect
to these adjustments. In the Company's opinion, adequate tax liabilities have
been established for all years. However, the amount of these tax liabilities
could be revised in the near term if estimates of the Company's ultimate
liability are revised.
7. RELATED PARTY TRANSACTIONS
The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $145.4 million and $124.1 million in 1998 and 1997. The
net amounts payable to FAFLIC and affiliates for accrued expenses and various
other liabilities and receivables were $16.4 million and $15.0 million at
December 31, 1998 and 1997, respectively.
8. 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 policyholders' 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
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
No dividends were declared by the Company during 1998, 1997 and 1996. During
1999, AFLIAC could pay dividends of $26.1 million to FAFLIC without prior
approval.
9. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of Statement No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts" ("Statement No.
113").
The Company reinsures 100% of its traditional individual life and certain blocks
of its universal life business, substantially all of its disability income
business, and effective January 1, 1998, the mortality risk on the variable
universal life and remaining universal life blocks of business in-force at
December 31, 1997.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with respect to lines
of business covered, limit and retention, arbitration and occurrence. Based on
its review of its reinsurers' financial statements and reputations in the
reinsurance marketplace, the Company believes that its reinsurers are
financially sound.
Amounts recoverable from reinsurers at December 31, 1998 and 1997 for the
disability income business were $230.8 million and $216.1 million, respectively,
traditional life were $11.4 million and $15.2 million, respectively, and
universal and variable universal life were $65.8 million and $19.8 million,
respectively.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Insurance premiums:
Direct.................................................... $ 45.5 $ 48.8 $ 53.3
Assumed................................................... -- 2.6 3.1
Ceded..................................................... (45.0) (28.6) (23.7)
------ ------ ------
Net premiums................................................ $ 0.5 $ 22.8 $ 32.7
------ ------ ------
------ ------ ------
</TABLE>
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
<S> <C> <C> <C>
Direct.................................................... $204.0 $226.0 $206.4
Assumed................................................... -- 4.2 4.5
Ceded..................................................... (50.1) (42.4) (18.3)
------ ------ ------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $153.9 $187.8 $192.6
------ ------ ------
------ ------ ------
</TABLE>
10. DEFERRED POLICY ACQUISITION COSTS
The following reflects the changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Balance at beginning of year................................ $765.3 $632.7 $555.7
Acquisition expenses deferred............................. 242.4 184.2 116.6
Amortized to expense during the year...................... (64.6) (53.1) (49.9)
Adjustment to equity during the year...................... 7.4 (10.2) 10.3
Adjustment for cession of disability income insurance..... -- (38.6) --
Adjustment for revision of universal life and variable
universal life insurance mortality assumptions.......... -- 50.3 --
------ ------ ------
Balance at end of year...................................... $950.5 $765.3 $632.7
------ ------ ------
------ ------ ------
</TABLE>
On October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.3 million recapitalization of deferred policy acquisition costs.
11. LIABILITIES FOR INDIVIDUAL DISABILITY INCOME BENEFITS
The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims, losses and loss adjustment expenses as new
information becomes available and further events occur which may impact the
resolution of unsettled claims. Changes in prior estimates are recorded in
results of operations in the year such changes are determined to be needed.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's disability income business was
$233.3 million and $219.9 million at December 31, 1998 and 1997. Due to the
reinsurance agreement whereby the Company has ceded substantially all of its
disability income business to a highly rated reinsurer, the Company believes
that no material adverse development of losses will occur. However, the amount
of the liabilities could be revised in the near term if the estimates are
revised.
12. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recovered through a reduction in future premium taxes in some states. The
Company is not able to reasonably estimate the potential effect on it of any
such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries including AFLIAC, by
individual plaintiffs alleging fraud, unfair or deceptive acts, breach of
contract, misrepresentation, and related claims in the sale of life insurance
policies. In October 1997, plaintiffs voluntarily dismissed the Louisiana suit
and filed a substantially similar action in Federal District Court in Worcester,
Massachusetts. In early November 1998, AFC and the plaintiffs entered into a
settlement agreement, to which the court granted preliminary approval on
December 4, 1998. A hearing was held on March 19, 1999 to consider final
approval of the settlement agreement. A decision by the court is expected to be
rendered in the near future. Accordingly, AFLIAC recognized a $21.0 million
pre-tax expense during the third quarter of 1998 related to this litigation.
Although the Company believes that this expense reflects appropriate recognition
of its obligation under the settlement, this estimate assumes the availability
of insurance coverage for certain claims, and the estimate may be revised based
on the amount of reimbursement actually tendered by AFC's insurance carriers, if
any, and based on changes in the Company's estimate of the ultimate cost of the
benefits to be provided to members of the class.
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the Company's opinion of, 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. However, liabilities
related to these proceedings could be established in the near term if estimates
of the ultimate resolution of these proceedings are revised.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Although the Company does not believe that there is a material contingency
associated with the Year 2000 project, there can be no assurance that exposure
for material contingencies will not arise.
13. STATUTORY FINANCIAL INFORMATION
The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles
primarily because policy acquisition costs are expensed when incurred,
investment reserves are based on different assumptions, life insurance reserves
are based on different assumptions and income tax expense reflects only taxes
paid or currently payable. Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Statutory net income........................................ $ (8.2) $ 31.5 $ 5.4
Statutory shareholder's surplus............................. $309.7 $307.1 $234.0
</TABLE>
14. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT ACCOUNTANT' REPORT (UNAUDITED)
AFC has proposed certain changes to its corporate structure. These changes
include transfer of FAFLIC's ownership of Allmerica P&C, as well as several
non-insurance subsidiaries, from FAFLIC to AFC. FAFLIC would retain its
ownership of AFLIAC and certain other subsidiaries. Under the proposal, AFC
would contribute to FAFLIC capital of $125.0 million and agree to maintain
FAFLIC's statutory surplus at specified levels during the following six
years. In addition, any dividend from FAFLIC to AFC during 2000 and 2001
would require the prior approval of the Commonwealth of Massachusetts
Insurance Commissioner (the "Commissioner"). This proposed transaction was
approved by the Commissioner on May 24, 1999.
On May 19, 1999, the Federal District Court in Worcester, Massachusetts
issued an order relating to the litigation mentioned in Note 12, above,
certifying the class for settlement purposed and granting final approval
of the settlement agreement.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance and Annuity
Company and the Contractowners of the Separate Account VA-K Allmerica Advantage
Variable Annuity and ExecAnnuity Plus Variable Annuity 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 changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Separate Account VA-K Allmerica Advantage Variable Annuity and
ExecAnnuity Plus Variable Annuity of Allmerica Financial Life Insurance and
Annuity Company at December 31, 1998, the results of each of their operations
and the changes in each of their net assets for each of the two years in the
period then ended, 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 securities at December 31, 1998 by
correspondence with the Funds, provide a reasonable basis for the opinion
expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SELECT
INVESTMENT MONEY EQUITY GOVERNMENT AGGRESSIVE
GROWTH GRADE INCOME MARKET INDEX BOND GROWTH
------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $453,329,914 $166,255,290 $162,581,881 $351,478,319 $71,863,194 $315,970,960
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............. -- -- -- -- -- --
Investment in shares of T. Rowe Price
International Series, Inc.................. -- -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc.......................... -- -- -- -- -- --
Receivable from Allmerica Financial Life
Insurance
and Annuity Company (Sponsor).............. -- 19,606 -- -- -- --
------------ ------------ ------------ ------------ ----------- ------------
Total assets.............................. 453,329,914 166,274,896 162,581,881 351,478,319 71,863,194 315,970,960
LIABILITIES:
Payable to Allmerica Financial Life
Insurance
and Annuity Company (Sponsor).............. 133,175 -- 88,289 83,355 106 1,660
------------ ------------ ------------ ------------ ----------- ------------
Net assets................................ $453,196,739 $166,274,896 $162,493,592 $351,394,964 $71,863,088 $315,969,300
------------ ------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ------------ ----------- ------------
Net asset distribution by category:
Qualified variable annuity contracts...... $314,229,248 $109,523,792 $109,330,421 $236,665,487 $46,647,495 $222,038,496
Non-qualified variable annuity
contracts............................... 138,967,491 56,751,104 53,163,171 114,729,477 25,215,593 93,930,804
------------ ------------ ------------ ------------ ----------- ------------
$453,196,739 $166,274,896 $162,493,592 $351,394,964 $71,863,088 $315,969,300
------------ ------------ ------------ ------------ ----------- ------------
------------ ------------ ------------ ------------ ----------- ------------
Qualified units outstanding, December 31,
1998....................................... 114,345,181 67,244,780 86,613,172 72,485,823 31,761,575 88,373,003
Net asset value per qualified unit, December
31, 1998................................... $ 2.748076 $ 1.628733 $ 1.262284 $ 3.264990 $ 1.468677 $ 2.512515
Non-qualified units outstanding, December
31, 1998................................... 50,569,014 34,843,711 42,116,646 35,139,331 17,168,917 37,385,172
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 2.748076 $ 1.628733 $ 1.262284 $ 3.264990 $ 1.468677 $ 2.512515
<CAPTION>
SELECT
SELECT GROWTH SELECT VALUE
GROWTH AND INCOME OPPORTUNITY*
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $323,203,657 $270,427,710 $200,579,014
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............. -- -- --
Investment in shares of T. Rowe Price
International Series, Inc.................. -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc.......................... -- -- --
Receivable from Allmerica Financial Life
Insurance
and Annuity Company (Sponsor).............. -- -- --
------------ ------------ ------------
Total assets.............................. 323,203,657 270,427,710 200,579,014
LIABILITIES:
Payable to Allmerica Financial Life
Insurance
and Annuity Company (Sponsor).............. 2,311 31,536 1,862
------------ ------------ ------------
Net assets................................ $323,201,346 $270,396,174 $200,577,152
------------ ------------ ------------
------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity contracts...... $227,291,255 $180,022,112 $142,898,046
Non-qualified variable annuity
contracts............................... 95,910,091 90,374,062 57,679,106
------------ ------------ ------------
$323,201,346 $270,396,174 $200,577,152
------------ ------------ ------------
------------ ------------ ------------
Qualified units outstanding, December 31,
1998....................................... 85,096,800 79,298,223 71,065,129
Net asset value per qualified unit, December
31, 1998................................... $ 2.670973 $ 2.270191 $ 2.010804
Non-qualified units outstanding, December
31, 1998................................... 35,908,296 39,809,012 28,684,598
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 2.670973 $ 2.270191 $ 2.010804
</TABLE>
* Name changed. See Note 1.
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SELECT SELECT DGPF
INTERNATIONAL CAPITAL INTERNATIONAL FIDELITY VIP FIDELITY VIP
EQUITY APPRECIATION EQUITY HIGH INCOME EQUITY-INCOME
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $208,681,110 $150,062,155 $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............. -- -- -- 209,594,305 584,136,591
Investment in shares of T. Rowe Price
International Series, Inc.................. -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc.......................... -- -- 118,501,386 -- --
Receivable from Allmerica Financial Life
Insurance
and Annuity Company (Sponsor).............. -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Total assets.............................. 208,681,110 150,062,155 118,501,386 209,594,305 584,136,591
LIABILITIES:
Payable to Allmerica Financial Life
Insurance
and Annuity Company (Sponsor).............. 1,913 1,006 1,071 256 4,816
------------- ------------- ------------- ------------- -------------
Net assets................................ $208,679,197 $150,061,149 $118,500,315 $209,594,049 $584,131,775
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net asset distribution by category:
Qualified variable annuity contracts...... $146,629,320 $104,737,980 $ 82,843,189 $138,969,164 $391,512,849
Non-qualified variable annuity
contracts............................... 62,049,877 45,323,169 35,657,126 70,624,885 192,618,926
------------- ------------- ------------- ------------- -------------
$208,679,197 $150,061,149 $118,500,315 $209,594,049 $584,131,775
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Qualified units outstanding, December 31,
1998....................................... 91,352,709 55,871,132 47,733,352 64,864,268 125,999,304
Net asset value per qualified unit, December
31, 1998................................... $ 1.605090 $ 1.874635 $ 1.735541 $ 2.142461 $ 3.107262
Non-qualified units outstanding, December
31, 1998................................... 38,658,192 24,177,063 20,545,251 32,964,373 61,989,921
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 1.605090 $ 1.874635 $ 1.735541 $ 2.142461 $ 3.107262
<CAPTION>
T. ROWE
FIDELITY VIP PRICE
FIDELITY VIP FIDELITY VIP II INTERNATIONAL
GROWTH OVERSEAS ASSET MANAGER STOCK
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $ -- $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............. 534,372,318 107,144,689 119,652,554 --
Investment in shares of T. Rowe Price
International Series, Inc.................. -- -- -- 95,438,404
Investment in shares of Delaware Group
Premium Fund, Inc.......................... -- -- -- --
Receivable from Allmerica Financial Life
Insurance
and Annuity Company (Sponsor).............. -- -- -- --
------------- ------------- ------------- ------------
Total assets.............................. 534,372,318 107,144,689 119,652,554 95,438,404
LIABILITIES:
Payable to Allmerica Financial Life
Insurance
and Annuity Company (Sponsor).............. 5,144 2,512 703 1,080
------------- ------------- ------------- ------------
Net assets................................ $ 534,367,174 $ 107,142,177 $119,651,851 $95,437,324
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
Net asset distribution by category:
Qualified variable annuity contracts...... $ 373,220,162 $ 77,463,381 $ 79,681,761 $67,381,222
Non-qualified variable annuity
contracts............................... 161,147,012 29,678,796 39,970,090 28,056,102
------------- ------------- ------------- ------------
$ 534,367,174 $ 107,142,177 $119,651,851 $95,437,324
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
Qualified units outstanding, December 31,
1998....................................... 104,072,745 42,694,627 46,419,390 48,268,596
Net asset value per qualified unit, December
31, 1998................................... $ 3.586147 $ 1.814359 $ 1.716562 $ 1.395964
Non-qualified units outstanding, December
31, 1998................................... 44,935,976 16,357,730 23,284,967 20,098,011
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 3.586147 $ 1.814359 $ 1.716562 $ 1.395964
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH INVESTMENT GRADE INCOME MONEY MARKET
-------------------------- -------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 4,406,557 $ 4,677,303 $ 9,136,667 $ 7,765,722 $ 6,950,244 $ 5,864,394
Mortality and expense risk fees............ (5,038,572) (3,908,676) (1,884,657) (1,459,800) (1,609,169) (1,353,573)
Administrative expense fees................ (820,233) (636,296) (306,804) (237,642) (261,957) (220,349)
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)............. (1,452,248) 132,331 6,945,206 6,068,280 5,079,118 4,290,472
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 4,179,288 58,607,134 -- -- -- --
Net realized gain (loss) from sales of
investments.............................. 1,604,114 731,664 309,825 (44,567) -- --
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss)................... 5,783,402 59,338,798 309,825 (44,567) -- --
Net unrealized gain (loss)................. 61,966,017 3,870,618 2,193,617 3,131,133 -- --
------------ ------------ ------------ ------------ ------------ ------------
Net realized and unrealized gain
(loss)................................. 67,749,419 63,209,416 2,503,442 3,086,566 -- --
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
operations............................... 66,297,171 63,341,747 9,448,648 9,154,846 5,079,118 4,290,472
------------ ------------ ------------ ------------ ------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 23,152,380 23,594,450 10,363,995 8,429,192 388,698,585 333,708,420
Withdrawals................................ (22,500,816) (14,324,472) (9,709,421) (7,610,810) (15,069,288) (10,554,703)
Contract benefits.......................... (2,796,974) (1,922,040) (929,739) (604,277) (1,010,367) (909,248)
Contract charges........................... (147,854) (133,594) (42,918) (43,383) (24,514) (23,086)
Transfers between sub-accounts (including
fixed account), net...................... 20,863,894 28,600,309 22,142,688 9,492,754 (364,921,954) (344,087,104)
Other transfers from (to) the General
Account.................................. 3,452,255 8,871,794 2,166,365 1,855,856 38,477,265 21,015,281
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 22,022,885 44,686,447 23,990,970 11,519,332 46,149,727 (850,440)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets...... 88,320,056 108,028,194 33,439,618 20,674,178 51,228,845 3,440,032
NET ASSETS:
Beginning of year.......................... 364,876,683 256,848,489 132,835,278 112,161,100 111,264,747 107,824,715
------------ ------------ ------------ ------------ ------------ ------------
End of year................................ $453,196,739 $364,876,683 $166,274,896 $132,835,278 $162,493,592 $111,264,747
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
EQUITY INDEX
--------------------------
YEAR ENDED DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 3,345,195 $ 2,257,717
Mortality and expense risk fees............ (3,473,180) (2,067,797)
Administrative expense fees................ (565,402) (336,618)
------------ ------------
Net investment income (loss)............. (693,387) (146,698)
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 8,462,654 5,924,374
Net realized gain (loss) from sales of
investments.............................. 3,042,914 891,735
------------ ------------
Net realized gain (loss)................... 11,505,568 6,816,109
Net unrealized gain (loss)................. 55,881,208 35,286,956
------------ ------------
Net realized and unrealized gain
(loss)................................. 67,386,776 42,103,065
------------ ------------
Net increase (decrease) in net assets from
operations............................... 66,693,389 41,956,367
------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 25,436,203 20,271,093
Withdrawals................................ (13,594,962) (6,948,755)
Contract benefits.......................... (2,098,286) (1,317,585)
Contract charges........................... (84,863) (54,416)
Transfers between sub-accounts (including
fixed account), net...................... 47,344,643 42,716,321
Other transfers from (to) the General
Account.................................. 7,492,994 9,939,409
------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 64,495,729 64,606,067
------------ ------------
Net increase (decrease) in net assets...... 131,189,118 106,562,434
NET ASSETS:
Beginning of year.......................... 220,205,846 113,643,412
------------ ------------
End of year................................ $351,394,964 $220,205,846
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT
GOVERNMENT BOND AGGRESSIVE GROWTH SELECT GROWTH
------------------------ -------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 3,358,913 $ 2,535,091 $ -- $ -- $ 207,168 $ 546,016
Mortality and expense risk fees............ (744,074) (524,714) (3,432,518) (2,622,781) (3,058,313) (1,741,645)
Administrative expense fees................ (121,128) (85,419) (558,782) (426,964) (497,865) (283,523)
----------- ----------- ------------ ------------ ------------ ------------
Net investment income (loss)............. 2,493,711 1,924,958 (3,991,300) (3,049,745) (3,349,010) (1,479,152)
----------- ----------- ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- -- -- 19,360,712 2,488,257 9,673,224
Net realized gain (loss) from sales of
investments.............................. 79,202 (121,227) 1,315,125 2,017,143 1,422,656 313,313
----------- ----------- ------------ ------------ ------------ ------------
Net realized gain (loss)................... 79,202 (121,227) 1,315,125 21,377,855 3,910,913 9,986,537
Net unrealized gain (loss)................. 920,202 550,499 28,554,242 15,604,997 73,132,113 29,255,432
----------- ----------- ------------ ------------ ------------ ------------
Net realized and unrealized gain
(loss)................................. 999,404 429,272 29,869,367 36,982,852 77,043,026 39,241,969
----------- ----------- ------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
operations............................... 3,493,115 2,354,230 25,878,067 33,933,107 73,694,016 37,762,817
----------- ----------- ------------ ------------ ------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 9,387,842 5,942,847 21,281,666 20,169,980 22,206,826 16,019,651
Withdrawals................................ (4,327,463) (3,481,815) (15,897,301) (10,807,027) (10,783,834) (5,353,128)
Contract benefits.......................... (646,947) (178,244) (842,853) (526,406) (896,543) (391,982)
Contract charges........................... (14,294) (15,235) (115,070) (101,719) (77,520) (48,587)
Transfers between sub-accounts (including
fixed account), net...................... 13,782,410 2,892,959 35,552,684 19,497,013 43,402,629 39,243,670
Other transfers from (to) the General
Account.................................. 1,396,680 755,654 3,919,867 6,766,308 6,310,988 7,296,335
----------- ----------- ------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 19,578,228 5,916,166 43,898,993 34,998,149 60,162,546 56,765,959
----------- ----------- ------------ ------------ ------------ ------------
Net increase (decrease) in net assets...... 23,071,343 8,270,396 69,777,060 68,931,256 133,856,562 94,528,776
NET ASSETS:
Beginning of year.......................... 48,791,745 40,521,349 246,192,240 177,260,984 189,344,784 94,816,008
----------- ----------- ------------ ------------ ------------ ------------
End of year................................ $71,863,088 $48,791,745 $315,969,300 $246,192,240 $323,201,346 $189,344,784
----------- ----------- ------------ ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------ ------------
<CAPTION>
SELECT
GROWTH AND INCOME
--------------------------
YEAR ENDED DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 2,954,575 $ 2,261,128
Mortality and expense risk fees............ (2,918,081) (2,108,661)
Administrative expense fees................ (475,036) (343,271)
------------ ------------
Net investment income (loss)............. (438,542) (190,804)
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 849,325 17,526,962
Net realized gain (loss) from sales of
investments.............................. 1,103,007 324,268
------------ ------------
Net realized gain (loss)................... 1,952,332 17,851,230
Net unrealized gain (loss)................. 30,548,177 13,743,540
------------ ------------
Net realized and unrealized gain
(loss)................................. 32,500,509 31,594,770
------------ ------------
Net increase (decrease) in net assets from
operations............................... 32,061,967 31,403,966
------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 15,264,363 14,721,001
Withdrawals................................ (11,976,840) (7,632,571)
Contract benefits.......................... (2,094,743) (1,069,129)
Contract charges........................... (65,775) (54,866)
Transfers between sub-accounts (including
fixed account), net...................... 26,940,573 24,504,584
Other transfers from (to) the General
Account.................................. 5,446,574 7,823,859
------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 33,514,152 38,292,878
------------ ------------
Net increase (decrease) in net assets...... 65,576,119 69,696,844
NET ASSETS:
Beginning of year.......................... 204,820,055 135,123,211
------------ ------------
End of year................................ $270,396,174 $204,820,055
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT VALUE SELECT SELECT CAPITAL
OPPORTUNITY* INTERNATIONAL EQUITY APPRECIATION
-------------------------- -------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 1,687,684 $ 908,127 $ 2,621,728 $ 3,685,822 $ -- $ --
Mortality and expense risk fees............ (2,273,384) (1,575,698) (2,307,959) (1,703,767) (1,566,368) (1,185,389)
Administrative expense fees................ (370,086) (256,508) (375,715) (277,358) (254,990) (192,970)
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)............. (955,786) (924,079) (61,946) 1,704,697 (1,821,358) (1,378,359)
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 655,973 21,872,379 -- 5,123,796 22,715,912 --
Net realized gain (loss) from sales of
investments.............................. 420,110 124,769 463,309 355,498 922,786 166,549
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss)................... 1,076,083 21,997,148 463,309 5,479,294 23,638,698 166,549
Net unrealized gain (loss)................. 5,479,539 5,647,860 24,779,920 (4,095,030) (5,203,690) 14,907,829
------------ ------------ ------------ ------------ ------------ ------------
Net realized and unrealized gain
(loss)................................. 6,555,622 27,645,008 25,243,229 1,384,264 18,435,008 15,074,378
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
operations............................... 5,599,836 26,720,929 25,181,283 3,088,961 16,613,650 13,696,019
------------ ------------ ------------ ------------ ------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 12,662,724 12,525,397 13,306,352 15,822,978 9,353,854 10,932,867
Withdrawals................................ (8,295,446) (4,937,439) (7,314,601) (5,740,190) (5,713,842) (4,048,564)
Contract benefits.......................... (575,288) (390,911) (685,709) (349,685) (419,195) (326,931)
Contract charges........................... (59,441) (45,532) (64,103) (50,179) (46,233) (38,655)
Transfers between sub-accounts (including
fixed account), net...................... 22,459,345 30,274,306 14,347,051 36,530,634 9,998,422 13,171,289
Other transfers from (to) the General
Account.................................. 3,197,294 6,384,929 2,330,088 7,275,661 1,818,486 6,607,194
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 29,389,188 43,810,750 21,919,078 53,489,219 14,991,492 26,297,200
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets...... 34,989,024 70,531,679 47,100,361 56,578,180 31,605,142 39,993,219
NET ASSETS:
Beginning of year.......................... 165,588,128 95,056,449 161,578,836 105,000,656 118,456,007 78,462,788
------------ ------------ ------------ ------------ ------------ ------------
End of year................................ $200,577,152 $165,588,128 $208,679,197 $161,578,836 $150,061,149 $118,456,007
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
<CAPTION>
DGPF
INTERNATIONAL EQUITY
-------------------------
YEAR ENDED DECEMBER 31,
1998 1997
------------ -----------
<S> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 3,818,720 $ 2,511,425
Mortality and expense risk fees............ (1,364,199) (1,067,089)
Administrative expense fees................ (222,079) (173,712)
------------ -----------
Net investment income (loss)............. 2,232,442 1,270,624
------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- --
Net realized gain (loss) from sales of
investments.............................. 524,782 363,002
------------ -----------
Net realized gain (loss)................... 524,782 363,002
Net unrealized gain (loss)................. 6,030,154 1,321,628
------------ -----------
Net realized and unrealized gain
(loss)................................. 6,554,936 1,684,630
------------ -----------
Net increase (decrease) in net assets from
operations............................... 8,787,378 2,955,254
------------ -----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 6,454,592 7,830,705
Withdrawals................................ (5,616,866) (3,857,969)
Contract benefits.......................... (369,791) (207,583)
Contract charges........................... (34,104) (29,701)
Transfers between sub-accounts (including
fixed account), net...................... 8,564,109 20,741,571
Other transfers from (to) the General
Account.................................. 1,556,191 4,277,465
------------ -----------
Net increase (decrease) in net assets from
contract transactions.................... 10,554,131 28,754,488
------------ -----------
Net increase (decrease) in net assets...... 19,341,509 31,709,742
NET ASSETS:
Beginning of year.......................... 99,158,806 67,449,064
------------ -----------
End of year................................ $118,500,315 $99,158,806
------------ -----------
------------ -----------
</TABLE>
* Name changed. See note 1.
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP
HIGH INCOME EQUITY-INCOME GROWTH
-------------------------- -------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 12,578,810 $ 7,884,412 $ 7,149,010 $ 6,423,548 $ 1,980,389 $ 2,066,887
Mortality and expense risk fees............ (2,432,246) (1,720,161) (6,788,549) (5,445,301) (5,516,150) (4,299,523)
Administrative expense fees................ (395,947) (280,026) (1,105,112) (886,444) (897,978) (699,922)
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss)............. 9,750,617 5,884,225 (744,651) 91,803 (4,433,739) (2,932,558)
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 7,992,786 974,478 25,442,066 32,296,170 51,802,813 9,251,781
Net realized gain (loss) from sales of
investments.............................. (46,537) 203,134 4,980,239 2,786,309 6,211,181 3,287,677
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss)................... 7,946,249 1,177,612 30,422,305 35,082,479 58,013,994 12,539,458
Net unrealized gain (loss)................. (29,941,145) 13,667,456 21,541,366 66,391,863 92,401,524 57,841,299
------------ ------------ ------------ ------------ ------------ ------------
Net realized and unrealized gain
(loss).................................. (21,994,896) 14,845,068 51,963,671 101,474,342 150,415,518 70,380,757
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
operations............................... (12,244,279) 20,729,293 51,219,020 101,566,145 145,981,779 67,448,199
------------ ------------ ------------ ------------ ------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 16,334,143 15,736,449 31,978,182 31,711,858 24,189,477 25,916,377
Withdrawals................................ (10,795,966) (6,766,607) (31,513,789) (23,477,780) (27,468,965) (18,451,418)
Contract benefits.......................... (1,097,609) (424,758) (2,356,266) (1,600,308) (2,039,146) (971,009)
Contract charges........................... (58,071) (51,854) (203,860) (195,262) (191,465) (181,070)
Transfers between sub-accounts (including
fixed account), net...................... 38,988,866 33,013,744 24,052,204 17,682,680 5,764,814 1,235,885
Other transfers from (to) the General
Account.................................. 5,027,099 5,515,208 2,652,365 9,212,572 1,580,856 6,354,543
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 48,398,462 47,022,182 24,608,836 33,333,761 1,835,571 13,903,308
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets...... 36,154,183 67,751,475 75,827,856 134,899,906 147,817,350 81,351,507
NET ASSETS:
Beginning of year.......................... 173,439,866 105,688,391 508,303,919 373,404,013 386,549,824 305,198,317
------------ ------------ ------------ ------------ ------------ ------------
End of year................................ $209,594,049 $173,439,866 $584,131,775 $508,303,919 $534,367,174 $386,549,824
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP II T. ROWE PRICE
OVERSEAS ASSET MANAGER INTERNATIONAL STOCK
------------------------- ------------------------- ------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997 1998 1997
------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 1,818,875 $ 1,593,893 $ 2,716,853 $ 1,921,322 $ 1,097,794 $ 672,911
Mortality and expense risk fees............ (1,262,186) (1,150,997) (1,241,535) (840,972) (1,054,718) (750,999)
Administrative expense fees................ (205,472) (187,372) (202,110) (136,902) (171,698) (122,256)
------------ ----------- ------------ ----------- ----------- -----------
Net investment income (loss)............. 351,217 255,524 1,273,208 943,448 (128,622) (200,344)
------------ ----------- ------------ ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 5,360,896 6,327,269 8,150,559 4,819,590 387,457 953,290
Net realized gain (loss) from sales of
investments.............................. 856,760 2,767,486 160,609 227,627 237,516 161,070
------------ ----------- ------------ ----------- ----------- -----------
Net realized gain (loss)................... 6,217,656 9,094,755 8,311,168 5,047,217 624,973 1,114,360
Net unrealized gain (loss)................. 3,731,753 (571,995) 3,240,712 5,671,077 10,425,832 (909,997)
------------ ----------- ------------ ----------- ----------- -----------
Net realized and unrealized gain
(loss).................................. 9,949,409 8,522,760 11,551,880 10,718,294 11,050,805 204,363
------------ ----------- ------------ ----------- ----------- -----------
Net increase (decrease) in net assets from
operations............................... 10,300,626 8,778,284 12,825,088 11,661,742 10,922,183 4,019
------------ ----------- ------------ ----------- ----------- -----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 6,122,888 5,580,597 8,512,565 6,136,311 5,708,803 7,087,778
Withdrawals................................ (6,424,320) (5,698,045) (5,321,586) (3,519,671) (3,090,733) (2,318,926)
Contract benefits.......................... (413,395) (310,083) (653,162) (111,937) (234,511) (302,518)
Contract charges........................... (46,447) (50,533) (23,772) (18,363) (21,793) (16,117)
Transfers between sub-accounts (including
fixed account), net...................... 4,525,206 (10,194,522) 18,036,934 12,603,408 7,450,376 20,482,835
Other transfers from (to) the General
Account.................................. 534,379 847,013 2,193,311 3,355,998 1,566,892 5,001,709
------------ ----------- ------------ ----------- ----------- -----------
Net increase (decrease) in net assets from
contract transactions.................... 4,298,311 (9,825,573) 22,744,290 18,445,746 11,379,034 29,934,761
------------ ----------- ------------ ----------- ----------- -----------
Net increase (decrease) in net assets...... 14,598,937 (1,047,289) 35,569,378 30,107,488 22,301,217 29,938,780
NET ASSETS:
Beginning of year.......................... 92,543,240 93,590,529 84,082,473 53,974,985 73,136,107 43,197,327
------------ ----------- ------------ ----------- ----------- -----------
End of year................................ $107,142,177 $92,543,240 $119,651,851 $84,082,473 $95,437,324 $73,136,107
------------ ----------- ------------ ----------- ----------- -----------
------------ ----------- ------------ ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-7
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Separate Account VA-K, which funds the Allmerica Advantage and ExecAnnuity
Plus variable annuity contracts, in addition to other contracts (the Delaware
Medallion variable annuity contracts), is a separate investment account of
Allmerica Financial Life Insurance and Annuity 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
contracts issued by the Company. The Company is a wholly-owned subsidiary of
First Allmerica Financial Life Insurance Company (First Allmerica). First
Allmerica is a wholly-owned subsidiary of Allmerica Financial Corporation (AFC).
Under applicable insurance law, the assets and liabilities of Separate Account
VA-K are clearly identified and distinguished from the other assets and
liabilities of the Company. Separate Account VA-K cannot be charged with
liabilities arising out of any other business of the Company.
Separate Account VA-K is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Separate Account VA-K
currently offers eighteen Sub-Accounts under the Allmerica Advantage and
ExecAnnuity Plus variable annuity contracts. Each Sub-Account invests
exclusively in a corresponding investment portfolio of the Allmerica Investment
Trust (the Trust) managed by Allmerica Financial Investment Management Services,
Inc. (AFIMS) (successor to Allmerica Investment Management Company, Inc.), a
wholly-owned subsidiary of First Allmerica; or of the Variable Insurance
Products Fund (Fidelity VIP) or the Variable Insurance Products Fund II
(Fidelity VIP II) managed by Fidelity Management & Research Company (FMR); or of
the Delaware Group Premium Fund, Inc. (DGPF) managed by Delaware International
Advisers Ltd.; or of the T. Rowe Price International Series, Inc. (T. Rowe
Price) managed by T. Rowe Price-Fleming International, Inc. The Trust, Fidelity
VIP, Fidelity VIP II, DGPF, and T. Rowe Price (the Funds) are open-end,
management investment companies registered under the 1940 Act.
Separate Account VA-K funds 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 Section 401, 403, or 408 of the Internal Revenue Code (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
withdrawals or surrenders will vary according to whether they are made from a
qualified contract or a non-qualified contract.
Effective January 9, 1998, Small-Mid Cap Value Fund was renamed Select Value
Opportunity Fund.
Certain prior year balances have been reclassified to conform with current
year presentation.
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 Funds. Net realized gains and
losses on securities sold are determined using 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 Funds at net asset value.
FEDERAL INCOME TAXES -- The Company is taxed as a "life insurance company"
under Subchapter L of the Code and files a consolidated federal income tax
return with First Allmerica. The Company anticipates no tax
SA-8
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liability resulting from the operations of Separate Account VA-K. Therefore, no
provision for income taxes has been charged against Separate Account VA-K.
NOTE 3 -- INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Funds at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
-------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
- ---------------------------------------- ------------ ------------ ---------
<S> <C> <C> <C>
Growth.................................. 160,470,766 $359,758,297 $ 2.825
Investment Grade Income................. 146,868,630 162,430,235 1.132
Money Market............................ 162,581,881 162,581,881 1.000
Equity Index............................ 103,133,310 235,122,783 3.408
Government Bond......................... 67,287,635 71,294,360 1.068
Select Aggressive Growth................ 128,443,479 234,368,079 2.460
Select Growth........................... 133,115,179 211,148,273 2.428
Select Growth and Income................ 152,011,079 203,910,122 1.779
Select Value Opportunity*............... 119,037,991 172,188,592 1.685
Select International Equity............. 135,331,459 171,518,089 1.542
Select Capital Appreciation............. 91,501,314 136,667,046 1.640
DGPF International Equity............... 7,190,618 98,679,065 16.480
Fidelity VIP High Income................ 18,178,170 216,072,648 11.530
Fidelity VIP Equity-Income.............. 22,979,410 408,931,468 25.420
Fidelity VIP Growth..................... 11,909,345 311,766,409 44.870
Fidelity VIP Overseas................... 5,343,875 86,946,809 20.050
Fidelity VIP II Asset Manager........... 6,588,797 103,227,773 18.160
T. Rowe Price International Stock....... 6,572,893 82,587,256 14.520
</TABLE>
* Name changed. See Note 1.
NOTE 4 -- RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum based on the average daily net
assets of such Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account 0.20% 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 and are paid to
the Company on a daily basis.
For contracts issued on Forms A3018-91 and A3021-93 (ExecAnnuity Plus 91 and
ExecAnnuity Plus 93), a contract fee is deducted on the contract anniversary and
upon full surrender of the contract when the accumulated value is $50,000 or
less. The fee is the lesser of $30 or 3% of the accumulated value on the
contract anniversary or full surrender date. For contracts issued on Form
A3025-96 (Allmerica Advantage), a
SA-9
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- RELATED PARTY TRANSACTIONS (CONTINUED)
contract fee of $30 is deducted on the contract anniversary and upon full
surrender when the accumulated value is less than $50,000. The fee is currently
waived for all contracts (ExecAnnuity Plus and Allmerica Advantage) issued to
and maintained by the trustee of a 401(k) plan.
Allmerica Investments, Inc. (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of Separate Account VA-K, and does not receive any compensation for sales of the
contracts. Commissions are paid to registered representatives of Allmerica
Investments by the Company. The current series of contracts have a contingent
deferred sales charge and no deduction is made for sales charges at the time of
the sale. For the years ended December 31, 1998 and 1997, the Company received
$3,200,685 and $3,189,265, respectively, for contingent deferred sales charges
applicable to Separate Account VA-K.
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
--------------------------- ----------------------------
UNITS AMOUNT UNITS AMOUNT
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Growth
Issuance of Units.......................... 35,414,157 $ 88,002,941 43,130,029 $ 91,345,943
Redemption of Units........................ (26,666,754) (65,980,056) (22,583,348) (46,659,496)
------------ ------------ ------------ -------------
Net increase (decrease).................. 8,747,403 $ 22,022,885 20,546,681 $ 44,686,447
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Investment Grade Income
Issuance of Units.......................... 40,947,469 $ 67,361,561 28,304,457 $ 40,432,162
Redemption of Units........................ (25,662,004) (43,370,591) (20,579,115) (28,912,830)
------------ ------------ ------------ -------------
Net increase (decrease).................. 15,285,465 $ 23,990,970 7,725,342 $ 11,519,332
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Money Market
Issuance of Units.......................... 480,585,830 $576,517,573 390,077,704 $ 446,824,506
Redemption of Units........................ (443,526,171) (530,367,846) (390,768,219) (447,674,946)
------------ ------------ ------------ -------------
Net increase (decrease).................. 37,059,659 $ 46,149,727 (690,515) $ (850,440)
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Equity Index
Issuance of Units.......................... 43,689,479 $125,016,046 44,575,824 $ 99,696,713
Redemption of Units........................ (21,378,757) (60,520,317) (16,734,613) (35,090,646)
------------ ------------ ------------ -------------
Net increase (decrease).................. 22,310,722 $ 64,495,729 27,841,211 $ 64,606,067
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Government Bond
Issuance of Units.......................... 36,235,069 $ 51,588,649 18,588,389 $ 24,289,010
Redemption of Units........................ (22,565,149) (32,010,421) (14,247,517) (18,372,844)
------------ ------------ ------------ -------------
Net increase (decrease).................. 13,669,920 $ 19,578,228 4,340,872 $ 5,916,166
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
SA-10
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
--------------------------- ----------------------------
UNITS AMOUNT UNITS AMOUNT
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Select Aggressive Growth
Issuance of Units.......................... 41,209,415 $ 96,835,317 39,273,921 $ 83,733,189
Redemption of Units........................ (22,240,992) (52,936,324) (22,457,833) (48,735,040)
------------ ------------ ------------ -------------
Net increase (decrease).................. 18,968,423 $ 43,898,993 16,816,088 $ 34,998,149
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Select Growth
Issuance of Units.......................... 50,148,994 $113,239,811 48,217,022 $ 84,427,107
Redemption of Units........................ (23,786,903) (53,077,265) (16,210,356) (27,661,148)
------------ ------------ ------------ -------------
Net increase (decrease).................. 26,362,091 $ 60,162,546 32,006,666 $ 56,765,959
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Select Growth and Income
Issuance of Units.......................... 37,081,023 $ 77,642,713 35,766,602 $ 63,156,211
Redemption of Units........................ (21,516,678) (44,128,561) (14,723,868) (24,863,333)
------------ ------------ ------------ -------------
Net increase (decrease).................. 15,564,345 $ 33,514,152 21,042,734 $ 38,292,878
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Select Value Opportunity*
Issuance of Units.......................... 32,164,349 $ 63,580,221 37,678,681 $ 65,123,255
Redemption of Units........................ (17,540,671) (34,191,033) (12,696,975) (21,312,505)
------------ ------------ ------------ -------------
Net increase (decrease).................. 14,623,678 $ 29,389,188 24,981,706 $ 43,810,750
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Select International Equity
Issuance of Units.......................... 37,484,996 $ 56,306,351 57,085,507 $ 78,522,937
Redemption of Units........................ (23,060,019) (34,387,273) (18,985,695) (25,033,718)
------------ ------------ ------------ -------------
Net increase (decrease).................. 14,424,977 $ 21,919,078 38,099,812 $ 53,489,219
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Select Capital Appreciation
Issuance of Units.......................... 25,808,681 $ 42,819,894 35,616,682 $ 51,985,258
Redemption of Units........................ (16,692,015) (27,828,402) (17,612,505) (25,688,058)
------------ ------------ ------------ -------------
Net increase (decrease).................. 9,116,666 $ 14,991,492 18,004,177 $ 26,297,200
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
DGPF International Equity
Issuance of Units.......................... 19,548,692 $ 32,754,499 28,045,942 $ 44,814,323
Redemption of Units........................ (13,404,183) (22,200,368) (10,328,017) (16,059,835)
------------ ------------ ------------ -------------
Net increase (decrease).................. 6,144,509 $ 10,554,131 17,717,925 $ 28,754,488
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Fidelity VIP High Income
Issuance of Units.......................... 41,047,554 $ 91,158,751 34,859,555 $ 72,871,648
Redemption of Units........................ (19,562,695) (42,760,289) (12,480,024) (25,849,466)
------------ ------------ ------------ -------------
Net increase (decrease).................. 21,484,859 $ 48,398,462 22,379,531 $ 47,022,182
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
* Name changed. See Note 1.
</TABLE>
SA-11
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
--------------------------- ----------------------------
UNITS AMOUNT UNITS AMOUNT
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Fidelity VIP Equity-Income
Issuance of Units.......................... 40,370,670 $120,358,364 43,116,999 $ 110,157,686
Redemption of Units........................ (32,382,953) (95,749,528) (30,112,367) (76,823,925)
------------ ------------ ------------ -------------
Net increase (decrease).................. 7,987,717 $ 24,608,836 13,004,632 $ 33,333,761
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Fidelity VIP Growth
Issuance of Units.......................... 27,217,433 $ 81,585,030 31,617,632 $ 75,684,507
Redemption of Units........................ (26,419,759) (79,749,459) (25,854,345) (61,781,199)
------------ ------------ ------------ -------------
Net increase (decrease).................. 797,674 $ 1,835,571 5,763,287 $ 13,903,308
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Fidelity VIP Overseas
Issuance of Units.......................... 14,517,190 $ 25,690,826 13,825,037 $ 22,465,826
Redemption of Units........................ (12,153,924) (21,392,515) (20,184,580) (32,291,399)
------------ ------------ ------------ -------------
Net increase (decrease).................. 2,363,266 $ 4,298,311 (6,359,543) $ (9,825,573)
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Fidelity VIP II Asset Manager
Issuance of Units.......................... 27,248,291 $ 42,989,274 22,356,154 $ 30,447,764
Redemption of Units........................ (13,095,360) (20,244,984) (9,219,052) (12,002,018)
------------ ------------ ------------ -------------
Net increase (decrease).................. 14,152,931 $ 22,744,290 13,137,102 $ 18,445,746
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
T. Rowe Price International Stock
Issuance of Units.......................... 22,433,345 $ 29,223,947 34,218,462 $ 42,222,755
Redemption of Units........................ (13,899,360) (17,844,913) (10,301,277) (12,287,994)
------------ ------------ ------------ -------------
Net increase (decrease).................. 8,533,985 $ 11,379,034 23,917,185 $ 29,934,761
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
NOTE 6 -- DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the 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
The Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that Separate Account VA-K satisfies the current
requirements of the regulations, and it intends that Separate Account VA-K will
continue to meet such requirements.
SA-12
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of shares of the Funds by Separate
Account VA-K during the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------- ------------ ------------
<S> <C> <C>
Growth................................................. $ 36,804,762 $ 11,937,216
Investment Grade Income................................ 42,211,202 11,313,870
Money Market........................................... 160,141,982 108,831,461
Equity Index........................................... 82,436,216 10,164,360
Government Bond........................................ 29,409,316 7,337,184
Select Aggressive Growth............................... 45,055,514 5,146,364
Select Growth.......................................... 64,871,281 5,566,271
Select Growth and Income............................... 41,475,097 7,518,994
Select Value Opportunity*.............................. 33,491,083 4,399,149
Select International Equity............................ 25,186,102 3,326,388
Select Capital Appreciation............................ 41,473,637 5,586,634
DGPF International Equity.............................. 16,911,124 4,123,154
Fidelity VIP High Income............................... 73,084,617 6,941,557
Fidelity VIP Equity-Income............................. 69,378,741 20,066,859
Fidelity VIP Growth.................................... 68,678,529 19,469,351
Fidelity VIP Overseas.................................. 15,148,901 5,136,519
Fidelity VIP II Asset Manager.......................... 34,770,297 2,601,402
T. Rowe Price International Stock...................... 14,451,395 2,812,197
------------ ------------
Totals................................................. $894,979,796 $242,278,930
------------ ------------
------------ ------------
</TABLE>
* Name changed. See Note 1.
SA-13
<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
Financial Statements for Separate Account VA-K of Allmerica Financial
Life Insurance and Annuity Company
Financial Statements Included in Part C
None
(b) EXHIBITS
EXHIBIT 1 Vote of Board of Directors Authorizing Establishment of
Registrant dated November 1, 1990 was previously filed
on April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 14,
and is incorporated by reference herein.
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 (a) Underwriting and Administrative Service Agreement
was previously filed on April 24, 1998 in
Registration Statement No. 33-39702/811-6293,
Post-Effective Amendment No. 14 and is
incorporated by reference herein.
(b) Sales Agreements were previously filed on April
24, 1998 in Registration Statement No. 33-39702/
811-6293, Post-Effective Amendment No. 14, and
are incorporated by reference herein.
(c) General Agent's Agreement was previously filed on
April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment
No. 14, and is incorporated by reference herein.
(d) IVA Commission Schedule is filed herewith. Career
Agent Agreement with Commission Schedule
was previously filed on April 24, 1998 in
Registration Statement No. 33-39702/811-6293,
Post-Effective Amendment No. 14, and is
incorporated by reference herein.
(e) Registered Representative's Agreement was
previously filed on April 24, 1998 in
Registration Statement No. 33-39702/811-6293,
Post-Effective Amendment No. 14, and is
incorporated by reference herein.
EXHIBIT 4 Draft Contract Form A3029-99 is filed herewith.
<PAGE>
EXHIBIT 5 Application Form 10999 is filed herewith.
EXHIBIT 6 The Depositor's Articles of Incorporation and Bylaws,
as amended to reflect its name change, were previously
filed on September 28, 1995 in Registration Statement
No. 33-39702/811-6293, Post-Effective Amendment No. 9,
and are incorporated by reference herein.
EXHIBIT 7 Not Applicable.
EXHIBIT 8 (a) Fidelity Service Agreement was previously filed on
April 30, 1996 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No.
11, and is incorporated by reference herein.
(b) An Amendment to the Fidelity Service Agreement,
effective as of January 1, 1997, was previously
filed on April 2, 1997 in Registration Statement
No. 33-39702/811-6293, Post-Effective Amendment
No. 12, and is incorporated by reference herein.
(c) Fidelity Service Contract, effective as of January
1, 1997, was previously filed on April 2, 1997 in
Registration Statement No. 33-39702/811-6293,
Post-Effective Amendment No. 12, and is
incorporated by reference herein.
(d) T. Rowe Price Service Agreement was previously
filed on April 24, 1998 in Registration Statement
No. 33-39702/811-6293, Post-Effective Amendment
No. 14, and is incorporated by reference herein.
(e) BFDS Agreements for lockbox and mailroom services
were previously filed on April 24, 1998 in
Registration Statement No. 33-39702/811-6293,
Post-Effective Amendment No. 14, and are
incorporated by reference herein.
(f) Directors' Power of Attorney was previously filed
on April 23, 1999 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No.
16, and is incorporated by reference herein.
EXHIBIT 9 Opinion of Counsel is filed herewith.
EXHIBIT 10 Consent of Independent Accountants is filed herewith.
EXHIBIT 11 None.
EXHIBIT 12 None.
EXHIBIT 13 Not Applicable.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 (a) Participation Agreement with Allmerica Investment
Trust was previously filed on April 24, 1998 in
Registration Statement No. 33-39702/811-6293,
Post-Effective Amendment No. 14, and is
incorporated by reference herein.
(b) Participation Agreement, as amended, with Variable
Insurance Products Fund was previously filed on
April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No.
14, and is incorporated by reference herein.
<PAGE>
(c) Participation Agreement, as amended, with Variable
Insurance Products Fund II was previously filed on
April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No.
14, and is incorporated by reference herein.
(d) Participation Agreement with Delaware Group
Premium Fund, Inc. and Amendment was previously
filed on April 24, 1998 in Registration Statement
No. 33-39702/811-6293, Post-Effective
Amendment No. 14, and is incorporated by
reference herein.
(e) Participation Agreement with T. Rowe Price
International Series, Inc. was previously filed on
April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No.
14, and is incorporated by reference herein.
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 WITH
COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------ -----------------------------------------------
Bruce C. Anderson Director (since 1996), Vice President (since 1984)
Director and Assistant Secretary (since 1992) of First
Allmerica
Warren E. Barnes Vice President (since 1996) and Corporate
Vice President and Controller (since 1998) of First Allmerica
Corporate Controller
Robert E. Bruce Director and Chief Information Officer (since 1997)
Director and Chief and Vice President (since 1995) of First Allmerica;
Information and Corporate Manager (1979 to 1995) of Digital
Officer Equipment Corporation
Mary Eldridge Secretary (since 1999) of First Allmerica;
Secretary Secretary (since 1999) of Allmerica Investments,
Inc.; and Secretary (since 1999) of Allmerica
Financial Investment Management Services, Inc.
John P. Kavanaugh Director and Chief Investment Officer (since 1996)
Director, Vice President and Vice President (since 1991) of First Allmerica;
and and Vice President (since 1998) of Allmerica
Chief Investment Officer Financial Investment Management Services, Inc.
John F. Kelly Director (since 1996), Senior Vice President (since
Director, Vice 1986), General Counsel (since 1981) and Assistant
President and Secretary (since 1991) of First Allmerica; Director
General Counsel (since 1985) of Allmerica Investments, Inc.; and
Director (since 1990) of Allmerica Financial
Investment Management Services, Inc.
J. Barry May Director (since 1996) of First Allmerica; Director
Director and President (since 1996) of The Hanover Insurance
Company; and Vice President (1993 to 1996) of The
Hanover Insurance Company
<PAGE>
James R. McAuliffe Director (since 1996) of First Allmerica; Director
Director (since 1992), President (since 1994) and Chief
Executive Officer (since 1996) of Citizens
Insurance Company of America
John F. O'Brien Director, President and Chief Executive Officer
Director and Chairman of (since 1989) of First Allmerica; Director (since
the Board 1989) of Allmerica Investments, Inc.; and Director
and Chairman of the Board (since 1990) of Allmerica
Financial Investment Management Services, Inc.
Edward J. Parry, III Director and Chief Financial Officer (since 1996)
Director, Vice and Vice President and Treasurer (since 1993) of
President, First Allmerica; Treasurer (since 1993) of
Chief Financial Officer Allmerica Investments, Inc.; and Treasurer (since
and 1993) of Allmerica Financial Investment Management
Treasurer Services, Inc.
Richard M. Reilly Director (since 1996) and Vice President (since
Director, President and 1990) of First Allmerica; Director (since 1990) of
Chief Executive Officer Allmerica Investments, Inc.; and Director and
President (since 1998) of Allmerica Financial
Investment Management Services, Inc.
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First
Director Allmerica; Chief Executive Officer (1996 to 1998)
of Travelers Property & Casualty; Senior Vice
President (1993 to 1996) of Aetna Life & Casualty
Company
Eric A. Simonsen Director (since 1996) and Vice President (since
Director and Vice 1990) of First Allmerica; Director (since 1991) of
President Allmerica Investments, Inc.; and Director (since
1991) of Allmerica Financial Investment Management
Services, Inc.
Phillip E. Soule Director (since 1996) and Vice President (since
Director 1987) of First Allmerica
<PAGE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
<TABLE>
<CAPTION>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | |
______________________________________________________________________________________________________________
Financial 100% 100% 100% 100% 100% 100%
Profiles, Inc. Allmerica, Inc. Allmerica First Allmerica AFC Capital Allmerica First Sterling
Funding Corp. Financial Life Trust I Services Limited
Insurance Corporation
Company
California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| |
30% _________________ _____________
| |
100% 100%
SMA First Sterling
Financial Corp. Reinsurance
Company
Limited
Massachusetts Bermuda
|
______________________________________________________________________________________________________________________
| | | | | |
70% 100% 99.2% 100% 100% 100%
Allmerica Sterling Risk Allmerica Allmerica Allmerica Allmerica
Property Management Trust Investments, Financial Financial Life
& Casualty Services, Inc. Company, N.A. Inc. Investment Insurance and
Companies, Inc. Management Annuity Company
Services, Inc.
Federally
Delaware Delaware Chartered Massachusetts Massachusetts Delaware
|
___________________________________________________________________________
| | | |
100% 100% 100% 100%
APC The Hanover Allmerica Citizens
Funding Corp. Insurance Financial Insurance
Company Insurance Company of
Brokers, Inc. Illinois
Massachusetts New Hampshire Massachusetts Illinois
|
______________________________________________________________________________________________________________________
| | | | |
100% 100% 100% 100% 82.5% 100%
Allmerica Allmerica The Hanover Hanover Texas Citizens Massachusetts
Financial Plus American Insurance Corporation Bay Insurance
Benefit Insurance Insurance Management Company
Insurance Agency, Inc. Company Company, Inc.
Company
Pennsylvania Massachusetts New Hampshire Texas Delaware New Hampshire
|
________________________________________________________
| | |
100% 100% 100%
Citizens Citizens Insurance Citizens
Insurance Company of Insurance
Company of Ohio America Company of the
Midwest
Ohio Michigan Indiana
|
_______________
100%
Citizens
Management Inc.
Michigan
</TABLE>
<TABLE>
<CAPTION>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | |
_______________________________________________________________________________________________________________________
Financial 100% 100% 100% 100% 100% 100%
Profiles, Inc. Allmerica, Inc. Allmerica First Allmerica AFC Capital Allmerica First Sterling
Funding Corp. Financial Life Trust I Services Limited
Insurance Corporation
Company
California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| |
_____________________________________________________________________________________________________________________
| | | | |
100% 100% 100% 100% 100%
Allmerica Allmerica Allmerica Allmerica Allmerica
Investment Asset Financial Services Asset Benefits
Management Management, Insurance Management, Inc.
Company, Inc. Inc. Agency, Inc. Limited
Massachusetts Massachusetts Massachusetts Bermuda Florida
________________ _________________________________
Allmerica Equity Greendale AAM
Index Pool Special Equity Fund
Placements
Fund
Massachusetts Massachusetts Massachusetts
_____________________________________
| | -------------- Grantor Trusts established for the benefit of First
100% 100% Allmerica, Allmerica Financial Life, Hanover and
Allmerica AMGRO, Inc. Citizens
Financial Allmerica Allmerica
Alliance Investment Trust Securities
Insurance Trust
Company
Massachusetts Massachusetts
New Hampshire Massachusetts
|
_______________
|
100% -------------- Affiliated Management Investment Companies
Lloyds
Credit Hanover Lloyd's
Corporation Insurance
Company
Massachusetts Texas
-------------- Affiliated Lloyd's plan company, controlled by
Underwriters for the benefit of The Hanover
Insurance Company
AAM AAM
Growth & High
Income Fund Yield Fund,
L.P. L.L.C.
Delaware Massachusetts
-------------- L.P. or L.L.C. established for the benefit of
First Allmerica, Allmerica
Financial Life, Hanover and
Citizens
</TABLE>
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
AAM Growth & Income Fund, 440 Lincoln Street Limited Partnership
L.P. Worcester MA 01653
AFC Capital Trust I 440 Lincoln Street Statutory Business Trust
Worcester MA 01653
Allmerica Asset Management 440 Lincoln Street Investment advisory
Limited Worcester MA 01653 services
Allmerica Asset Management, 440 Lincoln Street Investment advisory
Inc. Worcester MA 01653 services
Allmerica Benefits, Inc. 440 Lincoln Street Non-insurance medical
Worcester MA 01653 services
Allmerica Equity Index Pool 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
Allmerica Financial Alliance 100 North Parkway Multi-line property and
Insurance Company Worcester MA 01605 casualty insurance
Allmerica Financial Benefit 100 North Parkway Multi-line property and
Insurance Company Worcester MA 01605 casualty insurance
Allmerica Financial 440 Lincoln Street Holding Company
Corporation Worcester MA 01653
Allmerica Financial Insurance 440 Lincoln Street Insurance Broker
Brokers, Inc. Worcester MA 01653
Allmerica Financial Life 440 Lincoln Street Life insurance, accident
Insurance and Annuity Company Worcester MA 01653 and health insurance,
(formerly known as SMA Life annuities, variable
Assurance Company) annuities and variable
life insurance
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester MA 01653
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding
Worcester MA 01653 vehicle for commercial
paper
Allmerica, Inc. 440 Lincoln Street Common employer for
Worcester MA 01653 Allmerica Financial
Corporation entities
Allmerica Financial Investment 440 Lincoln Street Investment advisory
Management Services, Inc. Worcester MA 01653 services
(formerly known as Allmerica
Institutional Services, Inc.
and 440 Financial Group of
Worcester, Inc.)
Allmerica Investment 440 Lincoln Street Investment advisory
Management Company, Inc. Worcester MA 01653 services
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail
Worcester MA 01653 broker-dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Plus Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Property & Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services Corporation 440 Lincoln Street Internal administrative
Worcester MA 01653 services provider to
Allmerica Financial
Corporation entities
<PAGE>
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national
Worcester MA 01653 trust company
AMGRO, Inc. 100 North Parkway Premium financing
Worcester MA 01605
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of 645 West Grand Multi-line property and
America River casualty insurance
Howell MI 48843
Citizens Insurance Company of 333 Pierce Road Multi-line property and
Illinois Itasca IL 60143 casualty insurance
Citizens Insurance Company of 3950 Priority Way Multi-line property and
the Midwest South Drive, Suite casualty insurance
200
Indianapolis IN
46280
Citizens Insurance Company of 8101 N. High Multi-line property and
Ohio Street casualty insurance
P.O. Box 342250
Columbus OH 43234
Citizens Management, Inc. 645 West Grand Services management
River company
Howell MI 48843
Financial Profiles 5421 Avenida Computer software company
Encinas
Carlsbad, CA
92008
First Allmerica Financial Life 440 Lincoln Street Life, pension, annuity,
Insurance Company (formerly Worcester MA 01653 accident and health
State Mutual Life Assurance insurance company
Company of America)
First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653
First Sterling Reinsurance 440 Lincoln Street Reinsurance Company
Company Limited Worcester MA 01653
Greendale Special Placements 440 Lincoln Street Massachusetts Grantor
Fund Worcester MA 01653 Trust
The Hanover American Insurance 100 North Parkway Multi-line property and
Company Worcester MA 01605 casualty insurance
The Hanover Insurance Company 100 North Parkway Multi-line property and
Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Attorney-in-fact for
Management Company, Inc. Road Hanover Lloyd's Insurance
Richardson TX Company
75081
Hanover Lloyd's Insurance 801 East Campbell Multi-line property and
Company Road casualty insurance
Richardson TX
75081
Lloyds Credit Corporation 440 Lincoln Street Premium financing service
Worcester MA 01653 franchises
Massachusetts Bay Insurance 100 North Parkway Multi-line property and
Company Worcester MA 01605 casualty insurance
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Sterling Risk Management 440 Lincoln Street Risk management services
Services, Inc. Worcester MA 01653
<PAGE>
ITEM 27. NUMBER OF CONTRACT HOLDERS
As of April 30, 1999, there were 89,222 Contract holders of qualified
Contracts and 24,545 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 judgment, except in relation to matters as to which he shall be
finally adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of his duties as such Director
or Officer; and the foregoing right of indemnification or reimbursement
shall not affect any other rights to which he may be entitled under the
Articles of Incorporation, any statute, bylaw, agreement, vote of
stockholders, or otherwise.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
X VEL Account, VEL II Account, VEL Account III, Select Account III,
Inheiritage Account, Separate Accounts VA-A, VA-B, VA-C, VA-G, VA-H,
VA-K, VA-P, Allmerica Select Separate Account II, Group VEL Account,
Separate Account KG, Separate Account KGC, Fulcrum Separate Account,
Fulcrum Variable Life Separate Account, and Allmerica Select Separate
Account of Allmerica Financial Life Insurance and Annuity Company
X Inheiritage Account, VEL II Account, Separate Account I, Separate
Account VA-K, Separate Account VA-P, Allmerica Select Separate
Account II, Group VEL Account, Separate Account KG, Separate Account
KGC, Fulcrum Separate Account, and Allmerica Select Separate Account
of First Allmerica Financial Life Insurance Company.
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
Emil J. Aberizk, Jr. Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Richard F. Betzler, Jr. Vice President
Mary Eldridge Secretary
<PAGE>
Philip L. Heffernan Vice President
Daniel Mastrototaro Vice President
John F. Kelly Director
William F. Monroe, Jr. Vice President
David J. Mueller Vice President and Controller
John F. O'Brien Director
Stephen Parker President, Director and Chief Executive Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Mark G. 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 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained by
the Company at 440 Lincoln Street, Worcester, Massachusetts.
ITEM 31. MANAGEMENT SERVICES
The Company provides 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 ("SEC") such
supplementary and periodic information, documents, and reports as may
be prescribed by any rule or regulation of the SEC 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.
<PAGE>
(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
SEC, 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.
(e) The Company hereby represents that the aggregate fees and charges
under the Policies are reasonable in relation to the services
rendered, expenses expected to be incurred, and risks assumed by the
Company.
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 withdrawal 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 withdrawal restrictions
imposed by the Program and by Section 403(b)(11) have been included in
sales literature used in connection with the offer of the
Company's variable contracts.
3. Sales Representatives who solicit participants to purchase the
variable contracts have been instructed to specifically bring the
withdrawal 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 withdrawal 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this initial 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 1st day of June, 1999.
SEPARATE ACCOUNT VA-K OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Mary Eldridge
--------------------------------
Mary Eldridge, Secretary
Pursuant to the requirements of the Securities Act of 1933, this initial
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Warren E. Barnes Vice President and Corporate June 1, 1999
- ------------------------- Controller
Warren E. Barnes
Edward J. Parry III* Director, Vice President, Chief
- ------------------------- Financial Officer and Treasurer June 1, 1999
Richard M. Reilly* Director, President and
- ------------------------- Chief Executive Officer June 1, 1999
John F. O'Brien* Director and Chairman of the June 1, 1999
- ------------------------- Board
Bruce C. Anderson* Director June 1, 1999
- -------------------------
Robert E. Bruce* Director and Chief Information June 1, 1999
- ------------------------- Officer
John P. Kavanaugh* Director, Vice President and June 1, 1999
- ------------------------- Chief Investment Officer
John F. Kelly* Director, Vice President and June 1, 1999
- ------------------------- General Counsel
J. Barry May* Director June 1, 1999
- -------------------------
James R. McAuliffe* Director June 1, 1999
- -------------------------
Robert P. Restrepo, Jr.* Director June 1, 1999
- -------------------------
Eric A. Simonsen* Director and Vice President June 1, 1999
- -------------------------
Phillip E. Soule* Director June 1, 1999
- -------------------------
*Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated April 1, 1999 duly executed
by such persons.
/s/ Sheila B. St. Hilaire
- ---------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
<PAGE>
EXHIBIT TABLE
Exhibit 3(d) IVA Commission Schedule
Exhibit 4 Draft Contract Form A3029-99
Exhibit 5 Application Form 10999
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
<PAGE>
COMMISSIONS:
3 Options that include an upfront payment based on the single
premium and a renewal paid quarterly based on monthly payments
at an annual rate shown below:
Option: Upfront: Renewal:
B 4.25% 9.0% (0.75% monthly rate)
C 3.00% 24.00% (2% monthly rate)
D 1.00% 48.00% (4% monthly rate)
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the
Variable Income Options may increase or decrease and are not guaranteed as to
fixed dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it (the
"Free Look Period"). It can be mailed or delivered either to us or the
representative who sold it. If you return the contract, we will pay to you
the Contract Value on the date the contract is returned to us plus any
premium tax deducted on the Issue Date. This amount may be more or less than
the Single Purchase Payment.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications
page. The Net Payment may be allocated to the Fixed Income Option or the
Variable Income Option or a combination of both. If you select the Variable
Income Option, you can allocate the Net Payment among the Variable
Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an Annuitant Dies prior to
Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS ........................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION ................................ 5
DEFINITIONS .............................................................. 6
OWNER, ANNUITANT AND BENEFICIARY ......................................... 8
ANNUITY BENEFIT .......................................................... 10
OVERVIEW ..................................................... 10
VARIABLE INCOME OPTIONS ...................................... 11
WITHDRAWALS ................................................. 14
DEATH OF OWNER OR ANNUITANT ............................................... 17
BEFORE THE ANNUITY INCOME DATE .............................. 17
AFTER THE ANNUITY INCOME DATE ................................ 17
GENERAL PROVISIONS ....................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the
Variable Income Options may increase or decrease and are not guaranteed as to
fixed dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it. It
can be mailed or delivered either to us or the representative who sold it. If
you return the contract within 10 days after you have received it ("the Free
Look Period"), we will refund the Single Purchase Payment less the total
amount of all annuity payments made or withdrawals taken. If you return the
contract after the expiration of the "Free Look Period" but within 90 days
after the Issue Date, we will pay to you the Contract Value on the date the
contract is returned to us plus any premium tax deducted on the Issue Date.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications
page. The Net Payment may be allocated to the Fixed Income Option or the
Variable Income Option or a combination of both. If you select the Variable
Income Option, you can allocate the Net Payment among the Variable
Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an Annuitant Dies prior to
Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.4-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS .................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION ......................... 5
DEFINITIONS ........................................................ 6
OWNER, ANNUITANT AND BENEFICIARY ................................... 8
ANNUITY BENEFIT .................................................... 10
OVERVIEW .............................................. 10
VARIABLE INCOME OPTIONS ................................ 11
WITHDRAWALS ............................................ 14
DEATH OF OWNER OR ANNUITANT ......................................... 17
BEFORE THE ANNUITY INCOME DATE ......................... 17
AFTER THE ANNUITY INCOME DATE .......................... 17
GENERAL PROVISIONS .................................................. 18
FORM A3029-99 2
<PAGE>
SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C>
ContractType:Non-qualified Single Purchase Payment Amount:
Contract Number:zz00600000 Net Payment:
Owner:John Doe Owner's Date of Birth: 10/25/1960
Joint Owner:Jack Doe Joint Owner's Date of Birth: 07/12/1960
Annuitant:Mary Doe Annuitant's Date of Birth: 03/19/1945
Joint Annuitant:Michael Doe Joint Annuitant's Date of Birth: 08/20/1954
Annuitant's Sex:Female Payee:Jane Doe
Joint Annuitant's Sex:Male Payee's Address :1 Main St, Anywhere, USA
Primary Beneficiary:Surviving Joint Owner, if any
1st Contingent Beneficiary(ies):Michael Doe
2nd Contingent Beneficiary(ies):Jack Doe
Issue Date:04/01/1999
Annuity Income Date:10/01/1999
Annuity Benefit Option: Joint Life Annuity with a Survivor Benefit Option (See page 5)
Survivor Benefit Percentage: 50%
Frequency of Annuity Payments: Monthly
Mortality Table: Annuity 2000
Percentage under a Fixed Income Option: 30%
Dollar Amount of Fixed Income: $
Percentage under a Variable Income Option: 70%
Assumed Investment Return: 5%
Change Frequency: Monthly
Date of First Change: xx/xx/xxxx
Income Option Rate: 4.5
Optional Feature:
The Ratchet:
Initial Ratchet Amount: $100
Ratchet Maximum Benefit Increase Percentage: 10%
If you had not selected this feature, the Income Option Rate above would have been 5.0.
The Floor:
Floor Amount: $100
If you had not selected this feature, the Income Option Rate above would have been 5.0.
</TABLE>
FORM A8029-99 3
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Owner:John Doe Contract Number:zz00600000
Joint Owner:Jack Doe
Single Purchase Amount:$25,000.00
Payment Withdrawal Amount: 10 times the previous annuity payment.
But not more than the remaining guaranteed payments.
Present Value Withdrawal Amount: 75% of Present Value of remaining guaranteed annuity
payments.
Mortality and Expense Risk Charge: 1.25% on an annual basis of the daily value of the
Sub-Account assets.
Administrative Charge: .20% on an annual basis of the daily value of the
Sub-Account assets.
Variable Allocation of Net Payment on Issue Date:
Sub-Account Name Percentage of Net Payment Number of Units
- ----------------------------------------- --------------------------- ----------------
Select Aggr. Growth
Select Capital Appr.
Select Value Opp.
Select Emerging Markets
Select Int'l Equity
DGPF Int'l Equity Series
Fidelity VIP Overseas
T. Rowe Price Int'l
Select Growth
Select Strategic Growth
Growth Fund
Fidelity VIP Growth
Equity Index Fund
Select Gr. & Inc.
Fidelity VIP Eq. Inc.
Fidelity VIP Asset Mgr
Fidelity VIP High Inc
Investment Grade Income Fund
Government Bond Fund
Allmerica Money Market
</TABLE>
FORM A8029-99 4
<PAGE>
SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C>
ContractType:Non-qualified Joint Annuitant:Michael Doe
Contract Number:zz00600000
Owner:John Doe Annuitant's Sex:Female
Joint Owner:Jack Doe Joint Annuitant's Sex:Male
Annuitant:Mary Doe Primary Beneficiary:Surviving Joint Owner, if any
1st Contingent Beneficiary(ies):Michael Doe
2nd Contingent Beneficiary(ies):Jack Doe Single Purchase Payment Amount:
Net Payment:
Issue Date:04/01/1999
Annuity Income Date:10/01/1999 Owner's Date of Birth:10/25/1960
Joint Owner's Date of Birth:07/12/1960
Annuitant's Date of Birth:03/19/1945
Joint Annuitant's Date of Birth:08/20/1954
Payee:Jane Doe
Payee's Address :1 Main St, Anywhere, USA
Annuity Benefit Option: Joint Life Annuity with a Survivor Benefit Option (See page
5)
Survivor Benefit Percentage: 50%
Frequency of Annuity Payments: Monthly
Mortality Table: Annuity 2000
Percentage under a Fixed Income Option: 30%
Dollar Amount of Fixed Income: $
Percentage under a Variable Income Option: 70%
Assumed Investment Return: 5%
Change Frequency: Monthly
Date of First Change: xx/xx/xxxx
Income Option Rate: 4.5
Optional Feature:
The Ratchet:
Initial Ratchet Amount: $100
Ratchet Maximum Benefit Increase Percentage: 10%
If you had not selected this feature, the Income Option Rate above would have been 5.0.
The Floor:
Floor Amount: $100
If you had not selected this feature, the Income Option Rate above would have been 5.0.
</TABLE>
FORM A8029-99 3
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Owner:John Doe Contract Number:zz00600000
Joint Owner:Jack Doe
Single Purchase Amount:$25,000.00
Payment Withdrawal Amount: 10 times the previous annuity payment.
But not more than the remaining guaranteed payments.
Present Value Withdrawal Amount: 75% of Present Value of remaining guaranteed annuity
payments.
Mortality and Expense Risk Charge: 1.25% on an annual basis of the daily value of the
Sub-Account assets.
Administrative Charge: .20% on an annual basis of the daily value of the
Sub-Account assets.
Variable Allocation of Net Payment on Issue Date:
Sub-Account Name Percentage of Net Payment Number of Units
- -------------------------------------- ------------------------- -----------------
Select Aggr. Growth
Select Capital Appr.
Select Value Opp.
Select Emerging Markets
Select Int'l Equity
DGPF Int'l Equity Series
Fidelity VIP Overseas
T. Rowe Price Int'l
Select Growth
Select Strategic Growth
Growth Fund
Fidelity VIP Growth
Equity Index Fund
Select Gr. & Inc.
Fidelity VIP Eq. Inc.
Fidelity VIP Asset Mgr
Fidelity VIP High Inc
Investment Grade Income Fund
Government Bond Fund
Allmerica Money Market
</TABLE>
FORM A8029-99 4
<PAGE>
SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C>
ContractType:Non-qualified Issue Date:04/01/1999
Contract Number:zz00600000 Annuity Income Date:10/01/1999
Owner:John Doe
Joint Owner:Jack Doe
Annuitant:Mary Doe
Joint Annuitant:Michael Doe
Annuitant's Sex:Female
Joint Annuitant's Sex:Male
Primary Beneficiary:Surviving Joint Owner, if any
1st Contingent Beneficiary(ies):Michael Doe
2nd Contingent Beneficiary(ies):Jack Doe
Single Purchase Payment Amount:
Net Payment:
Owner's Date of Birth:10/25/1960
Joint Owner's Date of Birth:07/12/1960
Annuitant's Date of Birth:03/19/1945
Joint Annuitant's Date of Birth:08/20/1954
Payee:Jane Doe
Payee's Address :1 Main St, Anywhere, USA
Annuity Benefit Option: Joint Life Annuity with a Survivor Benefit Option (See page 5)
Survivor Benefit Percentage: 50%
Frequency of Annuity Payments: Monthly
Mortality Table: Annuity 2000
Percentage under a Fixed Income Option: 30%
Dollar Amount of Fixed Income: $
Percentage under a Variable Income Option: 70%
Assumed Investment Return: 5%
Change Frequency: Monthly
Date of First Change: xx/xx/xxxx
Income Option Rate: 4.5
Optional Feature:
The Ratchet:
Initial Ratchet Amount: $100
Ratchet Maximum Benefit Increase Percentage: 10%
If you had not selected this feature, the Income Option Rate above would have been 5.0.
The Floor:
Floor Amount: $100
If you had not selected this feature, the Income Option Rate above would have been 5.0.
</TABLE>
FORM A8029-99 3
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Owner:John Doe Contract Number:zz00600000
Joint Owner:Jack Doe
Single Purchase Amount:$25,000.00
Payment Withdrawal Amount: 10 times the previous annuity payment.
But not more than the remaining guaranteed payments.
Present Value Withdrawal Amount: 75% of Present Value of remaining guaranteed annuity
payments.
Mortality and Expense Risk Charge: 1.25% on an annual basis of the daily value of the
Sub-Account assets.
Administrative Charge: .20% on an annual basis of the daily value of the
Sub-Account assets.
Variable Allocation of Net Payment on Issue Date:
Sub-Account Name Percentage of Net Payment Number of Units
- --------------------------------- ------------------------- ----------------
Select Aggr. Growth
Select Capital Appr.
Select Value Opp.
Select Emerging Markets
Select Int'l Equity
DGPF Int'l Equity Series
Fidelity VIP Overseas
T. Rowe Price Int'l
Select Growth
Select Strategic Growth
Growth Fund
Fidelity VIP Growth
Equity Index Fund
Select Gr. & Inc.
Fidelity VIP Eq. Inc.
Fidelity VIP Asset Mgr
Fidelity VIP High Inc
Investment Grade Income Fund
Government Bond Fund
Allmerica Money Market
</TABLE>
FORM A8029-99 4
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Payment for a Certain Number of Years:
We will provide annuity payments, beginning on the Annuity
Income Date, for the period of time shown on the
Specifications Page.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Payment for a Certain Number of Years, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, for the period of time shown on the
Specifications Page.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Payment for a Certain Number of Years, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, for the period of time shown on the
Specifications Page.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. If you take a
withdrawal from the contract, the Floor Amount will be reduced in the same
manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant. We may
require satisfactory proof that the Annuitant is alive
before any annuity payment is made.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant. We may
require satisfactory proof that the Annuitant is alive
before any annuity payment is made.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant. We may
require satisfactory proof that the Annuitant is alive
before any annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. If you take a
withdrawal from the contract, the Floor Amount will be reduced in the same
manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants.
Upon the death of an Annuitant, the number of Annuity
Units (for Variable Income Options) and/or the dollar
amount (for Fixed Income Options) of each payment will be
adjusted by the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of
Annuity Units or dollars of each payment paid during the
survivor's life, which may be less than or equal to that
paid when both individuals are living. This percentage is
only applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants.
Upon the death of an Annuitant, the number of Annuity
Units (for Variable Income Options) and/or the dollar
amount (for Fixed Income Options) of each payment will be
adjusted by the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of
Annuity Units or dollars of each payment paid during the
survivor's life, which may be less than or equal to that
paid when both individuals are living. This percentage is
only applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are
alive before any annuity payment is made.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle. Upon the death of the
first Annuitant, the Current Ratchet Amount is adjusted by multiplying it by
the Survivor Benefit Percentage.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants.
Upon the death of an Annuitant, the number of Annuity
Units (for Variable Income Options) and/or the dollar
amount (for Fixed Income Options) of each payment will be
adjusted by the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. Upon the death of the
first Annuitant, the Floor Amount is adjusted by multiplying it by the
Survivor Benefit Percentage. If you take a withdrawal from the contract, the
Floor Amount will be reduced in the same manner that the withdrawal reduces
the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Payment for a Certain Number of Years:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that if, at the Annuitant's death, annuity
payments have been made for less than the number of years
elected, then annuity payments will continue thereafter to
you (or the payee you designate) for the remainder of the
period. We may require satisfactory proof that the
Annuitant is alive before any annuity payment is made.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Payment for a Certain Number of Years, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that if, at the Annuitant's death, annuity
payments have been made for less than the number of years
elected, then annuity payments will continue thereafter to
you (or the payee you designate) for the remainder of the
period. We may require satisfactory proof that the
Annuitant is alive before any annuity payment is made.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Payment for a Certain Number of Years, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that if, at the Annuitant's death, annuity
payments have been made for less than the number of years
elected, then annuity payments will continue thereafter to
you (or the payee you designate) for the remainder of the
period. We may require satisfactory proof that the
Annuitant is alive before any annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. If you take a
withdrawal from the contract, the Floor Amount will be reduced in the same
manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Payment for a Certain Number of
Years:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that if, upon the death of both
Annuitants, annuity payments have been made for less than
the number of years elected, then annuity payments will
continue thereafter to you (or the payee you designate)
for the remainder of the period. Upon the death of an
Annuitant, the number of Annuity Units (for Variable
Income Options) and/or the dollar amount (for Fixed Income
Options) of each payment will be adjusted by the Survivor
Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Payment for a Certain Number of
Years, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that if, upon the death of both
Annuitants, annuity payments have been made for less than
the number of years elected, then annuity payments will
continue thereafter to you (or the payee you designate)
for the remainder of the period. Upon the death of an
Annuitant, the number of Annuity Units (for Variable
Income Options) and/or the dollar amount (for Fixed Income
Options) of each payment will be adjusted by the Survivor
Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made. The Ratchet is an optional feature you have selected
that is applicable only to the Variable Income Option. It guarantees that
annuity payments will never decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle. Upon the death of the
first Annuitant, the Current Ratchet Amount is adjusted by multiplying it by
the Survivor Benefit Percentage.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Payment for a Certain Number
of Years, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that if, upon the death of both
Annuitants, annuity payments have been made for less than
the number of years elected, then annuity payments will
continue thereafter to you (or the payee you designate)
for the remainder of the period. Upon the death of an
Annuitant, the number of Annuity Units (for Variable
Income Options) and/or the dollar amount (for Fixed Income
Options) of each payment will be adjusted by the Survivor
Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. Upon the death of the
first Annuitant, the Floor Amount is adjusted by multiplying it by the
Survivor Benefit Percentage. If you take a withdrawal from the contract, the
Floor Amount will be reduced in the same manner that the withdrawal reduces
the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Cash Back:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that at the Annuitant's death, you (or the payee
you designate) will receive any excess of the Net Payment
applied over the total amount of annuity payments made and
withdrawals taken. We may require satisfactory proof that
the Annuitant is alive before any annuity payment is made.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Cash Back, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that at the Annuitant's death, you (or the payee
you designate) will receive any excess of the Net Payment
applied over the total amount of annuity payments made and
withdrawals taken. We may require satisfactory proof that
the Annuitant is alive before any annuity payment is made.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Cash Back, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that at the Annuitant's death, you (or the payee
you designate) will receive any excess of the Net Payment
applied over the total amount of annuity payments made and
withdrawals taken. We may require satisfactory proof that
the Annuitant is alive before any annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. If you take a
withdrawal from the contract, the Floor Amount will be reduced in the same
manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Cash Back:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that, upon the death of both Annuitants,
you (or the payee you designate) will receive any excess
of the Net Payment applied over the total amount of
annuity payments made and withdrawals taken. Upon the
death of an Annuitant, the number of Annuity Units (for
Variable Income Options) and/or the dollar amount (for
Fixed Income Options) of each payment will be adjusted by
the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Cash Back, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that, upon the death of both Annuitants,
you (or the payee you designate) will receive any excess
of the Net Payment applied over the total amount of
annuity payments made and withdrawals taken. Upon the
death of an Annuitant, the number of Annuity Units (for
Variable Income Options) and/or the dollar amount (for
Fixed Income Options) of each payment will be adjusted by
the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle. Upon the death of the
first Annuitant, the Current Ratchet Amount is adjusted by multiplying it by
the Survivor Benefit Percentage.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Cash Back, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that, upon the death of both Annuitants,
you (or the payee you designate) will receive any excess
of the Net Payment applied over the total amount of
annuity payments made and withdrawals taken. Upon the
death of an Annuitant, the number of Annuity Units (for
Variable Income Options) and/or the dollar amount (for
Fixed Income Options) of each payment will be adjusted by
the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. Upon the death of the
first Annuitant, the Floor Amount is adjusted by multiplying it by the
Survivor Benefit Percentage. If you take a withdrawal from the contract, the
Floor Amount will be reduced in the same manner that the withdrawal reduces
the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
Annuitant The person who must be alive for annuity
payments to be made (unless payments are
guaranteed). Joint Annuitants are permitted
and unless otherwise indicated, any reference
to Annuitant shall include joint Annuitants.
Annuity Income Date The date annuity payments begin. The Annuity
Income Date is shown on the Specifications Page.
Annuity Unit A measure used to calculate annuity payments under
a Variable Income Option.
Beneficiary The person, persons or entity entitled to the Death
Benefit upon the death of the Owner prior to the
Annuity Income Date or remaining annuity payments, if
any, upon the death of the Owner on or after the
Annuity Income Date.
Change Frequency How often changes (due to investment performance) will be
reflected in the dollar value of the variable annuity
payments. For example, if you choose an annual Change
Frequency, the dollar value of variable annuity payments
will remain constant within each one-year period.
Company, we, us or Allmerica Financial Life Insurance and Annuity Company.
our
Contract Value The Present Value of all remaining annuity payments.
Contract Year A one-year period based on the Issue Date or an anniversary
thereof.
Date of First Change The date on which your variable annuity payment will change
in value for the first time.
Effective Valuation Date The Valuation Date on or immediately following the day we
receive the Single Purchase Payment, request for
transfer, withdrawal, or proof of death.
Fund Each separate investment company, investment series or
portfolio eligible for investment by a Sub-Account of the
Variable Account.
General Account All assets of the Company that are not allocated to a
Separate Account.
Net Payment The Single Purchase Payment less any premium tax.
FORM A3029-99 6
<PAGE>
Owner, you or your The person, persons or entity entitled to
exercise the rights and privileges under this contract.
Joint Owners are permitted and unless otherwise indicated,
any reference to you and your shall include joint Owners.
Premium Tax The amount of tax, if any, imposed by a State or other
governmental entity upon our receipt of the Single Purchase
Payment.
Pro Rata The way a withdrawal is deducted from the accounts.
To determine how the withdrawal is made, assume an annuity
payment is made on the date of the withdrawal. Compare the
value of the payment from each account to the total
annuity payment. The withdrawal from each account will be
made in the same proportion.
Request A request or notice made by you, in a manner consistent with
our current procedures, which is received by us.
Separate Account A segregated account established by us. The assets in
a Separate Account are not commingled with our general
assets and obligations and are not subject to claims arising
out of any other business we may conduct.
State The state or jurisdiction in which this contract is issued.
Sub-Account A Variable Account subdivision that corresponding Fund.
Valuation Date A day the values of all units are determined. Valuation
Dates occur on each day the New York Stock Exchange is
open for trading.
Valuation Period The period of time between two consecutive Valuation Dates.
Variable Account The Company's Separate Account, consisting of Sub-Accounts
that invest in the underlying Funds.
FORM A3029-99 7
<PAGE>
OWNER, ANNUITANT AND BENEFICIARY
Owner The Owner is shown on the Specifications Page. Upon the death
of an Owner prior to the Annuity Income Date, a Death
Benefit is paid.
You may exercise all rights and options granted in this contract
or by us, subject to the consent of any irrevocable Beneficiary
(where applicable). Where there are joint Owners, the consent of
both is required in order to exercise any ownership rights.
Assignment You may not assign this contract.
Annuitant The Annuitant is as shown on the Specifications Page. Upon the death of
an Annuitant prior to the Annuity Income Date, a Death Benefit is paid.
Beneficiary The Beneficiary is as shown on the Specifications Page unless subsequently
changed. You may declare any Beneficiary to be revocable or
irrevocable. A revocable Beneficiary may be changed at any time (a)
before the Annuity Income Date and before the death of an Owner or
Annuitant; or (b) after the Annuity Income Date and before the death of
the Annuitant. An irrevocable Beneficiary must consent in writing to any
change of beneficiary. Unless otherwise indicated, the Beneficiary will
be revocable.
A Beneficiary change must be made by Request. When we receive the Request,
the change will take place as of the date it was signed, even if an Owner or
an Annuitant dies after the form is signed but prior to our receipt of the
Request. Any rights created by the change will be subject to payments we
made or actions taken before the change was recorded.
All benefits payable to the Beneficiary under this contract will be divided
equally among the surviving Beneficiaries of the same class (see
your Specifications Page), unless you direct otherwise. If there is no
surviving Beneficiary in a particular class, then the benefit is divided
equally among the surviving Beneficiaries of the next class. If
there is no surviving Beneficiary, the deceased Beneficiary's interest will
pass to you or your estate. If your contract has Joint Owners, and one Owner
dies, the surviving joint Owner is the primary Beneficiary. This is confirmed
on the Specifications page.
FORM A3029-99 8
<PAGE>
Once entitled to benefits under this contract, the Beneficiary may transfer
or commute the annuity payments or any values provided as long as he or she has
been given that right by you.
Protection of Proceeds To the extent allowed by law, this contract and any payments made
under it will be exempt from the claims of creditors.
FORM A3029-99 9
<PAGE>
ANNUITY BENEFIT
OVERVIEW
Single Purchase The Single Purchase Payment is shown on the Specifications Page. No
Payment additional payments may be made.
Net Payment The Net Payment is equal to the Single Purchase Payment reduced by any
applicable Premium Tax. The Net Payment is allocated as shown on the
Specifications Page.
Income Options The Income Option you selected is shown on the Specifications Page. Income
Options may be Fixed, Variable or combination Fixed and Variable.
The Fixed Income Option provides a guaranteed amount of income. The Fixed
Income Option is funded through the General Account.
The Variable Income Option provides income which will vary over time. The
investment performance of the selected Sub-Accounts causes changes in Annuity
Unit Values, which result in fluctuating payments.
A combination Fixed and Variable Income Option provides a portion of income that
is guaranteed in amount and a portion that will vary in amount.
Any portion of your Net Payment allocated to the Fixed Income Option
will always remain allocated to the Fixed Income Option. Similarly, any
portion of your Net Payment allocated to the Variable Income Option will always
remain allocated to the Variable Income Option, but you can reallocate this
variable portion of your contract among the various Sub-Accounts. See the
"Transfers" provision for additional information.
Payment of Annuity Annuity Payments are paid to you. By Request you may direct that
Payments payments be made to another person, persons or entity.
FORM A3029-99 10
<PAGE>
VARIABLE INCOME OPTIONS
Assumed Investment The Assumed Investment Return ("AIR") is used to calculate the initial variable
Return annuity payment and to determine how the payment will change over time in
response to the investment performance of the selected Sub-Accounts. If the
actual performance of any selected Sub-Account (as measured by the Net
Investment Factor) is equal to the AIR, the annuity payment attributable to that
Sub-Account will be constant. If the actual performance is greater than the
AIR, the annuity payment will increase. If the actual performance is less than
the AIR, the annuity payment will decrease.
Net Investment Factor The Net Investment Factor 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 (which may be positive or
negative) 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 the Mortality and Expense Risk Charge
applicable to the current Valuation
Period (see Specifications Page)
plus any adjustment for an optional feature;
and
(d) is the Administrative Charge applicable to
the current Valuation Period (see Specifications Page).
We guarantee that the amount of each variable annuity payment will not be
affected by changes in our mortality and expense experience. We assume the risk
that actual mortality experience and expenses may exceed the amounts provided
under the contract. We guarantee that the mortality and expense risk and the
administrative charges will not be increased. Subject to applicable State
and federal laws, these charges may be decreased or the method used to
determine the Net Investment Factor may be changed.
FORM A3029-99 11
<PAGE>
Annuity Unit Values A Sub-Account Annuity Unit Value on any Valuation Date is equal to
its value on the preceding Valuation Date multiplied by the product of:
(a) a discount factor equivalent to the Assumed Investment
Return and
(b) the Net Investment Factor of the
Sub-Account for the applicable Valuation
Period.
The value of an Annuity Unit as of any
date other than a Valuation Date is
equal to its value as of the preceding
Valuation Date.
Determination of the We have annuity option rates that determine the dollar amount of the first
Number of Annuity periodic payment under each Variable Income Option for each $1,000 of Net
Units Payment. We calculate this amount assuming there is no change in the Annuity
Unit Value. We then divide the amount of the first annuity payment attributable
to a particular Sub-Account by the Annuity Unit Value of that Sub-Account
to determine the number of Annuity Units. This number of Annuity Units
remains fixed under all annuity benefit options except the Joint Life Annuity
with a Survivor Benefit Options that reduce the number of Annuity Units upon
the first death. However, the number of variable annuity units under any Annuity
Benefit Option could change if transfers or withdrawals are made.
Dollar Amount of First The dollar amount of the first variable annuity payment will equal the number of
Variable Annuity Payment Annuity Units of each Sub-Account multiplied by the value of
an Annuity Unit of that Sub-Account on the applicable Valuation Date. The
benefit of any optional feature will be taken into account.
Dollar Amount of Subsequent The dollar amount of each subsequent variable annuity payment will vary
Variable Annuity Payments with the Annuity Unit Value of the selected Sub-Account(s) on certain dates.
The dollar amount of variable annuity payments remains level until the Date of
First Change and within each Change Frequency cycle. On the Date of First
Change and as of the start of each Change Frequency cycle the dollar amount
of the variable annuity payment is determined by multiplying the number of
Annuity Units of each Sub-Account by the Annuity Unit Value of that Sub-Account
on the applicable Valuation Date. The benefit of any optional feature will be
taken into account.
FORM A3029-99 12
<PAGE>
Transfers You may make transfers among the Sub-Accounts by Request to us. Transfers
may be made (a) before the Annuity Income Date and before the death of an
Owner or an Annuitant; or (b) after the Annuity Income Date as long as annuity
payments are payable under the Annuity Benefit Option selected.
Transfers may increase or decrease the number of Annuity Units in each
subsequent payment.
There is no charge for the first twelve transfers per Contract Year. A transfer
charge of up to $25 may be imposed on each additional transfer.
We reserve the right to establish and impose reasonable rules restricting
transfers. All transfers are subject to our consent.
FORM A3029-99 13
<PAGE>
WITHDRAWALS
You have the right, based on the Annuity Benefit Option selected, to make
withdrawals. Withdrawals may be made (a) before the Annuity Income Date and
before the death of an Owner or an Annuitant; or (b) after the Annuity
Income Date and as long as annuity payments are payable under the Annuity
Benefit Option selected. If the Death Benefit is applied under an Annuity
Benefit Option, withdrawals may also be made in accordance with this provision.
Amounts withdrawn that were applied under a Variable Income Option will be
paid within 7 days of the date we receive your Request. We reserve the
right to delay payments subject to applicable laws, rules and regulations
governing variable annuities.
Amounts withdrawn that were applied under a Fixed Income Option will
normally be paid within 7 days of the date we receive your Request. We may
defer payment for up to six months from the receipt date. If deferred for 30
days or more, the amount payable will be credited interest at a rate of at least
3% or the appropriate rate mandated by the State.
Your Request must indicate the dollar amount to be paid and we will withdraw
that amount on a Pro-Rata basis.
One Request for withdrawal under a provision(s) may be made each calendar
year:
Payment Withdrawal Each calendar year, you can request a withdrawal up to an amount equal to:
Amount Option
(a) the Payment Withdrawal Amount (see
Specifications Page) multiplied by the value
of an annuity payment, if one were to be paid,
on the date we receive your Request (if the
withdrawal is taken prior to the Annuity
Income Date), or
(b) the Payment Withdrawal Amount (see
Specifications Page) multiplied by the
previous annuity payment (if the
withdrawal is taken after the Annuity
Income Date).
Each withdrawal proportionately reduces the number of Annuity Units (for
Variable Income Options) and/or the dollar amount (for Fixed Income Options)
of each future annuity payment. The proportionate reduction is calculated by
multiplying the number of Annuity Units or the dollar amount (whichever is
applicable) of each future annuity payment by the following:
FORM A3029-99 14
<PAGE>
Amount of the variable or fixed withdrawal
--------------------------------------------
Present Value of all remaining variable or fixed annuity
payments immediately prior to the withdrawal
Present Value Over the life of the contract when there are remaining guaranteed annuity
Withdrawal Option payments, you may request withdrawals which represent a percentage of the
Present Value of those remaining guaranteed payments.
Each withdrawal proportionately reduces any remaining guaranteed payments (for
Variable Income Options) and/or the dollar amount of each future annuity
payment (for Fixed Income Options). The proportionate reduction is calculated by
multiplying the number of Annuity Units or the dollar amount (whichever is
applicable) of each future annuity payment by the following:
Amount of the variable or fixed withdrawal
------------------------------------------
Present Value of all remaining variable or fixed guaranteed annuity
payments immediately prior to the withdrawal
Whenever a withdrawal is taken under this provision, we record the percentage
withdrawn. (See proportionate reduction calculation above.) The total percentage
withdrawn over the life of the contract cannot exceed the Present Value
Withdrawal Amount (see Specifications Page).
If an Annuitant is still living after the guaranteed payments have been paid,
the number of Annuity Units (for Variable Income Options) or dollars (for
Fixed Income Options) will increase to the number of Annuity Units/dollars
payable prior to any Present Value Withdrawals, adjusted upon the death of
the first Annuitant, if applicable, or for transfers, or for any withdrawals
taken under the Payment Withdrawal Amount Option.
FORM A3029-99 15
<PAGE>
Present Value For a variety of purposes, it is at times necessary to determine the Present
Value of either all future annuity payments or of future guaranteed
annuity payments. Present Values are calculated based on the Mortality
Table used by us to determine your benefit (see Specifications Page),
male, female or unisex rates as appropriate, and the interest rate (for
Fixed Income Options) or AIR (for Variable Income Options) used to
determine the annuity payments increased by the following adjustments:
Adjustment
Death of Annuitant 0.00%
Withdrawals
5 or more years after Issue Date 0.00%
Within 5 years of Issue Date:
15 or more years of annuity payments being valued 1.00%
10-14 years of payments being valued 1.50%
Less than 10 years of payments being valued 2.00%
Determination of Contract Value* 0.00%
* If an optional feature, was selected, annuity payments used in determining
this Present Value will be the amount that would have been payable had you not
selected the optional feature.
FORM A3029-99 16
<PAGE>
DEATH OF OWNER OR ANNUITANT
BEFORE THE ANNUITY INCOME DATE
Death Benefit If an Owner or an Annuitant dies, we will pay a Death Benefit equal
to the Contract Value. The Contract Value will be determined as of the
Effective Valuation Date.
The Death Benefit will be paid to the Owner of the contract. If there is no
Owner or Joint Owner, we will pay the Death Benefit to the Beneficiary.
Payment of the Death Unless You have specified otherwise, the Death Benefit will be paid within 7
days of the Effective Valuation Date. Alternatively, the person entitled
to the Death Benefit may, by Request, elect to receive an annuity over
his or her life expectancy (or over a period not extending beyond such
life expectancy), with distributions beginning within one year from the
date of death.
If the sole Beneficiary is the deceased Owner's spouse, the Beneficiary may
elect to continue the contract as the Owner and Annuitant. As of the date of
such election, annuity payments will be adjusted to reflect any change of
Annuitant and Annuity Income Date. The new Annuity Income Date must be within
twelve months of the Issue Date (see the Specifications Page). Any subsequent
spouse of the new Owner, if named as the Beneficiary, may not continue this
contract.
AFTER THE ANNUITY INCOME DATE
Remaining Annuity If the Owner or the Annuitant dies, we will pay remaining annuity payments, if any,
Payments in accordance with the terms of the Annuity Benefit Option selected.
Any remaining annuity payments will be paid to the Owner of the contract. If
there is no Owner or Joint Owner, then the Beneficiary will receive the
payments and become the Owner of the contract.
Lump Sum Option The Beneficiary may elect to receive the Present Value of any
remaining payments in one lump sum.
FORM A3029-99 17
</TABLE>
<PAGE>
GENERAL PROVISIONS
<TABLE>
<S> <C>
Entire Contract The entire contract consists of this contract, any application attached
at issue, Specifications page and endorsements.
Misstatement of Age If the age or sex of an individual is misstated, we will adjust all benefits
Or Sex payable to that which would be available at the correct age or sex. Any
underpayments already made by us will be paid immediately. Any overpayments will
be deducted from future annuity payments.
Failure to Notify Company After the Annuity Income Date and once notified of the Annuitant's death,
of Annuitant Death we reserve the right to recover any overpaid annuity payments.
Modifications Only the President or Vice President of the Company may modify or waive any
provisions of this contract. Agents or Brokers are not authorized to do so.
Incontestability We will not contest this contract.
Minimums All values and benefits available under this contract equal or exceed those
required by the State in which the contract is delivered.
Annual Report We will send you an annual report of the Sub-Accounts and any other
notices, reports or documents required by law to be delivered to you.
Addition, Deletion, or We reserve the right, subject to compliance with applicable law, to add to,
Substitution of delete from, or substitute for the shares of a Fund that are held by the
Investments Sub-Accounts or that the Sub-Accounts may purchase. We also reserve the right
to eliminate the shares of any Fund no longer available for investment or if we
believe further investment in the Fund is no longer appropriate for the
purposes of the Sub-Accounts.
We will not substitute shares attributable to any interest in a Sub-Account without
notice to you and prior approval of the Securities and Exchange Commission as
required by the Investment Company Act of 1940. This will not prevent the Variable
Account from purchasing other securities for other series or classes of contracts, or
from permitting a conversion between series or classes of contracts on the basis of
requests made by you.
</TABLE>
FORM A3029-99 18
<PAGE>
<TABLE>
<S> <C>
We reserve the right, subject to compliance with applicable laws, to establish
additional Separate Accounts and Sub-Accounts and to make them available to any
class or series of contracts as we consider appropriate. Each new Separate Account
or Sub-Account will invest in a new investment company, or in shares of another
open-end investment company, or such other investments as may be permitted under
applicable law. We also reserve the right to eliminate or combine existing
Sub-Accounts and to transfer the assets of any Sub-Accounts to any other Sub-Accounts.
In the event of any substitution or change, we may, by appropriate notice, make such
changes in this and other contracts as may be necessary or appropriate to reflect the
substitution or change. If we consider it to be in the best interests of the owners,
the Variable Account or any Sub-Account may be operated as a management company under
the Investment Company Act of 1940 or in any other form permitted by law, or may be
deregistered under the Act in the event registration is no longer required, or may be
combined with our other accounts.
Changes in Law We reserve the right to make any changes to provisions of the contract to comply with,
or give you the benefit of, any federal or State statute, rule, or regulation.
Change of Name Subject to compliance with applicable law, We reserve the right to change the names of
the Variable Account or the Sub-Accounts.
Federal Tax The Variable Account is not currently subject to tax, but we reserve the right to
Considerations assess a charge for taxes if the Variable Account becomes subject to tax.
Splitting of Units We reserve the right to split the value of a unit, either to increase or decrease
the number of units. Any splitting of units will have no material effect on the
benefits, provisions or investment return of this contract or upon you, the Annuitant,
any Beneficiary, or us.
Insulation of Separate The investment performance of Separate Account assets is determined separately from
Account our other assets. The assets of a Separate Account equal to the reserves and
liabilities of the contracts supported by the account will not be charged with
liabilities from any other business that we may conduct.
</TABLE>
FORM A3029-99 19
<PAGE>
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029-99
PLEASE READ THIS CONTRACT CAREFULLY
IMPORTANT: THE INITIAL INTEREST RATE, ALTHOUGH GUARANTEED TO BE A MINIMUM, IS
GUARANTEED ONLY FOR A LIMITED PERIOD OF TIME.
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it (the
"Free Look Period"). It can be mailed or delivered either to us or the
representative who sold it. If you return the contract, we will pay to you the
Contract Value on the date the contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.FL-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
Annuities are not FDIC insured. Annuities are not obligations of the financial
institution. The financial institution does not guarantee performance by the
insurer issuing the annuity.
FORM A3029.FL-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
IMPORTANT: THE INITIAL INTEREST RATE, ALTHOUGH GUARANTEED TO BE A MINIMUM, IS
GUARANTEED ONLY FOR A LIMITED PERIOD OF TIME.
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it. It can
be mailed or delivered either to us or the representative who sold it. If you
return the contract within 10 days after you have received it ("the Free Look
Period"), we will refund the Single Purchase Payment less the total amount of
all annuity payments made or withdrawals taken. If you return the contract after
the expiration of the "Free Look Period" but within 90 days after the Issue
Date, we will pay to you the Contract Value on the date the contract is returned
to us plus any premium tax deducted on the Issue Date.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.FL-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
Annuities are not FDIC insured. Annuities are not obligations of the financial
institution. The financial institution does not guarantee performance by the
insurer issuing the annuity.
FORM A3029.FL-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it (the
"Free Look Period"). It can be mailed or delivered either to us or the
representative who sold it. If you return the contract, we will pay to you the
Contract Value on the date the contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.FL-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
Annuities are not FDIC insured. Annuities are not obligations of the financial
institution. The financial institution does not guarantee performance by the
insurer issuing the annuity.
FORM A3029.FL-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it. It can
be mailed or delivered either to us or the representative who sold it. If you
return the contract within 10 days after you have received it ("the Free Look
Period"), we will refund the Single Purchase Payment less the total amount of
all annuity payments made or withdrawals taken. If you return the contract after
the expiration of the "Free Look Period" but within 90 days after the Issue
Date, we will pay to you the Contract Value on the date the contract is returned
to us plus any premium tax deducted on the Issue Date.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.FL-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
Annuities are not FDIC insured. Annuities are not obligations of the financial
institution. The financial institution does not guarantee performance by the
insurer issuing the annuity.
FORM A3029.FL-99 2
<PAGE>
SPECIFICATIONS
<TABLE>
<S> <C>
Contract Type: Non-qualified Single Purchase Payment Amount:
Contract Number: zz00600000 Net Payment:
Owner: John Doe Owner's Date of Birth: 10/25/1960
Joint Owner: Jack Doe Joint Owner's Date of Birth: 07/12/1960
Annuitant: Mary Doe Annuitant's Date of Birth: 03/19/1945
Joint Annuitant: Michael Doe Joint Annuitant's Date of Birth: 08/20/1954
Annuitant's Sex: Female Payee: Jane Doe
Joint Annuitant's Sex: Male Payee's Address: 1 Main St, Anywhere, USA
Primary Beneficiary: Surviving Joint Owner, if any
1st Contingent Beneficiary(ies): Michael Doe
2nd Contingent Beneficiary(ies): Jack Doe
Issue Date: 04/01/1999
Annuity Income Date: 10/01/1999
Annuity Benefit Option: Joint Life Annuity with a Survivor Benefit Option (See page 5)
Survivor Benefit Percentage: 50%
Frequency of Annuity Payments: Monthly
Mortality Table: Annuity 2000
Percentage under a Fixed Income Option: 30%
Dollar Amount of Fixed Income: $
Percentage under a Variable Income Option: 70%
Assumed Investment Return: 5%
Change Frequency: Monthly
Date of First Change: xx/xx/xxxx
Income Option Rate: 4.5
Optional Feature:
The Ratchet:
Initial Ratchet Amount: $100
Ratchet Maximum Benefit Increase Percentage: 10%
If you had not selected this feature, the Income Option Rate above would have been 5.0.
The Floor:
Floor Amount: $100
If you had not selected this feature, the Income Option Rate above would have been 5.0.
</TABLE>
FORM A8029-99 3
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<S> <C>
Owner: John Doe Contract Number: zz00600000
Joint Owner: Jack Doe
Single Purchase Amount: $25,000.00
Payment Withdrawal Amount: 10 times the previous annuity payment.
But not more than the remaining guaranteed payments.
Present Value Withdrawal Amount: 75% of Present Value of remaining guaranteed annuity payments.
Mortality and Expense Risk Charge: 1.25% on an annual basis of the daily value of the Sub-Account assets.
Administrative Charge: .20% on an annual basis of the daily value of the Sub-Account assets.
Variable Allocation of Net Payment on Issue Date:
Sub-Account Name Percentage of Net Payment Number of Units
- ---------------- ------------------------- ---------------
Select Aggr. Growth
Select Capital Appr.
Select Value Opp.
Select Emerging Markets
Select Int'l Equity
DGPF Int'l Equity Series
Fidelity VIP Overseas
T. Rowe Price Int'l
Select Growth
Select Strategic Growth
Growth Fund
Fidelity VIP Growth
Equity Index Fund
Select Gr. & Inc.
Fidelity VIP Eq. Inc.
Fidelity VIP Asset Mgr
Fidelity VIP High Inc
Investment Grade Income Fund
Government Bond Fund
Allmerica Money Market
</TABLE>
FORM A8029-99 4
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of its
authorized representatives within twenty days after receipt. If returned, the
Company will refund gross payments.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS.............................................................. 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION.................................. 5
DEFINITIONS................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................ 8
ANNUITY BENEFIT............................................................. 10
OVERVIEW....................................................... 10
VARIABLE INCOME OPTIONS........................................ 11
WITHDRAWALS.................................................... 14
DEATH OF OWNER OR ANNUITANT................................................. 17
BEFORE THE ANNUITY INCOME DATE................................. 17
AFTER THE ANNUITY INCOME DATE.................................. 17
GENERAL PROVISIONS.......................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of its
authorized representatives within twenty days after receipt. If returned, the
Company will refund gross payments.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.4-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it (the
"Free Look Period"). It can be mailed or delivered either to us or the
representative who sold it. If you return the contract, we will pay to you the
Contract Value on the date the contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029-99-GRC
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it. It can
be mailed or delivered either to us or the representative who sold it. If you
return the contract within 10 days after you have received it ("the Free Look
Period"), we will refund the Single Purchase Payment less the total amount of
all annuity payments made or withdrawals taken. If you return the contract after
the expiration of the "Free Look Period" but within 90 days after the Issue
Date, we will pay to you the Contract Value on the date the contract is returned
to us plus any premium tax deducted on the Issue Date.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029-99-GRC
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it (the
"Free Look Period"). It can be mailed or delivered either to us or the
representative who sold it. If you return the contract, we will pay to you the
Contract Value on the date the contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
If the refund is not paid within thirty days from the date the contract is
received by the Company or its authorized representative, the amount will be
increased by ten percent (10%).
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.WA-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it. It can
be mailed or delivered either to us or the representative who sold it. If you
return the contract within 10 days after you have received it ("the Free Look
Period"), we will refund the Single Purchase Payment less the total amount of
all annuity payments made or withdrawals taken. If you return the contract after
the expiration of the "Free Look Period" but within 90 days after the Issue
Date, we will pay to you the Contract Value on the date the contract is returned
to us plus any premium tax deducted on the Issue Date.
If the refund is not paid within thirty days from the date the contract is
received by the Company or its authorized representative, the amount will be
increased by ten percent (10%).
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.WA-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
FORM A3029-99 2
<PAGE>
IMMEDIATE ADVANTAGE ALLMERICA FINANCIAL LIFE INSURANCE
VARIABLE ANNUITY APPLICATION AND ANNUITY COMPANY
"ALLMERICA FINANCIAL"
440 LINCOLN STREET, WORCESTER, MA 01653
<TABLE>
<CAPTION>
<S> <C>
PLEASE PRINT CLEARLY
- -----------------------------------------------------------------------------
1. OWNER
- -----------------------------------------------------------------------------
Name
-----------------------------------------------------------------------
First MI Last
Address
----------------------------------------------------------------------
City State Zip
---------------------------------- --------- ----------------
Social Security/Tax ID# / /Male / /Female
------------------------------
Daytime Phone ( ) Date of Birth/Trust / /
--------------------- --------------------
- -----------------------------------------------------------------------------
JOINT OWNER
- -----------------------------------------------------------------------------
Name
-----------------------------------------------------------------------
First MI Last
Address
----------------------------------------------------------------------
City State Zip
---------------------------------- --------- ----------------
Social Security/Tax ID# / /Male / /Female
------------------------------
Daytime Phone ( ) Date of Birth/Trust / /
--------------------- --------------------
- -----------------------------------------------------------------------------
2. ANNUITANT*
- -----------------------------------------------------------------------------
Name
------------------------------------------------------------------------
First MI Last
Social Security # / / Male / /Female
-------------------------------
Date of Birth / /
----------------------------------
- -----------------------------------------------------------------------------
JOINT ANNUITANT*
- -----------------------------------------------------------------------------
Name
------------------------------------------------------------------------
First MI Last
Social Security # / / Male / /Female
-------------------------------
Date of Birth / /
----------------------------------
*Birth Certificate for Annuitant and Joint Annuitant is required.
- ----------------------------------------------------------------------------------------------------------------
3. BENEFICIARY PRIMARY BENEFICIARY IS ALWAYS THE SURVIVING JOINT OWNER, IF ANY
- ----------------------------------------------------------------------------------------------------------------
1st Contingent(s) Relationship to Owner 2nd Contingent(s) Relationship to Owner
- ------------------------------------------------------- --------------------------------------------------
Relationship to Owner Relationship to Owner
- ----------------------------------------------------------------------------------------------------------------
4. SINGLE PURCHASE PAYMENT MINIMUM $75,000
- ----------------------------------------------------------------------------------------------------------------
Single Purchase Payment $ (Make check payable to Allmerica Financial)
---------------------------------------------
If multiple checks are received separate contracts may be issued.
- ----------------------------------------------------------------------------------------------------------------
5. TYPE OF PLAN TO BE ISSUED
- ----------------------------------------------------------------------------------------------------------------
/ /Non Qualified / /IRA If IRA, Roth IRA or SEP-IRA this payment is a:
/ /401(a)* / /Roth IRA* / /Rollover / /Trustee to Trustee Transfer
/ /401(k)* / /SEP-IRA* / /Conversion
/ /403(b) TSA* / /457*
*Attach required forms Existing Case #________________________
- ----------------------------------------------------------------------------------------------------------------
6. REPLACEMENT
- ----------------------------------------------------------------------------------------------------------------
Will the proposed contract replace or change an existing annuity or life insurance policy? / /No / /Yes*
*Attach required forms
If yes, list company name(s) and policy number(s).
- ----------------------------------------------------------------------------------------------------------------
7. SINGLE PURCHASE PAYMENT ALLOCATION
- ----------------------------------------------------------------------------------------------------------------
TOTAL FIXED AND VARIABLE MUST EQUAL 100%
How much of your purchase payment would you like allocated to the Fixed Income Option? ______________%
How would you like the remainder allocated under the Variable Income Option?
_________% Select Aggressive Growth _________% Select Strategic Growth
_________% Select Capital Appreciation _________% Allmerica Growth
_________% Select Value Opportunity _________% Allmerica Equity Index
_________% Select Emerging Markets _________% Fidelity VIP Equity-Income
_________% T. Rowe Price International _________% Select Growth & Income
_________% Fidelity VIP Overseas _________% Fidelity VIP II Asset Manager
_________% Select International Equity _________% Fidelity VIP High Income
_________% Delaware International Equity _________% Allmerica Investment Grade Income
_________% Fidelity VIP Growth _________% Allmerica Government Bond
_________% Select Growth _________% Allmerica Money Market
<PAGE>
- ----------------------------------------------------------------------------------------------------------------
8. ANNUITY BENEFIT OPTION
- ----------------------------------------------------------------------------------------------------------------
1. / /Payment for Certain Number of Years: _______________ years (5 - 30)
2. / /Life Annuity
/ /Single Life / /Joint Lives with Survivor Benefit of: / /100% / /66 2/3% / /50%
Payment Guarantee: / /None / /Certain Number of Years: _______________ years (5 - 30) / /Cash Back
3. If Variable Income Option is selected in Section 7 you must choose:
Assumed Investment Return: / /3% / /5% / /7%
Optional Features: / /None / /Floor / /Ratchet
- ----------------------------------------------------------------------------------------------------------------
9. PAYEE
- ----------------------------------------------------------------------------------------------------------------
If annuity payment is to be made to someone other than Owner(s), indicate name and address below.
- ----------------------------------------------------------------------------------------------------------------
NOTE: Tax liabilities are the responsibility of the Owner(s).
- ----------------------------------------------------------------------------------------------------------------
10. ANNUITY INCOME DATE
- ----------------------------------------------------------------------------------------------------------------
A. Date of first payment (must be between 30 days and 12 months from issue date) _____ /_____ /_____
(the day must be the 1st through 28th only) month day year
B. If Variable Income Option is selected in Section 7:
1. How frequently would you like the amount of your annuity payment to change?
/ /Monthly / /Quarterly / /Semiannually / /Annually
2. The amount of your annuity payment will change for the first time one cycle after the date of first payment.
If you would like it to change sooner please indicate the month. ____________________
- ----------------------------------------------------------------------------------------------------------------
11. AUTOMATIC ACCOUNT REBALANCING (AAR)
- ----------------------------------------------------------------------------------------------------------------
I/We elect Automatic Account Rebalancing of the Variable allocation selected in Section 7 every:
/ /1 / /2 / /3 / /6 / /12 Months
- ----------------------------------------------------------------------------------------------------------------
12. TELEPHONE AUTHORIZATION
- ----------------------------------------------------------------------------------------------------------------
I/We authorize and direct Allmerica Financial to accept telephone instructions from any person who can furnish
proper identification to effect transfers and obtain values. Neither Allmerica Financial nor its affiliates and
their collective directors, officers, employees and agents will be responsible for any claim arising from such
action if Allmerica Financial acted on instructions in good faith in reliance on this authorization.
/ / I/We DO NOT authorize this telephone privilege.
- ----------------------------------------------------------------------------------------------------------------
13. REMARKS
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
14. SIGNATURES
- ----------------------------------------------------------------------------------------------------------------
I/We represent to the best of my/our knowledge and belief that the statements made in this application are true
and complete. I/We agree to all terms and conditions as shown on this application. It is indicated and agreed
that the only statements which are to be construed as the basis of the contract are those contained in this
application. I/We acknowledge receipt of a current prospectus describing the contract applied for. If IRA,
Roth IRA, or SEP-IRA application, I/we received a Disclosure Buyer's Guide. I/WE UNDERSTAND THAT ALL ANNUITY
PAYMENTS BASED ON THE VARIABLE INCOME OPTION MAY FLUCTUATE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNTS.
- ----------------------------------------------------------------------------------------------------------------
Signature of Owner Date Signature of Joint Owner Date
- ----------------------------------------------------------------------------------------------------------------
Signed at City and State
- ----------------------------------------------------------------------------------------------------------------
15. REGISTERED REPRESENTATIVE INFORMATION
- ----------------------------------------------------------------------------------------------------------------
Does the contract applied for replace an existing annuity or life insurance policy? / /Yes / /No
If yes, attach replacement forms as required.
I CERTIFY THAT (1) THE INFORMATION PROVIDED BY THE OWNER(S) HAS BEEN ACCURATELY RECORDED; (2) A CURRENT
PROSPECTUS WAS DELIVERED; (3) NO WRITTEN SALES MATERIAL OTHER THAN THOSE APPROVED BY THE PRINCIPAL OFFICE WERE
USED; AND (4) I HAVE REASONABLE GROUNDS TO BELIEVE THE PURCHASE OF THE CONTRACT APPLIED FOR IS SUITABLE FOR
THE OWNER(S).
Date Signature of Registered Representative % TR Print Full Name Code Agency
- ----------------------------------------------------------------------------------------------------------------
Date Signature of Registered Representative % TR Print Full Name Code Agency
- ----------------------------------------------------------------------------------------------------------------
Date Signature of Registered Representative % TR Print Full Name Code Agency
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
June 1, 1999
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
RE: SEPARATE ACCOUNT VA-K (EXECANNUITY PLUS / ALLMERICA ADVANTAGE)
OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Gentlemen:
In my capacity as Assistant Vice President and Counsel of Allmerica Financial
Life Insurance and Annuity Company (the "Company"), I have participated in
the preparation of this initial Registration Statement for Separate Account
VA-K on Form N-4 under the Securities Act of 1933 and an amendment under 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 variable annuity contracts, when issued in accordance with the
Prospectus contained in the initial 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 this initial
Registration Statement for Separate Account VA-K on Form N-4 filed under the
Securities Act of 1933 and amendment under the Investment Company Act of 1940.
Very truly yours,
/s/ John C. Donlon, Jr.
John C. Donlon, Jr.
Assistant Vice President and Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this initial Registration Statement of Separate Account
VA-K Allmerica Advantage Variable Annuity and ExecAnnuity Plus Variable
Annuity of Allmerica Financial Life Insurance and Annuity Company on Form N-4
of our report dated February 2, 1999, except for paragraph 2 of Note 12,
which is as of March 19, 1999, relating to the financial statements of
Allmerica Financial Life Insurance and Annuity Company, and our report dated
March 26, 1999, relating to the financial statements of Separate Account VA-K
Allmerica Advantage Variable Annuity and ExecAnnuity Plus Variable Annuity 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 29, 1999
