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File Nos. 333-87099
811-6293
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. 1
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36
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)
Mary Eldridge, Secretary
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
("1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("1933 Act").
No filing fee is submitted as a filing fee is not required for this type of
filing. Registrant will file its notice pursuant to Rule 24f-2 for its fiscal
year ending December 31, 1999 on or before March 1, 2000.
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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CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF ITEMS CALLED FOR
BY FORM N-4
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FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
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1...........................Cover Page
2...........................Special Terms
3...........................Summary of Fees and Expenses; Summary of the Contract Features
4...........................Performance Information
5...........................Description of the Companies, the Variable Accounts and the Underlying Funds
6...........................Charges and Deductions
7...........................Description of the Contract - The Accumulation Phase
8...........................Electing the Annuity Date; Description of Annuity Payout Options; Variable Annuity
Benefit Payments
9...........................Death Benefit
10..........................Payments; Computation of Values; Distribution
11..........................Surrender and Withdrawals; Withdrawals after the Annuity Date
12..........................Federal Tax Considerations
13..........................Legal Matters
14..........................Statement of Additional Information - Table of Contents
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
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15..........................Cover Page
16..........................Table of Contents
17..........................General Information and History
18..........................Services
19..........................Underwriters
20..........................Underwriters
21..........................Performance Information
22..........................Annuity Benefit Payments
23..........................Financial Statements
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ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WORCESTER, MASSACHUSETTS
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<C> <S>
This Prospectus provides important information about a
variable annuity contract issued by Allmerica Financial Life
Insurance and Annuity Company (in all jurisdictions except
New York) and by First Allmerica Financial Life Insurance
Company (in New York). The contract is a flexible payment
deferred combination variable and fixed annuity offered on
PLEASE READ THIS both a group and individual basis.
PROSPECTUS CAREFULLY
BEFORE INVESTING AND
KEEP IT FOR FUTURE
REFERENCE.
The Variable Account, known as Separate Account VA-K, is
subdivided into Sub-Accounts, each investing exclusively in
shares of one of the following funds:
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<S> <C>
ANNUITIES INVOLVE ALLMERICA INVESTMENT TRUST
RISKS INCLUDING -----------------------
POSSIBLE LOSS OF Equity Index Fund
PRINCIPAL. Money Market Fund
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<C> <S>
THIS ANNUITY IS In most jurisdictions, values may also be allocated on a
NOT: fixed basis to the Fixed Account, which is part of the
- - A BANK DEPOSIT OR Company's General Account and pays an interest rate
OBLIGATION; guaranteed for one year from the time a payment is received.
- - FEDERALLY INSURED; The Guarantee Period Accounts offer fixed rates of interest
- - ENDORSED BY ANY for specified periods. A Market Value Adjustment is applied
BANK OR to payments removed from a Guarantee Period Account before
GOVERNMENTAL the end of the specified period. The Market Value Adjustment
AGENCY may be positive or negative. Payments allocated to a
Guarantee Period Account are held in the Company's Separate
Account GPA (except in California where they are allocated
to the General Account).
A Statement of Additional Information dated ____ containing
more information about this annuity is on file with the
Securities and Exchange Commission and is incorporated by
reference into this Prospectus. A copy may be obtained free
of charge by calling Allmerica Investments, Inc. at
1-800-533-7881. The Table of Contents of the Statement of
Additional 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 ________, ____
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TABLE OF CONTENTS
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<S> <C>
SPECIAL TERMS............................................... 4
SUMMARY OF FEES AND EXPENSES................................ 6
SUMMARY OF CONTRACT FEATURES................................ 8
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS, AND
THE UNDERLYING FUNDS....................................... 12
INVESTMENT OBJECTIVES AND POLICIES.......................... 13
INVESTMENT ADVISORY SERVICES................................ 14
DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE....... 15
A. Payments............................................. 15
B. Computation of Values................................ 15
The Accumulation Unit............................... 16
Net Investment Factor............................... 16
C. Right to Cancel...................................... 16
D. Transfer Privilege................................... 17
Automatic Transfers (Dollar Cost Averaging)......... 17
Automatic Account Rebalancing....................... 18
E. Surrender and Withdrawals............................ 18
Systematic Withdrawals.............................. 19
Life Expectancy Distributions....................... 19
F. Death Benefit........................................ 20
Standard Death Benefit.............................. 20
Optional Enhanced Death Benefit Rider............... 20
Payment of the Death Benefit Prior to the Annuity
Date................................................ 21
G. The Spouse of the Owner as Beneficiary............... 21
H. Assignment........................................... 22
ANNUITIZATION -- THE PAYOUT PHASE........................... 23
A. Electing the Annuity Date............................ 23
B. Choosing the Annuity Payout Option................... 24
Fixed Annuity Payout Options........................ 24
Variable Annuity Payout Options..................... 24
C. Description of Annuity Payout Options................ 24
D. Variable Annuity Benefit Payments.................... 25
The Annuity Unit.................................... 25
Determination of the First Annuity Benefit
Payment............................................. 25
Determination of the Number of Annuity Units........ 26
Dollar Amount of Subsequent Variable Annuity Benefit
Payments............................................ 26
Payment of Annuity Benefit Payments................. 26
E. Transfers of Annuity Units........................... 26
F. Withdrawals after the Annuity Date................... 27
Calculation of Proportionate Reduction.............. 28
Calculation of Present Value........................ 29
Deferral of Withdrawals............................. 30
G. Reversal of Annuitization............................ 30
H. NORRIS Decision...................................... 31
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CHARGES AND DEDUCTIONS...................................... 32
A. Variable Account Deductions.......................... 32
Mortality and Expense Risk Charge................... 32
Administrative Expense Charge....................... 32
Other Charges....................................... 32
B. Contract Fee......................................... 33
C. Optional Rider Charge................................ 33
D. Premium Taxes........................................ 33
E. Transfer Charge...................................... 34
GUARANTEE PERIOD ACCOUNTS................................... 35
FEDERAL TAX CONSIDERATIONS.................................. 37
A. General.............................................. 37
B. Qualified and Non-Qualified Contracts................ 38
C. Taxation of the Contract in General.................. 38
Withdrawals Prior to Annuitization.................. 38
Withdrawals After Annuitization..................... 38
Annuity Payouts After Annuitization................. 39
Penalty on Distribution............................. 39
Assignments or Transfers............................ 39
Nonnatural Owners................................... 39
Deferred Compensation Plans of State and Local
Government and Tax-Exempt Organizations............. 40
D. Tax Withholding...................................... 40
E. Individual Retirement Annuities...................... 40
STATEMENTS AND REPORTS...................................... 40
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS........... 41
CHANGES TO COMPLY WITH LAW AND AMENDMENTS................... 42
VOTING RIGHTS............................................... 42
DISTRIBUTION................................................ 42
LEGAL MATTERS............................................... 43
YEAR 2000 COMPLIANCE........................................ 43
FURTHER INFORMATION......................................... 43
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT...... A-1
APPENDIX B -- PERFORMANCE INFORMATION....................... B-1
APPENDIX C -- THE MARKET VALUE ADJUSTMENT................... C-1
APPENDIX D -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND
PAYMENT WITHDRAWALS........................................ D-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....................................
PERFORMANCE INFORMATION.....................................
FINANCIAL STATEMENTS........................................
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SPECIAL TERMS
ACCUMULATED VALUE: the total dollar amount of all values in the Sub-Accounts,
the Fixed Account and the Guarantee Period Accounts credited to the Contract on
any day before the Annuity Date.
ACCUMULATION UNIT: a measure used to calculate the value of a Sub-Account before
annuity benefit payments begin.
ANNUITANT: the person designated in the Contract whose life is used to determine
the duration of annuity benefit payments involving a life contingency. Joint
Annuitants are permitted and, unless otherwise indicated, any reference to
Annuitant shall include Joint Annuitants.
ANNUITY BENEFIT PAYMENT CHANGE FREQUENCY: the frequency (monthly, quarterly,
semi-annually or annually) that changes due to investment performance will be
reflected in the dollar value of an annuity benefit payment under a variable
annuity payout option.
ANNUITY DATE: the date specified in the Contract or a date elected later by the
Owner to begin annuity benefit payments. This date must be at least one year
after the Issue Date and may not be later than the Owner's (or youngest Joint
Owner's) 99th birthday.
ANNUITY UNIT: a measure used to calculate annuity benefit payments under a
variable payout option.
ANNUITY VALUE: the value of the amount applied under an annuity payout option.
COMPANY: unless otherwise specified, any reference to the "Company" shall refer
exclusively to either Allmerica Financial Life Insurance and Annuity Company or
First Allmerica Financial Life Insurance Company.
CONTRACT YEAR: a period of twelve consecutive months starting on the Contract's
issue date or on any anniversary of the Issue Date.
FIXED ACCOUNT: an investment option under the Contract that guarantees principal
and a fixed minimum interest rate and which is part of the Company's General
Account.
FIXED ANNUITY PAYOUT: an annuity payout option with annuity benefit payments
that are fixed in amount and guaranteed throughout the annuity benefit payment
period.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account that corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.
ISSUE DATE: the date the Contract is issued and the date that is used to
determine Contract days, Contract months, Contract years and Contract
anniversaries.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
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OWNER (YOU): the person, persons (Joint Owners) or entity entitled to exercise
the rights and privileges under this Contract. Unless otherwise indicated, any
reference to Owner shall include Joint Owners.
SUB-ACCOUNT: a subdivision of the Variable Account investing exclusively in the
shares of a corresponding fund of Allmerica Investment Trust.
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any applicable Contract fee, rider charges and Market Value
Adjustment.
UNDERLYING FUND (OR FUNDS): an investment portfolio of the Allmerica Investment
Trust in which a Sub-Account invests.
VALUATION DATE: a day on which 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, and on such other days (other than a day
during which no payment, withdrawal or surrender of a Contract was received)
when there is a sufficient degree of trading in an Underlying Fund's portfolio
securities such that the current unit value of the Sub-Accounts may be affected
materially.
VARIABLE ACCOUNT: Separate Account VA-K, one of the Company's separate accounts,
consisting of assets segregated from other assets of the Company. The investment
performance of the assets of the Variable Account is determined separately from
the other assets of the Company and the assets are not chargeable with
liabilities arising out of any other business which the Company may conduct.
VARIABLE ANNUITY PAYOUT: an annuity payout option providing for payments varying
in amount in accordance with the investment experience of the Underlying Funds.
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SUMMARY OF FEES AND EXPENSES
There are certain fees and expenses that you will incur directly or indirectly
under the Allmerica _________ Advantage Contract. The purpose of the following
tables is to help you understand these various charges. The tables show
(1) charges under the Contract, (2) annual expenses of the Sub-Accounts, and
(3) annual expenses of the Funds during the accumulation phase. In addition to
the charges and expenses described below, premium taxes are applicable in some
states and are deducted as described under "D. Premium Taxes."
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(1) CONTRACT CHARGES: CHARGE
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TRANSFER CHARGE: None
The Company currently does not charge for processing
transfers and guarantees that the first 12 transfers in a
Contract year will not be subject to a transfer charge.
For each subsequent transfer, the Company reserves the
right to assess a charge, guaranteed never to exceed $25,
to reimburse the Company for the costs of processing the
transfer.
ANNUAL CONTRACT FEE: $35*
The fee is deducted annually and upon surrender prior to
the Annuity Date when Accumulated Value is less than
$75,000.
OPTIONAL RIDER CHARGE:
If the Enhanced Death Benefit Rider is elected, 1/12th of
the annual charge will be deducted pro rata on a monthly
basis at the end of each Contract month and at termination
of the Rider. The charge for this Rider on an annual basis
as a percentage of Accumulated Value is:
5% Enhanced Death Benefit Rider With Annual Step-up: 0.25%
* The fee may be lower in some jurisdictions. See Contract
Specifications for specific charge.
(2) ANNUAL SUB-ACCOUNT EXPENSES:
- ------------------------------------------------------------
(on an annual basis as a percentage of average daily net
assets)
Mortality and Expense Risk Charge: 0.65%
Administrative Expense Charge: 0.15%
------
Total Annual Expenses: 0.80%
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(3) ANNUAL UNDERLYING FUND EXPENSES: 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. For more information concerning fees and expenses, see
the prospectuses for the Underlying Funds.
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<CAPTION>
MANAGEMENT FEE OTHER TOTAL FUND EXPENSES
(AFTER ANY VOLUNTARY EXPENSES (AFTER (AFTER ANY WAIVERS/
UNDERLYING FUND WAIVERS) ANY REIMBURSEMENTS) REIMBURSEMENTS)
- --------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Equity Index Fund...................... 0.29% 0.07% 0.36%(1)
Money Market Fund...................... 0.26% 0.06% 0.32%(1)
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(1) Until further notice, Allmerica Financial Investment Management
Services, Inc. ("AFIMS") has declared a voluntary expense limitation of 0.60%
for the 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.
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.
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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. As required by rules of the Securities and
Exchange Commission ("SEC"), the Contract fee is reflected in the examples by a
method designed to show the average impact on an investment in the Variable
Account. The total Contract fees collected are divided by the total average net
assets attributable to the Contracts. The resulting percentage is 0.04%, and the
amount of the Contract fee is assumed to be $0.40 in the examples. The Contract
fee is only deducted when the Accumulated Value is less than $75,000. 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.
(1) At the end of the applicable time period, you would have paid the following
expenses on a $1,000 investment, assuming a 5% annual return on assets, and no
Riders.
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FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Index Fund.......................................... $12 $37 $64 $142
Money Market Fund.......................................... $12 $36 $62 $138
</TABLE>
(2) At the end of the applicable time period, you would have paid the following
expenses on a $1,000 investment, assuming an annual 5% return on assets and
election at issue of the 5% Enhanced Death Benefit Rider With Annual Step-Up.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Index Fund.......................................... $14 $45 $78 $170
Money Market Fund.......................................... $14 $44 $75 $166
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SUMMARY OF CONTRACT FEATURES
WHAT IS THE ALLMERICA __________ ADVANTAGE VARIABLE ANNUITY?
The Allmerica __________ Advantage variable annuity contract ("Contract") is an
insurance contract designed to help you, the Owner, accumulate assets for your
retirement or other important financial goals on a tax-deferred basis. The
Contract may be purchased up to age 90 of the oldest Owner or, if the Owner is
not a natural person, the oldest Annuitant. The Contract combines the concept of
professional money management with the attributes of an annuity contract.
Features available through the Contract include:
- a customized investment portfolio;
- experienced professional investment advisers;
- tax deferral on earnings;
- guarantees that can protect your family;
- withdrawals during the accumulation and annuitization phases;
- income that you can receive for life.
WHAT HAPPENS IN THE ACCUMULATION PHASE?
The Contract has two phases: an accumulation phase and, if you choose to
annuitize, an annuity payout phase (described below). During the accumulation
phase, you may allocate your initial payment and any additional payments to the
combination of portfolios of securities ("Underlying Funds") under your
Contract, to the Guarantee Period Accounts, and to the Fixed Account. You select
the investment options most appropriate for your investment needs. As those
needs change, you may also change your allocation without incurring any tax
consequences. Your Contract's Accumulated Value is based on the investment
performance of the Underlying Funds and any accumulations in the Guarantee
Period Accounts and the Fixed Account. Generally, you do not pay taxes on any
earnings under the Contract until you withdraw money. In addition, during the
accumulation phase, your beneficiaries receive certain protections in the event
of your death. See discussion below: WHAT HAPPENS UPON MY DEATH DURING THE
ACCUMULATION PHASE?
WHAT HAPPENS UPON MY DEATH DURING THE ACCUMULATION PHASE?
If you or a Joint Owner dies before the Annuity Date, a standard death benefit
will be paid to the beneficiary. (No death benefit is payable at the death of
any Annuitant except when the Owner is not a natural person.) An optional
Enhanced Death Benefit Rider is also available at issue for a separate monthly
charge. See "F. Death Benefit" under DESCRIPTION OF THE CONTRACT -- THE
ACCUMULATION PHASE.
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, you, or the payee you designate, can receive
income based on one of the numerous annuity payout options available under the
Contract. You choose:
- the annuity payout option;
- the date annuity benefit payments begin but no earlier than 1 year after
the Issue Date; and
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- whether you want variable annuity benefit payments based on the investment
performance of the Underlying Funds, fixed-amount annuity benefit payments
with payment amounts guaranteed by the Company, or a combination of
fixed-amount and variable annuity benefit payments.
You may also take withdrawals during the annuity payout phase. The type of
withdrawal and the number of withdrawals that may be made each calendar year
depend upon whether the Owner annuitizes under an annuity payout option with
payments based on the life of one or more Annuitants with no guaranteed payments
(a "Life" annuity payout option), under a life annuity payout option that in
part provides for a guaranteed number of payments (a "Life With Period Certain"
or "Life With Cash Back" annuity payout option), or an annuity payout option
based on a guaranteed number of payments (a "Period Certain" annuity payout
option). Under a Life annuity payout option, the Owner may make one Payment
Withdrawal each calendar year. Under a Life with Period Certain or Life with
Cash Back annuity payout option, the Owner may make one Payment Withdrawal and
one Present Value Withdrawal in each calendar year. Under a Period Certain
annuity payout option, the Owner may make multiple Present Value Withdrawals
each calendar year. For more information, see "F. Withdrawals After the Annuity
Date" under ANNUITIZATION -- THE PAYOUT PHASE. In addition, if you choose a
variable option, you may transfer among the available Sub-Accounts.
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) and First Allmerica Financial Life Insurance Company (in New York).
Each Contract has an Owner (or an Owner and a Joint Owner), an Annuitant (or an
Annuitant and a Joint Annuitant) and one or more beneficiaries. As Owner, you
may:
- make payments
- choose investment allocations
- choose annuity payout options
- receive annuity benefit payments (or designate someone else to receive
annuity benefit payments)
- select the Annuitant and beneficiary.
The Annuitant is the person whose life is used to determine the duration of
annuity benefit payments involving a life contingency. There must be at least
one Annuitant at all times. If an Annuitant dies and a replacement is not named,
the Owner will become the new Annuitant. The beneficiary is the person(s) or
entity entitled to the death benefit at the death of a sole Owner prior to the
Annuity Date. In the case of the death of a Joint Owner, the surviving Joint
Owner will receive the death benefit. Under certain circumstances, the
beneficiary may be entitled to annuity benefit payments upon the death of an
Owner on or after the Annuity Date.
HOW MUCH CAN I INVEST AND HOW OFTEN?
During the Accumulation Phase, you may make additional payments. Total payments
under the Contract can exceed $5,000,000 only with the Company's prior approval.
The number and frequency of your payments are flexible, subject only to a
$50,000 minimum for your initial payment and a $50 minimum for any additional
payments. A minimum of $1,000 is always required to establish a Guarantee Period
Account.
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WHAT ARE MY INVESTMENT CHOICES?
You may choose among Sub-Accounts investing in the Underlying Funds, the
Guarantee Period Accounts, and the Fixed Account. The Funds are:
Allmerica Investment Trust
------------------------------------------------------
Equity Index Fund
Money Market Fund
FOR A MORE DETAILED DESCRIPTION OF THE UNDERLYING FUNDS, SEE INVESTMENT
OBJECTIVES AND POLICIES.
Each Underlying Fund operates pursuant to different investment objectives and
this range of investment options enables you to allocate your money among the
Underlying Funds to meet your particular investment needs.
GUARANTEE PERIOD ACCOUNTS. Assets supporting the guarantees under the Guarantee
Period Accounts are held in the Company's Separate Account GPA, a non-unitized
insulated separate account (except in California, where assets are held in the
Company's General Account). Values and benefits calculated on the basis of
Guarantee Period Account allocations, however, are obligations of the Company's
General Account. Amounts allocated to a Guarantee Period Account earn a
Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company may offer up to nine Guarantee Periods ranging from two to ten years
in duration. Once declared, the Guaranteed Interest Rate will not change during
the duration of the Guarantee Period.
If amounts allocated to a Guarantee Period Account are transferred, surrendered
or applied to any annuity option at any time other than the day following the
last day of the applicable Guarantee Period, a Market Value Adjustment will
apply that may increase or decrease the value. However, this adjustment will
never be applied against your principal. In addition, earnings in the GPA AFTER
application of the Market Value Adjustment will not be less than an effective
annual rate of 3%. For more information about the Guarantee Period Accounts and
the Market Value Adjustment, see GUARANTEE PERIOD ACCOUNTS.
THE GUARANTEE PERIOD ACCOUNTS ARE NOT AVAILABLE IN ALL STATES AND ARE NOT
OFFERED AFTER ANNUITIZATION.
FIXED ACCOUNT. The Fixed Account is part of the General Account, which consists
of all the Company's assets other than those allocated to the Variable Account
and any other separate account. Allocations to the Fixed Account are guaranteed
as to principal and a minimum rate of interest. Additional excess interest may
be declared periodically at the Company's discretion. The initial rate in effect
on the date an amount is allocated to the Fixed Account will be guaranteed for
one year from that date. For more information about the Fixed Account, see
APPENDIX A, MORE INFORMATION ABOUT THE FIXED ACCOUNT.
CAN I MAKE TRANSFERS AMONG THE SUB-ACCOUNTS?
Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts
investing in the Underlying Funds, the Guarantee Period Accounts, and the Fixed
Account. On and after the Annuity Date, if you have elected a variable option,
you may transfer only among the Sub-Accounts. You will incur no current taxes on
transfers while your money remains in the Contract. See "D. Transfer Privilege"
under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE.
The first 12 transfers in a Contract year are guaranteed to be free of a
transfer charge. For each subsequent transfer in a Contract year, the Company
does not currently charge but reserves the right to assess a processing charge
guaranteed never to exceed $25.
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If you authorize automatic periodic transfers (under an Asset Allocation Model
Reallocation program, Automatic Transfers program (Dollar Cost Averaging) or
Automatic Account Rebalancing program), the first automatic transfer or
rebalancing under a request counts as one transfer for purposes of the 12
transfers guaranteed to be free of a transfer charge in each Contract year. Each
subsequent automatic transfer or rebalancing under that request is without
charge and does not reduce the remaining number of transfers which may be made
free of charge in that Contract year.
WHAT IF I NEED MY MONEY BEFORE THE ANNUITY PAYOUT PHASE BEGINS?
Before the annuity payout phase begins, you may surrender your Contract or make
withdrawals at any time. A Market Value Adjustment will apply to withdrawals
from a Guarantee Period Account prior to the expiration of the Guarantee Period.
A 10% tax penalty may apply on all amounts deemed to be earnings if you are
under age 59 1/2.
CAN I EXAMINE THE CONTRACT?
Yes. Your Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
cancelled. There may be a longer period in certain jurisdictions; see the Right
to Examine provision on the cover of your Contract.
If you cancel the Contract, you will receive the Contract's Accumulated Value
adjusted for any Market Value Adjustment for amounts allocated to a Guarantee
Period Account plus any fees or charges that may have been deducted. However, if
required in your state or if the Contract was issued as an Individual Retirement
Annuity (IRA), you will generally receive a refund of your gross payment(s). In
certain jurisdictions this refund may be the greater of (1) your gross
payment(s) or (2) the Accumulated Value adjusted for any Market Value
Adjustment, plus any fees or charges previously deducted. See "C. Right to
Cancel" -- under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE.
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
You can make several changes after receiving your Contract:
- You may assign your ownership to someone else, except under qualified
plans.
- You may change the beneficiary, unless you have designated an irrevocable
beneficiary.
- You may change your allocation of payments.
- You may make transfers among the Sub-Accounts without any tax
consequences.
- You may cancel your Contract within ten days of delivery (or longer if
required by state law).
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DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS,
AND THE UNDERLYING FUNDS
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 ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC").
First Allmerica Financial Life Insurance Company, 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 companies 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.
The Variable Account 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. Two investment portfolios of the Trust are currently
available under the Contract, each issuing a series of shares: the Equity Index
Fund and the Money Market 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. See "Investment Advisory Services to the Trust."
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds is set forth
below. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS, AND OTHER
RELEVANT INFORMATION REGARDING THE UNDERLYING FUNDS MAY BE FOUND IN THE
PROSPECTUSES WHICH ACCOMPANY THIS PROSPECTUS, AND SHOULD BE READ CAREFULLY
BEFORE INVESTING. The Statements of Additional Information ("SAI") of the
Underlying Funds are available upon request. There can be no assurance that the
investment objectives of the Underlying Funds can be achieved or that the value
of the Contract will equal or exceed the aggregate amount of the purchase
payments made under the Contract.
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.
MONEY MARKET FUND -- seeks to obtain maximum current income consistent with the
preservation of capital and liquidity.
If there is a material change in the investment policy of a Sub-Account or the
Fund in which it invests, the Owner will be notified of the change. If the Owner
has Accumulated Value allocated to that Fund, he or she may have the Accumulated
Value reallocated without charge to another Fund or to the Fixed Account, where
available, on written request received by the Company within sixty (60) days of
the later of (1) the effective date of such change in the investment policy, or
(2) the receipt of the notice of the Owner's right to transfer.
INVESTMENT ADVISORY SERVICES
Each Underlying Fund pays a management fee to an investment manager or advisor
for managing and providing services to the Fund: however management fee waivers
and/or reimbursements may be in effect for certain or all of the Underlying
Funds. For specific information regarding the existence and effect of any
waivers/reimbursements see "Annual Underlying Fund Expenses" under SUMMARY OF
FEES AND EXPENSES section. The prospectuses of the Underlying Funds also contain
information regarding fees for advisory services and should be read in
conjunction with the Prospectus.
INVESTMENT ADVISORY SERVICES TO THE TRUST. The overall responsibility for the
supervision of the affairs of the Trust rests with the trustees. The Trust has
entered into an agreement ("Management Agreement") with Allmerica Financial
Investment Management Services, Inc. ("AFIMS"), an indirect wholly owned
subsidiary of First Allmerica, to handle the day-to-day affairs of the Trust.
AFIMS, subject to review by the trustees, is responsible for the general
management of the Funds of the Trust. AFIMS also performs certain administrative
and management services for the Trust, furnishes to the Trust all necessary
office space, facilities and equipment, and pays the compensation, if any, of
officers and trustees affiliated with AFIMS.
Other than the expenses specifically assumed by AFIMS under the Management
Agreement, all expenses incurred in the operation of the Trust are borne by it.
These include fees and expenses associated with the
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registration and qualification of the Trust's shares under the Securities Act of
1933 ("the 1933 Act"), other fees payable to the SEC, independent public
accountant, legal and custodian fees, association membership dues, taxes,
interest, insurance premiums, brokerage commission, fees and expenses of the
trustees who are not affiliated with AFIMS, expenses for proxies, prospectuses,
reports to shareholders and other expenses.
For providing its services under the Management Agreement, AFIMS will receive a
fee, computed daily at an annual rate based on the average daily net asset value
of each Fund of the Trust as follows:
<TABLE>
<S> <C> <C>
Equity Index Fund First $50 million 0.35%
Next $200 million 0.30%
Over $250 million 0.25%
Money Market Fund First $50 million 0.35%
Next $200 million 0.25%
Over $250 million 0.20%
</TABLE>
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DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE
A. PAYMENTS
The latest Issue Date is age 90 of the oldest Owner, or, if the Owner is not a
natural person, the oldest Annuitant. The Company will issue a 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 and may include the proper completion of an application; however, where
permitted by law, the Company may issue a Contract without completion of an
application. If all issue requirements are not completed within five business
days of the Company's receipt of the initial payment, the payment will be
returned immediately unless the applicant authorizes the Company to retain it
pending completion of all issue requirements.
Payments may be made to the Contract at any time prior to the Annuity Date, or
prior to the death of an Owner, subject to certain minimums:
- Currently, the initial payment must be at least $50,000.
- Each subsequent payment must be at least $50.
- The minimum allocation to a Guarantee Period Account is $1,000. If less
than $1,000 is allocated to a Guarantee Period Account, the Company
reserves the right to apply that amount to the Money Market Fund of the
Trust.
Payments are to be made payable to the Company. The Company may reduce a payment
by any applicable premium tax before applying it to the Contract. The initial
net payment is credited to the Contract and allocated among the requested
accounts as of the date that all issue requirements are properly met. The
allocation instructions for the initial net payment will serve as the allocation
instructions for all future payments. You can change the allocations
instructions for future payments by notifying the Company.
You also have the option of specifying how a specific payment should be
allocated. This will not change the allocation instructions for any subsequent
payment.
For a discussion of future payments to an Automatic Transfer Program (Dollar
Cost Averaging), please see "Automatic Transfers (Dollar Cost Averaging)" below.
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.
B. COMPUTATION OF VALUES
The Owner may allocate payments among the Sub-Accounts, Guarantee Period
Accounts, and the Fixed Account. Allocations to the Guarantee Period Accounts
and the Fixed Account are not converted into Accumulation Units, but are
credited interest at a rate periodically set by the Company. See GUARANTEE
PERIOD ACCOUNTS and APPENDIX A, MORE INFORMATION ABOUT THE FIXED ACCOUNT.
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The Accumulated Value under the Contract is determined by:
(1) multiplying the number of Accumulation Units in each Sub-Account by the
value of an Accumulation Unit of that Sub-Account on the Valuation Date,
(2) adding together the values of each Sub-Account, and
(3) adding the amount of the accumulations in the Fixed Account and
Guarantee Period Accounts, if any.
THE ACCUMULATION UNIT. Allocations to the Sub-Accounts are credited to the
Contract in the form of Accumulation Units. Accumulation Units are credited
separately for each Sub-Account. The number of Accumulation Units of each
Sub-Account credited to the Contract is equal to the portion of the payment
allocated to the Sub-Account, divided by the dollar value of the applicable
Accumulation Unit as of the Valuation Date. The number of Accumulation Units
resulting from each payment will remain fixed unless changed by a subsequent
split of Accumulation Unit value, a transfer, a withdrawal, or surrender. The
dollar value of an Accumulation Unit of each Sub-Account varies from Valuation
Date to Valuation Date based on the investment experience of that Sub-Account,
and will reflect the investment performance, expenses, and charges of its
Underlying Funds. The value of an Accumulation Unit was arbitrarily set at $1.00
on the first Valuation Date for each Sub-Account.
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 (which may be positive or
negative) from dividing (1) by (2) and subtracting (3) and (4) where:
(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 0.65% on an annual
basis of the daily value of the Sub-Account's assets; and
(4) is an administrative charge equal to 0.15% on an annual basis of the
daily value of the Sub-Account's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of an Accumulation Unit calculation using a hypothetical
example see the SAI.
C. RIGHT TO CANCEL
An Owner may cancel the Contract at any time within ten days after receipt of
the Contract (or longer if required by law) and receive a refund. In order to
cancel the Contract, the Owner must mail or deliver it to the Company's
Principal Office at 440 Lincoln Street, Worcester, MA 01653, or to an authorized
representative. Mailing or delivery must occur within ten days after receipt of
the Contract for cancellation to be effective.
In most states, the Company will pay the Owner the Contract's Accumulated Value
adjusted for any Market Value Adjustment for amounts allocated to a Guarantee
Period Account, plus any amounts deducted for taxes, charges or fees. However,
if the Contract was purchased as an IRA or issued in a state that requires a
full refund of the initial payment(s), the Company will provide a refund equal
to your gross payment(s). In some states, the refund may equal the greater of
(a) your gross payment(s) or (b) the Accumulated Value adjusted for any Market
Value Adjustment, plus any amounts deducted for taxes, charges or fees. At the
time the
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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.
The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.
D. TRANSFER PRIVILEGE
Prior to the Annuity Date, the Owner may transfer amounts among accounts at any
time upon written or telephone request to the Company. As discussed in "A.
Payments," a properly completed authorization form must be on file before
telephone requests will be honored. Transfer values will be based on the
Accumulated Value next computed after receipt of the transfer request.
Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to the Money Market Fund. Transfers from a Guarantee
Period Account prior to the expiration of the Guarantee Period will be subject
to a Market Value Adjustment.
Currently, the Company does 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, the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers. The first automatic transfer or rebalancing under an
Automatic Transfers (Dollar Cost Averaging) program or Automatic Account
Rebalancing program counts as one transfer for purposes of the 12 transfers
guaranteed to be free of a transfer charge in each Contract year. Each
subsequent automatic transfer or rebalancing under that request is without
charge and does not reduce the remaining number of transfers which may be made
free of charge in that Contract year.
The Company also reserves the right to restrict transfer privileges when
exercised by a market timing firm or any other third party authorized to
initiate allocations, transfers or exchanges on behalf of multiple Contract
Owners. The Company may, among other things, not accept:
- the transfer or exchange instructions of any agent acting under a power of
attorney on behalf of more than one Owner, or
- the transfer or exchange instructions of individual Owners who have
executed pre-authorized transfer or exchange forms which are submitted by
market timing firms or other third parties on behalf of more than one Owner
at the same time.
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING). You may elect automatic transfers
of a predetermined dollar amount on a periodic basis from the Fixed Account or
the Sub-Accounts investing in the Money Market Fund ("source accounts"). You may
elect automatic transfers to one or more Sub-Accounts, subject to the following:
- the predetermined dollar amount may not be less than $100;
- the periodic basis may be monthly, quarterly, semi-annually or annually;
- automatic transfers may not be made into the selected source account,
Fixed Account, or the Guarantee Period Accounts; and
- if an automatic transfer would reduce the balance in the source account to
less than $100, the entire balance will be transferred proportionately to
the chosen Sub-Accounts.
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<PAGE>
Automatic transfers from a source account will continue until the earlier of:
- the amount in the source account on a transfer date is zero; or
- the Owner's request to terminate the option is received by the Company.
If additional amounts are allocated to a source account before its balance has
fallen to zero, those additional amounts will also be automatically transferred.
The original automatic transfer allocations will apply to all amounts in that
source account unless you provide new allocation instructions. New allocation
instructions will apply to the entire balance in the source account. If
additional amounts are allocated to a source account after its balance has
fallen to zero, automatic transfers will not begin again unless you specifically
instruct the Company to do so.
To the extent permitted by law, the Company reserves the right, from time to
time, to credit an enhanced interest rate to an initial and/or subsequent
payment made to the Fixed Account, which is then used as the source account from
which to process automatic transfers. For more information see APPENDIX A, MORE
INFORMATION ABOUT THE FIXED ACCOUNT.
AUTOMATIC ACCOUNT REBALANCING. The Owner may request automatic rebalancing of
Sub-Account allocations on a monthly, quarterly, semi-annual or annual basis in
accordance with his/her specified percentage allocations. As frequently as
elected by the Owner, the Company will review the percentage allocations in the
Underlying 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 (1) the Owner's request to
terminate or change the option is received by the Company or (2) the end date
designated by the Owner when the option was elected. If a subsequent payment is
allocated in a manner different from the percentage allocation mix in effect on
the date the payment is received, on the next scheduled rebalancing date the
payment will be reallocated in accordance with the existing mix.
Currently, Dollar Cost Averaging and Automatic Account Rebalancing may not be in
effect simultaneously. Either option may be elected at no additional charge when
the Contract is purchased or at a later date. The Company reserves the right to
limit the number of Sub-Accounts that may be utilized for automatic transfers
and rebalancing, and to discontinue either option upon advance written notice.
E. SURRENDER AND WITHDRAWALS
Before the Annuity Date, an Owner may surrender the Contract for its Surrender
Value or withdraw a portion of its Accumulated Value. In the case of surrender,
the Owner must send the Contract and a signed written request for surrender,
satisfactory to the Company, to the Principal Office. The Surrender Value will
be calculated based on the Contract's Accumulated Value as of the Valuation
Date.
In the case of a withdrawal, the Owner must submit to the Principal Office a
signed, written request indicating the desired dollar amount and the accounts
from which such amount is to be withdrawn. A withdrawal from a Sub-Account will
result in cancellation of a number of units equivalent in value to the amount
withdrawn. Each withdrawal must be a minimum of $100. No withdrawal will be
permitted if the Accumulated Value remaining under the Contract would be reduced
to less than $10,000.
A Contract fee may apply when a Contract is surrendered. See CHARGES AND
DEDUCTIONS. In addition, amounts withdrawn from a Guarantee Period Account prior
to the end of the applicable Guarantee Period will be subject to a Market Value
Adjustment, as described under GUARANTEE PERIOD ACCOUNTS.
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Any distribution is normally payable within seven days following the Company's
receipt of the surrender or withdrawal request. The Company reserves the right
to defer surrenders and withdrawals of amounts allocated to the Company's Fixed
Account and Guarantee Period Accounts for a period not to exceed six months. The
Company reserves the right to defer surrenders and withdrawals of 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 separate account is not
reasonably practicable.
For important tax consequences, which may result from surrender or withdrawals,
see FEDERAL TAX CONSIDERATIONS.
For information about withdrawals after the Annuity Date, see ANNUITIZATION --
THE PAYOUT PHASE, F. Withdrawals After the Annuity Date.
SYSTEMATIC WITHDRAWALS. The Owner may elect an automatic schedule of
withdrawals (systematic withdrawals) from amounts in the Sub-Accounts and/or the
Fixed Account on a periodic basis (monthly, bi-monthly, quarterly, semi-annually
or annually). Systematic withdrawals from Guarantee Period Accounts are not
available. The Owner may request:
- the withdrawal of a SPECIFIC DOLLAR AMOUNT and the percentage of this
amount to be taken from each designated Sub-Account and/or the Fixed
Account; or
- the withdrawal of a SPECIFIC PERCENTAGE of the Accumulated Value
calculated as of the withdrawal dates, and may designate the percentage of
this amount which should be taken from each account.
The first withdrawal will take place on the latest of 15 days after Issue Date,
the date the written request is received at the Principal Office, or on a date
specified by the Owner.
The minimum amount of each automatic withdrawal is $100. If a withdrawal would
cause the remaining Accumulated Value to be less than $10,000, systematic
withdrawals may be discontinued. Systematic withdrawals will cease automatically
on the Annuity Date. The Owner may change or terminate systematic withdrawals
only by written request to the Principal Office.
LIFE EXPECTANCY DISTRIBUTIONS. (For Qualified Contracts and Contracts issued
under Section 457 Deferred Compensation Plans only). Prior to the Annuity Date,
an Owner may elect to make a series of systematic withdrawals from the Contract
according to the Company's life expectancy distribution ("LED") option by
returning a properly signed LED request form to the Principal Office. Where the
Owner is a trust or other nonnatural person, the Owner may elect the LED option
based on the Annuitant's life expectancy.
If an Owner elects the Company's LED option, in each calendar year a fraction of
the Accumulated Value is withdrawn based on the Owner's life expectancy (or the
joint life expectancy of the Owner and a beneficiary.) The numerator of the
fraction is 1 (one). The denominator of the fraction will be either:
- the remaining life expectancy of the Owner (or Owner and beneficiary), as
determined annually by the Company; or
- the prior year's life expectancy, minus one.
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The resulting fraction, expressed as a percentage, is then applied to the
Accumulated Value at the beginning of the year to determine the amount to be
distributed during the year. The Owner may choose to have the applicable life
expectancy redetermined each year or use the prior year's life expectancy, minus
one. Under the Company's LED option, the amount withdrawn from the Contract
changes each year.
The Owner may elect periodic LED distributions on a monthly, bi-monthly,
quarterly, semi-annual, or annual basis. The Owner may terminate the LED option
at any time. The LED option will terminate automatically on the maximum Annuity
Date permitted under the Contract, at which time an annuity payout option must
be selected.
The LED option may not produce annual distributions that meet the definition of
"substantially equal periodic payments" as defined under Code Section 72(t). The
withdrawals may be treated by the Internal Revenue Service (IRS) as premature
distributions from the Contract and may be subject to a 10% federal tax penalty.
Owners seeking distributions over their life under this definition should
consult their tax advisor. For more information, see "C. Taxation of the
Contract in General" under FEDERAL TAX CONSIDERATIONS.
F. DEATH BENEFIT
A death benefit is payable if the Owner or the first of Joint Owners dies prior
to the Annuity Date. If the Owner is a natural person, no death benefit is
payable at the death of any Annuitant. If the Owner is not a natural person, a
death benefit will be paid upon the death of any Annuitant. A spousal
beneficiary may elect to continue the Contract rather than receive the death
benefit as provided in "G. The Spouse of the Owner as Beneficiary."
STANDARD DEATH BENEFIT. Unless an enhanced death benefit is elected at issue,
the standard death benefit will be paid. The standard death benefit is equal to
the greater of (a) the Contract's Accumulated Value on the Valuation Date that
the Company receives proof of death, increased by any positive Market Value
Adjustment or (b) gross payments prior to the date of death, proportionately
reduced to reflect withdrawals.
For each withdrawal under (b), the proportionate reduction is calculated by
multiplying the standard death benefit immediately prior to the withdrawal by
the following fraction:
Amount of the withdrawal
------------------------------------------------
Accumulated Value immediately prior to the withdrawal
OPTIONAL ENHANCED DEATH BENEFIT RIDER. When applying for the Contract, an Owner
may elect the optional 5% Enhanced Death Benefit With Annual Step-Up Rider. A
separate charge for this Rider is made against the Contract's Accumulated Value
on the last day of each Contract month for the coverage provided during that
month and, if applicable, on the date the Rider is terminated. The charge is
made through a pro-rata reduction (based on relative values) of Accumulation
Units in the Sub-Accounts and dollar amounts in the Fixed and Guarantee Period
Accounts. For specific charges and more detail, see "C. Optional Rider Charge"
under CHARGES AND DEDUCTIONS.
The 5% Enhanced Death Benefit With Annual Step-Up Rider provides a death benefit
guarantee if death of an Owner (or an Annuitant if the Owner is not a natural
person) occurs before the Annuity Date. The calculation of the death benefit
depends upon whether death occurs before or after the 90th birthday:
I. Death BEFORE 90th Birthday. If an Owner (or an Annuitant if the Owner is a
not a natural person) dies before the Annuity Date and before his/her 90th
birthday, the death benefit is equal to the greatest of:
(a) the Accumulated Value on the Valuation Date that the Company received
proof of death, increased by any positive Market Value Adjustment;
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<PAGE>
(b) gross payments, accumulated daily at an effective annual yield of 5%
from the date each payment is applied until the date of death,
proportionately reduced to reflect withdrawals; and
(c) the highest Accumulated Value on any Contract anniversary date prior to
the date of death, as determined after being increased for any positive
Market Value Adjustment and subsequent payments and proportionately
reduced for subsequent withdrawals.
II. Death ON OR AFTER 90th Birthday. If an Owner (or the Annuitant if the Owner
is not a natural person) dies before the Annuity Date but on or after his/her
90th birthday, the death benefit is equal to the greater of:
(a) the Accumulated Value on the Valuation Date that the Company receives
proof of death, increased by any positive Market Value Adjustment; or
(b) the death benefit, as calculated under Section I above, that would have
been payable on the Contract anniversary prior to the deceased's 90th
birthday, increased for subsequent payments and proportionately reduced
for subsequent withdrawals.
Proportionate reductions are calculated in the same manner as described above
under "Standard Death Benefit."
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum upon receipt of due proof
of death at the Principal Office, unless the Owner has elected to apply the
proceeds to a life annuity not extending beyond the beneficiary's life
expectancy. Instead of payment in one sum, the beneficiary may, by written
request, elect to:
(1) defer distribution of the death benefit for a period no more than five
years from the date of death; or
(2) receive distributions over the life of the beneficiary or for a period
certain not extending beyond the beneficiary's life expectancy, with
annuity benefit payments beginning within one year from the date of
death.
If distribution of the death benefit is deferred under (1) or (2), any value in
the Guarantee Period Accounts will be transferred to the Money Market
Sub-Account. The excess, if any, of the death benefit over the Accumulated Value
also will be transferred to the Money Market Sub-Account. The beneficiary may,
by written request, effect transfers and withdrawals during the deferral period
and prior to annuitization under (2), but may not make additional payments. The
death benefit will reflect any earnings or losses experienced during the
deferral period. If there are multiple beneficiaries, the consent of all is
required.
G. THE SPOUSE OF THE OWNER AS BENEFICIARY
If the sole beneficiary is the deceased Owner's spouse, he or she may, by
written request, continue the Contract in lieu of receiving payment of the death
benefit. The spouse will then become the Owner and Annuitant subject to the
following:
(1) any value in the Guarantee Period Accounts will be transferred to the
Money Market Sub-Account; and
(2) the excess, if any, of the death benefit over the Contract's Accumulated
Value also will be added to the Money Market Sub-Account.
The new Owner may also make additional payments. All other rights and benefits
provided in the Contract will continue, except that any subsequent spouse of the
new Owner, if named as beneficiary, will not be entitled to continue the
Contract when the new Owner dies.
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H. ASSIGNMENT
The Contract, other than one sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and prior to
the death of an Owner (see FEDERAL TAX CONSIDERATIONS). The Company will not be
deemed to have knowledge of an assignment unless it is made in writing and filed
at the Principal Office. The Company will not assume responsibility for
determining the validity of any assignment. If an assignment of the Contract is
in effect on the Annuity Date, the Company reserves the right to pay to the
assignee, in one sum, that portion of the Surrender Value of the Contract to
which the assignee appears to be entitled. The Company will pay the balance, if
any, in one sum to the Owner in full settlement of all liability under the
Contract. The interest of the Owner and of any beneficiary will be subject to
any assignment.
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ANNUITIZATION -- THE PAYOUT PHASE
Subject to certain restrictions discussed below, at annuitization the Owner has
the right:
- to select the annuity payout option under which annuity benefit payments
are to be made;
- to determine whether those payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. If a variable
annuity payout option is selected, the Owner must choose an Annuity Benefit
Payment Change Frequency ("Change Frequency") and the date the first Change
Frequency will occur;
- to select one of the available Assumed Investment Returns ("AIR") for a
variable option (see "D. Variable Annuity Benefit Payments" below for
details); and
- to elect to have the Death Benefit applied under any annuity payout option
not extending beyond the beneficiary's life expectancy. The beneficiary may
not change such an election.
A. ELECTING THE ANNUITY DATE
Generally, annuity benefit payments under the Contract will begin on the Annuity
Date. The Annuity Date:
- may not be earlier than the first Contract Anniversary; and
- must occur on the first day of any month before the Owner's 99th birthday.
If the Owner does not select an Annuity Date, the Annuity Date will be the later
of (a) the Owner's age 85 or (b) one year after the Issue Date.
If there are Joint Owners, the age of the younger will determine the latest
possible Annuity Date. The Owner may elect to change the Annuity Date by sending
a request to the Principal Office at least one month before the earlier of the
new Annuity Date or the currently scheduled date.
If the Annuity Date occurs when the Owner is at an advanced age, it is possible
that the Contract will not be considered an annuity for federal tax purposes. In
addition, the Internal Revenue Code ("the Code") and/or the terms of qualified
plans may impose limitations on the age at which annuity benefit payments may
commence and the type of annuity payout option that may be elected. The Owner
should carefully review the Annuity Date and the annuity payout options with
his/her tax adviser. See FEDERAL TAX CONSIDERATIONS for further information.
B. CHOOSING THE ANNUITY PAYOUT OPTION
Regardless of how payments were allocated during the accumulation phase, the
Owner may choose a variable annuity payout option, a fixed annuity payout option
or a combination fixed and variable annuity payout option. Currently, all of the
variable annuity payout options described below are available and may be funded
through all of the variable Sub-Accounts. In addition, each of the variable
annuity payout options is also available on a fixed basis. The Company may offer
other annuity payout options.
The Owner may change the annuity payout option up to one month before the
Annuity Date. If the Owner fails to choose an annuity payout option, monthly
benefit payments will be made under a variable Life with Cash Back annuity
payout option.
The annuity payout option selected must result in an initial payment of at least
$100 (a lower amount may be required in certain jurisdictions.) The Company
reserves the right to increase this minimum amount. If the
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annuity payout option selected does not produce an initial payment which meets
this minimum, a single payment may be made.
FIXED ANNUITY PAYOUT OPTIONS. If the Owner selects a fixed annuity payout
option, each monthly annuity benefit payment will be equal to the first (unless
a withdrawal is made or as otherwise described under certain reduced survivor
annuity benefits.) Any portion of the Contract's Accumulated Value converted to
a fixed annuity will be held in the Company's General Account. The Contract
provides guaranteed fixed annuity option rates that determine the dollar amount
of the first payment under each form of fixed annuity for each $1,000 of applied
value. These rates are based on the Annuity 2000 Mortality Table and a 3% AIR.
The Company may offer annuity rates more favorable than those contained in the
Contract. Any such rates will be applied uniformly to all Owners of the same
class. For more specific information about fixed annuity payout options, see the
Contract.
VARIABLE ANNUITY PAYOUT OPTIONS. If the Owner selects a variable annuity payout
option, he/she will receive monthly payments equal to the value of the fixed
number of Annuity Units in the chosen Sub-Account(s). The first variable annuity
benefit payment will be based on the current annuity option rates made available
by the Company at the time the variable annuity payout option is selected.
Annuity option rates determine the dollar amount of the first payment for each
$1,000 of applied value. The annuity option rates are based on the Annuity 2000
Mortality Table and a 3% AIR.
Since the value of an Annuity Unit in a Sub-Account reflects the investment
performance of the Sub-Account, the amount of each monthly annuity benefit
payment will usually vary. However, under this Contract, if the Owner elects a
variable payout option, he or she must also select a monthly, quarterly,
semi-annual or annual Change Frequency. 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 benefit payment. As such, the Change
Frequency chosen will determine how frequently monthly variable annuity payments
will vary. 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.
At the time the Change Frequency is elected, the Owner must also select the date
the first change is to occur. This date may not be later than the length of the
Change Frequency elected. For example, if a semi-annual Change Frequency is
elected, the date of the first change may not be later than six months after the
Annuity Date. If a quarterly Change Frequency is elected, the date of the first
change may not be later than three months after the Annuity Date.
C. DESCRIPTION OF ANNUITY PAYOUT OPTIONS
The Company currently provides the following annuity payout options:
LIFE ANNUITY PAYOUT OPTION
- SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life.
Payments cease with the last annuity benefit payment due prior to the
Annuitant's death.
- JOINT AND SURVIVOR ANNUITIES -- Monthly payments during the Annuitant's
and Joint Annuitant's joint lifetimes. Upon the first death, payments will
continue for the remaining lifetime of the survivor at a previously elected
level of 100%, two-thirds or one-half of the total number of Annuity Units.
LIFE WITH PERIOD CERTAIN ANNUITY PAYOUT OPTION
- 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
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been made, the remaining payments continue to the Owner or the Beneficiary
(whichever is applicable).
- JOINT AND SURVIVOR ANNUITIES -- Monthly payments guaranteed for a
specified number of years and continuing during the Annuitant's and Joint
Annuitant's joint lifetimes. Upon the first death, payments continue for
the survivor's remaining lifetime at the previously elected level of 100%,
two-thirds or one-half of the Annuity Units. If the surviving Annuitant
dies before all guaranteed payments have been made, the remaining payments
continue to the Owner or the Beneficiary (whichever is applicable).
LIFE WITH CASH BACK ANNUITY PAYOUT OPTION
- SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life.
Thereafter, any excess of the originally applied Annuity Value, over the
total amount of annuity benefit payments made and withdrawals taken, will
be paid to the Owner or the Beneficiary (whichever is applicable).
- JOINT AND SURVIVOR ANNUITIES -- Monthly payments during the Annuitant's
and Joint Annuitant's joint lifetimes. At the first death, payments
continue for the survivor's remaining lifetime at the previously elected
level of 100%, two-thirds or one-half of the Annuity Units. Thereafter, any
excess of the original applied Annuity Value, over the total amount of
annuity benefit payments made and withdrawals taken, will be paid to the
Owner or the Beneficiary (whichever is applicable).
PERIOD CERTAIN ANNUITY PAYOUT OPTION
Monthly annuity benefit payments for a chosen number of years ranging from five
to thirty are paid. If the Annuitant dies before the end of the period,
remaining payments will continue. The period certain option does not involve a
life contingency. In the computation of the payments under this option, the
charge for annuity rate guarantees, which includes a factor for mortality risks,
is made.
D. VARIABLE ANNUITY BENEFIT PAYMENTS
THE ANNUITY UNIT. On and after the Annuity Date, the Annuity Unit is a measure
of the value of the monthly annuity benefit payments under a variable annuity
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 of 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 AIR and
(2) the Net Investment Factor of the Sub-Account funding the annuity benefit
payments for the applicable Valuation Period.
Annuity benefit payments will increase from one payment date to the next if the
annualized net rate of return during that period is greater than the AIR and
will decrease if the annualized net rate of return 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 FIRST ANNUITY BENEFIT PAYMENT. The amount of the first
periodic variable annuity benefit payment depends on the:
- annuity payout option chosen;
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- length of the annuity payout option elected;
- age of the Annuitant;
- gender of the Annuitant (if applicable, see "H. NORRIS Decision");
- value of the amount applied under the annuity payout option;
- applicable annuity purchase rates based on the Annuity 2000 Mortality
Table; and
- AIR selected.
The dollar amount of the first periodic annuity benefit payment is determined by
multiplying:
(1) the Accumulated Value applied under that option after application of any
Market Value Adjustment and less premium tax, if any, (or the amount of
the death benefit, if applicable) divided by $1,000, by
(2) the applicable amount of the first monthly payment per $1,000 of value.
DETERMINATION OF THE NUMBER OF ANNUITY UNITS. The dollar amount of the first
variable annuity benefit payment is then divided by the value of an Annuity Unit
of the selected Sub-Account(s) to determine the number of Annuity Units
represented by the first payment. The number of Annuity Units remains fixed
under all annuity payout options (except for the survivor annuity benefit
payment under the joint and two-thirds or joint and one-half option) unless the
Owner transfers among Sub-Accounts, makes a withdrawal, or units are split.
DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY BENEFIT PAYMENTS. For each
subsequent payment, the dollar amount of the variable annuity benefit payment is
determined by multiplying this fixed number of Annuity Units by the value of an
Annuity Unit on the applicable Valuation Date. The dollar amount of each
periodic variable annuity benefit payment after the first will vary with
subsequent variations in the value of the Annuity Unit of the selected
Sub-Account(s).
For an illustration of the calculation of a variable annuity benefit payment
using a hypothetical example, see "Annuity Benefit Payments" in the SAI.
PAYMENT OF ANNUITY BENEFIT PAYMENTS. The Owner will receive the annuity benefit
payments unless he/ she requests in writing that payments be made to another
person, persons, or entity. If the Owner (or, if there are Joint Owners, the
surviving Joint Owner) dies on or after the Annuity Date, the beneficiary will
become the Owner of the Contract. Any remaining annuity benefit payments will
continue to the beneficiary in accordance with the terms of the annuity benefit
payment option selected. If there are Joint Owners on or after the Annuity Date,
upon the first Owner's death, any remaining annuity benefit payments will
continue to the surviving Joint Owner in accordance with the terms of the
annuity benefit payment option selected.
If an Annuitant dies on or after the Annuity Date but before all guaranteed
annuity benefit payments have been made, any remaining payments will continue to
be paid to the Owner or the payee the Owner has designated. Unless otherwise
indicated by the Owner, the present value of any remaining guaranteed annuity
benefit payments may be paid in a single sum to the Owner. For discussion of
present value calculation, see "Calculation of Present Value" below.
E. TRANSFERS OF ANNUITY UNITS
After the Annuity Date and prior to the death of the Annuitant, the Owner may
transfer among the available Sub-Accounts upon written or telephone request to
the Company. As discussed in "A. Payments," a properly
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completed authorization form must be on file before telephone requests will be
honored. 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 Value
next computed after receipt of the transfer request.
Currently, the Company does 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, the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
Automatic transfers (Dollar Cost Averaging) are available during the
annuitization phase subject to the same rules described in "D. Transfer
Privilege" except that the Fixed Account is not available as a source account.
F. WITHDRAWALS AFTER THE ANNUITY DATE
WITHDRAWALS AFTER THE ANNUITY DATE FROM QUALIFIED AND NON-QUALIFIED CONTRACTS
MAY HAVE ADVERSE TAX CONSEQUENCES. BEFORE MAKING A WITHDRAWAL, PLEASE CONSULT
YOUR TAX ADVISOR AND SEE FEDERAL TAX CONSIDERATIONS, "C. TAXATION OF THE
CONTRACT IN GENERAL," "WITHDRAWALS AFTER ANNUITIZATION."
After the Annuity Date and prior to the death of the Annuitant, the Owner may
take withdrawals from the Contract. The Owner must submit to the Principal
Office a signed, written request indicating the desired dollar amount of the
withdrawal. The minimum amount of a withdrawal is $1,000. If the amount
requested is greater than the maximum amount that may be withdrawn at that time,
the Company will allow the withdrawal only up to the maximum amount.
The type of withdrawal and the number of withdrawals that may be made each
calendar year depend upon whether the Owner annuitizes under an annuity payout
option with payments based on the life of one or more Annuitants with no
guaranteed payments (a "Life" annuity payout option), under a life annuity
payout option that in part provides for a guaranteed number of payments (a "Life
With Period Certain" or "Life With Cash Back" annuity payout option), or an
annuity payout option based on a guaranteed number of payments (a "Period
Certain" annuity payout option).
WITHDRAWALS UNDER LIFE ANNUITY PAYOUT OPTIONS
The Owner may make one Payment Withdrawal in each calendar year. A Payment
Withdrawal cannot exceed the previous monthly annuity benefit payment multiplied
by ten (10). The amount of each Payment Withdrawal represents a percentage of
the present value of the remaining annuity benefit payments.
WITHDRAWALS UNDER LIFE WITH PERIOD CERTAIN OR LIFE WITH CASH BACK ANNUITY PAYOUT
OPTIONS
The Owner may make one Payment Withdrawal in each calendar year. A Payment
Withdrawal cannot exceed the previous monthly annuity benefit payment multiplied
by ten (10). The amount of each Payment Withdrawal represents a percentage of
the present value of the remaining annuity benefit payments.
The Owner may make one Present Value Withdrawal in each calendar year, if there
are remaining GUARANTEED annuity benefit payments. The amount of each Present
Value Withdrawal represents a percentage of the present value of the remaining
guaranteed annuity benefit payments. Each year a Present Value Withdrawal is
taken, the Company records the percentage of the present value of the then
remaining guaranteed annuity benefit payments that was withdrawn. The total
percentage withdrawn over the life of the Contract cannot exceed 75%. This means
that each Present Value Withdrawal is limited by the remaining available
percentage. (For example, assume that in year three the Owner withdraws 15% of
the then current present value of the remaining guaranteed annuity benefit
payments. In year seven, the Owner withdraws 20% of the then current present
value of the remaining guaranteed annuity benefit payments. Through year seven
the total percentage
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withdrawn is 35%. After year seven, the Owner may make Present Value
Withdrawal(s) of up to 40% (75% - 35%) of the present value of any remaining
guaranteed annuity benefit payments).
Under a Life with Period Certain annuity payout option or Life with Cash Back
annuity payout option, if the Annuitant is still living after the guaranteed
annuity benefit payments have been made, the number of Annuity Units or dollar
amount applied to future annuity benefit payments will be restored as if no
Present Value Withdrawal(s) had taken place. See "Calculation of Proportionate
Reduction -- Present Value Withdrawals," below.
WITHDRAWALS UNDER PERIOD CERTAIN ANNUITY PAYOUT OPTIONS
The Owner may make multiple Present Value Withdrawals in each calendar year, up
to 100% of the present value of the guaranteed annuity benefit payments.
Withdrawal of 100% of the present value of the guaranteed annuity benefit
payments will result in termination of the Contract.
The amount of each Payment Withdrawal or Present Value Withdrawal represents a
portion of the present value of the remaining annuity benefit payments or
remaining guaranteed annuity benefit payments, respectively, and proportionately
reduces the number of Annuity Units (under a variable annuity payout option) or
dollar amount (under a fixed annuity payout option) applied to future annuity
benefit payments. Because each variable annuity benefit payment is determined by
multiplying the number of Annuity Units by the value of an Annuity Unit, the
reduction in the number of Annuity Units will result in lower future variable
annuity benefit payments. See "Calculation of Proportionate Reduction," below.
The present value is calculated with a discount rate that will include an
additional charge if a withdrawal is taken within 5 years of the Issue Date. See
"Calculation of Present Value," below.
CALCULATION OF PROPORTIONATE REDUCTION. Each Payment Withdrawal proportionately
reduces the number of Annuity Units applied to each future variable annuity
benefit payment or the dollar amount applied to each future fixed annuity
benefit payment. Each Present Value Withdrawal proportionately reduces the
number of Annuity Units applied to each future GUARANTEED variable annuity
benefit payment or the dollar amount applied to each future GUARANTEED fixed
annuity benefit payment. Because each variable annuity benefit payment is
determined by multiplying the number of Annuity Units by the value of an Annuity
Unit, the reduction in the number of Annuity Units will result in lower future
variable annuity benefit payments.
PAYMENT WITHDRAWALS. Payment Withdrawals are available under Life, Life with
Period Certain, or Life with Cash Back annuity payout options. The Owner may
make one Payment Withdrawal in each calendar year.
Under a variable annuity payout option, the proportionate reduction in Annuity
Units is calculated by multiplying the number of Annuity Units in each future
variable annuity benefit payment (determined immediately prior to the
withdrawal) by the following fraction:
Amount of the variable withdrawal
----------------------------------------------
Present value of all remaining variable annuity
benefit payments immediately prior to the withdrawal
Because each variable annuity benefit payment is determined by multiplying the
number of Annuity Units by the value of an Annuity Unit, the reduction in the
number of Annuity Units will result in lower future variable annuity benefit
payments.
Under a fixed annuity payout option, the proportionate reduction is calculated
by multiplying the dollar amount of each future fixed annuity benefit payment by
a similar fraction, which is based on the amount of the fixed withdrawal and
present value of remaining fixed annuity benefit payments.
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If a withdrawal is taken within 5 years of the Issue Date, the discount rate
used to calculate the present value will include an additional charge. See
"Calculation of Present Value," below.
PRESENT VALUE WITHDRAWALS. Present Value Withdrawals are available under Life
with Period Certain or Life with Cash Back annuity payout options (the Owner may
make one Present Value Withdrawal in each calendar year, if there are remaining
guaranteed annuity benefit payments) and under Period Certain annuity payout
options (the Owner may make multiple Present Value Withdrawals in each calendar
year).
Under a variable annuity payout option, the proportionate reduction in Annuity
Units is calculated by multiplying the number of Annuity Units in each future
variable guaranteed annuity benefit payment (determined immediately prior to the
withdrawal) by the following fraction:
Amount of the variable withdrawal
----------------------------------------------
Present value of all remaining variable annuity
benefit payments immediately prior to the withdrawal
Under a fixed annuity payout option, the proportionate reduction is calculated
by multiplying the dollar amount of each future fixed annuity benefit payment by
a similar fraction, which is based on the amount of the fixed withdrawal and
present value of remaining guaranteed fixed annuity benefit payments.
Because each variable annuity benefit payment is determined by multiplying the
number of Annuity Units by the value of an Annuity Unit, the reduction in the
number of Annuity Units will result in lower variable annuity benefit payments
with respect to the guaranteed payments. Under a fixed annuity payout option,
the proportionate reduction will result in lower fixed annuity benefit payments
with respect to the guaranteed payments. However, under a Life with Period
Certain annuity payout option or Life with Cash Back annuity payout option, if
the Annuitant is still living after the guaranteed number of annuity benefit
payments has been made, the number of Annuity Units or dollar amount of future
annuity benefit payments will be restored as if no Present Value Withdrawal(s)
had taken place.
If a withdrawal is taken within 5 years of the Issue Date, the discount rate
used to calculate the present value will include an additional charge. See
"Calculation of Present Value," below.
CALCULATION OF PRESENT VALUE. When a withdrawal is taken, the present value of
future annuity benefit payments is calculated based on an assumed mortality
table and a discount rate. The mortality table that is used will be equal to the
mortality table used at the time of annuitization to determine the annuity
benefit payments (currently the Annuity 2000 Mortality Table with male, female,
or unisex rates, as appropriate). The discount rate is the AIR (for a variable
annuity payout option) or the interest rate (for a fixed annuity payout option)
that was used at the time of annuitization to determine the annuity benefit
payments.
For each Payment Withdrawal, the number of years of annuity benefit payments
being valued depends upon the life expectancy of the Annuitant at the time of
the withdrawal. The life expectancy will be determined by a mortality table that
will be equal to the mortality table used at the time of annuitization to
determine the annuity benefit payments (currently the Annuity 2000 Mortality
Table).
Carefully consider the following before making a withdrawal (especially if you
are making the withdrawal under a Life with Period Certain or Life with Cash
Back annuity payout option):
- For a Payment Withdrawal, the present value calculation (including any
applicable adjustments) affects the proportionate reduction of the
remaining number of Annuity Units (under a variable annuity payout option)
or dollar amount (under a fixed annuity payout option), applied to each
future annuity benefit payment, as explained in "Calculation of
Proportionate Reduction -- Payment Withdrawals," above. There will be a
proportionate reduction in the number of Annuity Units or the dollar amount
applied to
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each future annuity benefit payment. This will result in lower future
annuity benefit payments, all other things being equal.
- For a Present Value Withdrawal, the discount factor is used in determining
the maximum amount that can be withdrawn under the present value
calculation. In addition, there will be a proportionate reduction in the
number of Annuity Units or the dollar amount applied to each future
guaranteed annuity benefit payment. This will result in lower future
annuity benefit payments with respect to the guaranteed payments, all other
things being equal. See "Calculation of Proportionate Reduction -- Present
Value Withdrawals," above.
For examples comparing a Payment Withdrawal and a Present Value Withdrawal, see
APPENDIX D -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS.
DEFERRAL OF WITHDRAWALS. A withdrawal is normally payable within seven days
following the Company's receipt of the withdrawal request. However, the Company
reserves the right to defer withdrawals of 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 separate account is not
reasonably practicable.
The Company reserves the right to defer withdrawals of amounts allocated to the
Company's General Account for a period not to exceed six months.
G. REVERSAL OF ANNUITIZATION
The Owner may reverse the decision to annuitize by written request to the
Company within 90 days of the Annuity Date. Upon receipt of such request, the
Company will return the Contract to the Accumulation Phase, subject to the
following:
(1) The value applied under a fixed annuity payout option at the time of
annuitization will be treated as if it had been invested in the Fixed
Account of the Contract on that same date.
(2) The Sub-Account allocations that were in effect at the time of
annuitization will first be used for calculating the reversal. Any
transfers between variable Sub-Accounts during the Annuity Payout phase
will then be treated as transfers during the Accumulation Phase (As a
result, the Contract's Accumulated Value after the reversal will reflect
the same Sub-Account allocations that were in effect immediately prior to
the reversal).
(3) Any annuity benefit payments paid and any withdrawals taken during the
Annuity Payout phase will be treated as a withdrawal of the Surrender
Value in the Accumulation Phase, as of the date of the payment or
withdrawal. There may be adverse tax consequences resulting from these
withdrawals. See FEDERAL TAX CONSIDERATIONS, "C. Taxation of the Contract
in General."
If the Company learns of the Owner's decision to reverse annuitization after the
maximum Annuity Date permitted under the Contract, the Company will contact the
Owner. The Owner must then immediately select an annuity payout option (either
the original annuity payout option or a different annuity payout option). If the
Owner does not select an annuity payout option, payments will begin under a
variable Life with Cash Back annuity payout option.
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H. 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.
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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 Underlying
Funds.
A. VARIABLE ACCOUNT DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE. The Company assesses a charge against the
assets of each Sub-Account to compensate for certain mortality and expense risks
it has assumed. The mortality and expense risk charge is assessed daily at an
annual rate of 0.65% of each Sub-Account's assets. The charge is imposed during
both the accumulation phase and the annuity payout phase. The mortality risk
arises from the Company's guarantee that it will make annuity benefit 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
payout 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 during
the annuity payout phase on all Contracts, including those that do not involve a
life contingency, even though the Company does not bear direct mortality risk
with respect to variable annuity settlement options that do not involve life
contingencies. The expense risk arises from the Company's guarantee that the
charges it makes will not exceed the limits described in the Contract and in
this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
This charge may not be increased. Since mortality and expense risks involve
future contingencies that are not subject to precise determination in advance,
it is not feasible to identify specifically the portion of the charge which is
applicable to each.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily Administrative Expense Charge at an annual rate of 0.15% of the average
daily net assets of the Sub-Account. The charge is imposed during both the
accumulation phase and the annuity payout phase and may not be increased. The
daily Administrative Expense Charge is assessed to help defray administrative
expenses actually incurred in the administration of the Sub-Account. There is no
direct relationship, however, between the amount of administrative expenses
imposed on a given Contract and the amount of expenses actually attributable to
that Contract.
Deductions for the Contract fee (described below under "B. Contract Fee") and
for the Administrative Expense Charge are designed to reimburse the Company for
the cost of administration and related expenses and are not expected to be a
source of profit. The administrative functions and expense assumed by the
Company in connection with the Variable Account and the 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.
OTHER CHARGES. 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. The
prospectus and SAI of the Underlying Funds contain additional information
concerning expenses of the Underlying Funds.
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B. CONTRACT FEE
A $35 Contract fee (a lower fee may apply in some states) currently is deducted
during the accumulation phase, on the Contract anniversary date and upon full
surrender of the Contract if the Accumulated Value on any of these dates is less
than $75,000.
Where Contract value has been allocated to more than one account, a percentage
of the total Contract fee will be deducted from the value in each account. The
portion of the charge deducted from each account will be equal to the percentage
which the value in that account bears to the Accumulated Value under the
Contract. The deduction of the Contract fee from a Sub-Account will result in
cancellation of a number of Accumulation Units equal in value to the portion of
the charge deducted from that Sub-Account.
Where permitted by law, the Contract fee also may be waived for Contracts where,
on the Issue Date, either the Owner or the Annuitant is within the following
class of individuals: employees and registered representatives of any
broker-dealer which has entered into a sales agreement with the Company to sell
the Contract; employees of the Company, its affiliates and subsidiaries;
officers, directors, trustees and employees of any of the Funds; investment
managers or sub-advisers of the Underlying Funds; and the spouses of and
immediate family members residing in the same household with such eligible
persons. "Immediate family members" means children, siblings, parents and
grandparents.
C. OPTIONAL RIDER CHARGE
Subject to state availability, the Company offers a rider that is available only
if elected by the Owner at issue. A separate monthly charge is made for the
Rider through a pro-rata reduction of the Accumulated Value of the Sub-Accounts,
the Fixed Account and the Guarantee Period Accounts. The pro-rata reduction is
based on the relative value that the Accumulation Units of the Sub-Accounts, the
dollar amounts in the Fixed Account and the dollar amounts in the Guarantee
Period Accounts bear to the total Accumulated Value.
The applicable charge for the Rider is assessed on the Accumulated Value on the
last day of each Contract month and, if applicable, on the date the Rider is
terminated, multiplied by 1/12th of the following annual percentage rate:
<TABLE>
<S> <C>
5% Enhanced Death Benefit With Annual Step-Up............... 0.25%
</TABLE>
For a description of the Rider, see "Optional Enhanced Death Benefit Rider"
under "F. Death Benefit," DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE,
above.
D. PREMIUM TAXES
Some states and municipalities impose a premium tax on variable annuity
contracts. State premium taxes currently range up to 3.5%. The Company makes a
charge for state and municipal premium taxes, when applicable, and deducts the
amount paid as a premium tax charge. The current practice of the Company is to
deduct the premium tax charge in one of two ways:
1. if the premium tax was paid by the Company when payments were received,
the premium tax charge is deducted on a pro-rata basis when withdrawals
are made, upon surrender of the Contract, or when annuity benefit
payments begin (the Company reserves the right instead to deduct the
premium tax charge for a Contract at the time payments are received); or
2. the premium tax charge is deducted when annuity benefit payments begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law.
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If no amount for premium tax was deducted at the time the payment was received,
but subsequently tax is determined to be due prior to the Annuity Date, the
Company reserves the right to deduct the premium tax from the Contract value at
the time such determination is made.
E. TRANSFER CHARGE
The Company currently does not assess a charge for processing transfers. The
Company guarantees that the first 12 transfers in a Contract year will be free
of a transfer charge, but reserves the right to assess a charge, guaranteed
never to exceed $25, for each subsequent transfer in a Contract year to
reimburse it for the expense of processing transfers. For more information, see
"D. Transfer Privilege" under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION
PHASE and "E. Transfers of Annuity Units" under ANNUITIZATION -- THE PAYOUT
PHASE.
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GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the 1933 Act or
the 1940 Act. Accordingly, the staff of the SEC has not reviewed the disclosures
in this Prospectus relating to the Guarantee Period Accounts or the Fixed
Account. Nevertheless, disclosures regarding the Guarantee Period Accounts and
the Fixed Account of this Contract or any fixed benefits offered under these
accounts may be subject to the provisions of the 1933 Act relating to the
accuracy and completeness of statements made in the Prospectus.
INVESTMENT OPTIONS. In most jurisdictions, Guarantee Periods ranging from two
through ten years may be available. Each Guarantee Period established for the
Owner is accounted for separately in a non-unitized segregated account except in
California where it is accounted for in the Company's General Account. Each
Guarantee Period Account provides for the accumulation of interest at a
Guaranteed Interest Rate. The Guaranteed Interest Rate on amounts allocated or
transferred to a Guarantee Period Account is determined from time to time by the
Company in accordance with market conditions. Once an interest rate is in effect
for a Guarantee Period Account, however, the Company may not change it during
the duration of its Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%. The Guarantee Period Accounts are not available in New
York, Oregon, Maryland, and Pennsylvania.
To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Owners may allocate net payments or make transfers from any of the Sub-Accounts,
the Fixed Account or an existing Guarantee Period Account to establish a new
Guarantee Period Account at any time prior to the Annuity Date. Transfers from a
Guarantee Period Account on any date other than on the day following the
expiration of that Guarantee Period will be subject to a Market Value
Adjustment. The Company establishes a separate investment account each time the
Owner allocates or transfers amounts to a Guarantee Period except that amounts
allocated to the same Guarantee Period on the same day will be treated as one
Guarantee Period Account. The minimum that may be allocated to establish a
Guarantee Period Account is $1,000. If less than $1,000 is allocated, the
Company reserves the right to apply that amount to the Money Market Sub-Account.
The Owner may allocate amounts to any of the Guarantee Periods available.
At least 45 days, but not more than 75 days, prior to the end of a Guarantee
Period, the Company will notify the Owner in writing of the expiration of that
Guarantee Period. At the end of a Guarantee Period the Owner may transfer
amounts to the Sub-Accounts, the Fixed Account or establish a new Guarantee
Period Account of any duration then offered by the Company without a Market
Value Adjustment. If reallocation instructions are not received at the Principal
Office before the end of a Guarantee Period, the account value automatically
will be applied to a new Guarantee Period Account with the same duration at the
then current rate unless (1) less than $1,000 would remain in the Guarantee
Period Account on the expiration date, or (2) unless the Guarantee Period would
extend beyond the Annuity Date or is no longer available. In such cases, the
Guarantee Period Account value will be transferred to the Sub-Account investing
in the Money Market Sub-Account. Where amounts have been renewed automatically
in a new Guarantee Period, the Company will give the Owner an additional 30 days
to transfer out of the Guarantee Period Account without application of a Market
Value Adjustment.
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "F. Death Benefit." All
other transfers, withdrawals, or a surrender prior to the end of a Guarantee
Period will be subject to a Market Value Adjustment, which may increase or
decrease the value. Amounts
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<PAGE>
applied under an annuity option are treated as withdrawals when calculating the
Market Value Adjustment. The Market Value Adjustment will be determined by
multiplying the amount taken from each Guarantee Period Account by the market
value factor. The market value factor for each Guarantee Period Account is equal
to:
[(1+i)/(1+j)](n/365) - 1
where: i is the Guaranteed Interest Rate expressed as a decimal for
example: (3% = 0.03) being credited to the current Guarantee
Period;
j is the new Guaranteed Interest Rate, expressed as a decimal,
for a Guarantee Period with a duration equal to the number of
years remaining in the current Guarantee Period, rounded to the
next higher number of whole years. If that rate is not
available, the Company will use a suitable rate or index
allowed by the Department of Insurance; and
n is the number of days remaining from the Effective Valuation
Date to the end of the current Guarantee Period.
Based on the application of this formula, the value of a Guarantee Period
Account will increase after the Market Value Adjustment is applied if the then
current market rates are lower than the rate being credited to the Guarantee
Period Account. Similarly, the value of a Guarantee Period Account will decrease
after the Market Value Adjustment is applied if the then current market rates
are higher than the rate being credited to the Guarantee Period Account. The
Market Value Adjustment is limited; however, so that even if the account value
is decreased after application of a Market Value Adjustment, it will equal or
exceed the Owner's principal plus 3% earnings per year less applicable Contract
fees. Conversely, if the then current market rates are lower and the account
value is increased after the Market Value Adjustment is applied, the increase in
value is also affected by the minimum guaranteed rate of 3%. The amount that
will be added to the Guarantee Period Account is limited to the difference
between the amount earned and the 3% minimum guaranteed earnings. For examples
of how the Market Value Adjustment works, See APPENDIX C, THE MARKET VALUE
ADJUSTMENT.
WITHDRAWALS. Prior to the Annuity Date, the Owner may make withdrawals of
amounts held in the Guarantee Period Accounts. Withdrawals from these accounts
will be made in the same manner and be subject to the same rules as set forth
under "E. Surrender and Withdrawals." In addition, the following provisions also
apply to withdrawals from a Guarantee Period Account: (1) a Market Value
Adjustment will apply to all withdrawals unless made at the end of the Guarantee
Period; and (2) the Company reserves the right to defer payments of amounts
withdrawn from a Guarantee Period Account for up to six months from the date it
receives the withdrawal request. If deferred for 30 days or more, the Company
will pay interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted or added to the amount remaining in the Guarantee Period
Account. If the entire amount in a Guarantee Period Account is requested, the
adjustment will be made to the amount payable.
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<PAGE>
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Contract, on withdrawals or
surrenders, on annuity benefit payments, and on the economic benefit to the
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the IRS. In
addition, this discussion does not address state or local tax consequences that
may be associated with the Contract.
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS, AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER ALWAYS SHOULD BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
A. GENERAL
THE COMPANY. The Company intends to make 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 was a separate taxable entity.
The Variable Account is considered a part of and taxed with the operations of
the Company. The Company is taxed as a life insurance company under Subchapter L
of the Code. The Company files a consolidated tax return with its affiliates.
DIVERSIFICATION REQUIREMENTS. The IRS has issued regulations under Section
817(h) of the Code relating to the diversification requirements for variable
annuity and variable life insurance contracts. The regulations prescribed by the
Treasury Department provide that the investments of a segregated asset account
underlying a variable annuity contract are adequately diversified if no more
than 55% of the value of its assets is represented by any one investment, no
more than 70% by any two investments, no more than 80% by any three investments,
and no more than 90% by any four investments. Under this section of the Code, if
the investments are not adequately diversified, the Contract will not be treated
as an annuity contract, and therefore the income on the Contract, for any
taxable year of the Owner, would be treated as ordinary income received or
accrued by the Owner. It is anticipated that the Underlying Portfolios will
comply with the current diversification requirements. In the event that future
IRS regulations and/or rulings would require Contract modifications in order to
remain in compliance with the diversification standards, the Company will make
reasonable efforts to comply, and it reserves the right to make such changes as
it deems appropriate for that purpose.
INVESTOR CONTROL. In order for a variable annuity contract to qualify for tax
deferral, the Company, and not the variable contract owner, must be considered
to be the owner for tax purposes of the assets in the segregated asset account
underlying the variable annuity contract. In certain circumstances, however,
variable annuity contract owners may now be considered the owners of these
assets for federal income tax purposes. Specifically, the IRS has stated in
published rulings that a variable annuity contract owner may be considered the
owner of segregated account assets if the contract owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations concerning investment diversification, that those
regulations do not provide guidance governing the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account. This announcement also states
that guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their
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<PAGE>
investments to particular sub-accounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued. The Company therefore additionally reserves the right to modify the
Contract as necessary in order to attempt to prevent a contract owner from being
considered the owner of a pro rata share of the assets of the segregated asset
account underlying the variable annuity contracts.
B. QUALIFIED AND NON-QUALIFIED CONTRACTS
From a federal tax viewpoint there are two types of variable annuity contracts,
"qualified contracts" and "non-qualified" contracts. A qualified contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 408 and 408A of the Code, while a non-qualified
contract is one that is not purchased in connection with one of the indicated
retirement plans. The tax treatment for certain withdrawals or surrenders will
vary, depending on whether they are made from a qualified contract or a non-
qualified contract. For more information on the tax provisions applicable to
qualified contracts, see "E. Individual Retirement Annuities" below.
C. TAXATION OF THE CONTRACT IN GENERAL
The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see "Nonnatural Owner" below), be considered an annuity
contract under Section 72 of the Code. Please note, however, if the Owner
chooses an Annuity Date beyond the Owner's 85th birthday, it is possible that
the Contract may not be considered an annuity for tax purposes, and therefore,
the Owner will be taxed on the annual increase in Accumulated Value. The Owner
should consult tax and financial advisors for more information. This section
governs the taxation of annuities. The following discussion concerns annuities
subject to Section 72.
WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in
the Contract's Accumulated Value is not taxable to the Owner until it is
withdrawn from the Contract. Under the current provisions of the Code, amounts
received under an annuity contract prior to annuitization (including payments
made upon the death of the annuitant or owner), generally are first attributable
to any investment gains credited to the contract over the taxpayer's "investment
in the contract." Such amounts will be treated as gross income subject to
federal income taxation. "Investment in the contract" is the total of all
payments to the Contract which were not excluded from the Owner's gross income
less any amounts previously withdrawn which were not included in income. Section
72(e)(11)(A)(ii) requires that all non-qualified deferred annuity contracts
issued by the same insurance company to the same owner during a single calendar
year be treated as one contract in determining taxable distributions.
WITHDRAWALS AFTER ANNUITIZATION. A withdrawal from a qualified or non-qualified
Contract may create significant adverse tax consequences. It is possible that
the Internal Revenue Service may take the view that when withdrawals (other than
annuity payments) are taken during the annuity payout phase of the Contract, all
amounts received by the taxpayer may be taxable at ordinary income rates as
amounts "not received as an annuity." In addition, such amounts may be taxable
to the recipient without regard to the Owner's investment in the Contract or any
investment gain that might be present in the current Annuity Value.
For example, assume that a Contract owner with a Contract Value of $100,000 of
which $90,000 is comprised of investment in the Contract and $10,000 is
investment gain, makes a withdrawal of $20,000 during the annuity payout phase.
Under this view, the Contract owner would pay income taxes on the entire $20,000
amount in that tax year. For some taxpayers, such as those under age 59 1/2,
additional tax penalties may also apply.
OWNERS OF QUALIFIED AND NON-QUALIFIED CONTRACTS SHOULD CONSIDER CAREFULLY THE
TAX IMPLICATIONS OF ANY WITHDRAWAL REQUESTS AND THEIR NEED FOR CONTRACT FUNDS
PRIOR TO THE EXERCISE OF THE WITHDRAWAL RIGHT. CONTRACT OWNERS SHOULD ALSO
CONTACT THEIR TAX ADVISER PRIOR TO MAKING WITHDRAWALS.
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<PAGE>
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments begin under
the Contract, generally a portion of each payment may be excluded from gross
income. The excludable portion generally is determined by a formula that
establishes the ratio that the investment in the Contract bears to the expected
return under the Contract. The portion of the payment in excess of this
excludable amount is taxable as ordinary income. Once all the investment in the
Contract is recovered, the entire payment is taxable. If the annuitant dies
before cost basis is recovered, a deduction for the difference is allowed on the
Owner's final tax return.
PENALTY ON DISTRIBUTION. A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2. The penalty tax
will not be imposed on withdrawals:
- taken on or after age 59 1/2; or
- if the withdrawal follows the death of the Owner (or, if the Owner is not
an individual, the death of the primary Annuitant, as defined in the Code);
or
- in the case of the Owner's "total disability" (as defined in the Code); or
- irrespective of age, if the amount received is one of a series of
"substantially equal" periodic payments made at least annually for the life
or life expectancy of the payee.
The requirement of "substantially equal" periodic payments is met when the Owner
elects to have distributions made over the Owner's life expectancy, or over the
joint life expectancy of the Owner and beneficiary. The requirement is also met
when the number of units withdrawn to make each distribution is substantially
the same. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the later of the Owner's age 59 1/2 or five years,
will subject the Owner to the 10% penalty tax on the prior distributions.
In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy, and the
option could be changed or terminated at any time, the distributions failed to
qualify as part of a "series of substantially equal payments" within the meaning
of Section 72 of the Code. The distributions, therefore, were subject to the 10%
federal penalty tax. This Private Letter Ruling may be applicable to an Owner
who receives distributions under any LED-type option prior to age 59 1/2
Subsequent Private Letter Rulings, however, have treated LED-type withdrawal
programs as effectively avoiding the 10% penalty tax. The position of the IRS on
this issue is unclear.
ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the Owner will incur taxable income at the time of the transfer. An exception is
provided for certain transfers between spouses. The amount of taxable income
upon such taxable transfer is equal to any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions.
NONNATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"nonnatural persons" (e.g., a corporation) are not treated as annuity contracts
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity contracts purchased with a single payment when the annuity date
is no later than a year from the Issue Date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other than employers, such as a trust, holding an
annuity as an agent for a natural person. This exception, however, will not
apply in cases of any employer who is the owner of an annuity contract under a
non-qualified deferred compensation plan.
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<PAGE>
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity contracts. Contributions and investment earnings
are not taxable to employees until distributed; however, with respect to
payments made after February 28, 1986, a Contract owned by a state or local
government or a tax-exempt organization will not be treated as an annuity under
Section 72 as well.
D. TAX WITHHOLDING
The Code requires withholding with respect to payments or distributions from
non-qualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.
E. INDIVIDUAL RETIREMENT ANNUITIES
Federal income taxation of assets held inside an individual retirement annuity
and of earnings on those assets is deferred until distribution of plan benefits
begin. As such, it is not necessary to purchase a variable annuity contract
solely to obtain its tax deferral feature. However, other features offered under
this Contract and described in this Prospectus -- such as the minimum guaranteed
death benefit, the guaranteed fixed annuity rates and the wide variety of
investment options -- may make this Contract a suitable investment for your
individual retirement annuity.
Sections 408 and 408A of the Code permits eligible individuals to contribute to
an individual retirement program known as an Individual Retirement Annuity
("IRA"). Note: This term covers all IRAs permitted under Sections 408 and 408A
of the Code, including Roth IRAs. IRAs are subject to limits on the amounts that
may be contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, certain distributions from other types
of retirement plans may be "rolled over," on a tax-deferred basis, to an IRA.
Purchasers of an IRA Contract will be provided with supplementary information as
may be required by the IRS or other appropriate agency, and will have the right
to cancel the Contract as described in this Prospectus. See "C. Right to
Cancel."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) for their employees using IRAs. Employer
contributions that may be made to such plans are larger than the amounts that
may be contributed to regular IRAs and may be deductible to the employer.
STATEMENTS AND REPORTS
An Owner is sent a report semi-annually which provides certain financial
information about the Underlying Funds. At least annually, but possibly as
frequently as quarterly, the Company will furnish a statement to the Owner
containing information about his or her Contract, including Accumulation Unit
Values and other information as required by applicable law, rules and
regulations. The Company will also send a confirmation statement to Owners each
time a transaction is made affecting the Contract Value. (Certain transactions
made under recurring payment plans may in the future be confirmed quarterly
rather than by immediate confirmations.) The Owner should review the information
in all statements carefully. All errors or corrections must be reported to the
Company immediately to assure proper crediting to the Contract. The Company will
assume that all transactions are accurately reported on confirmation statements
and quarterly/annual statements unless the Owner notifies the Principal Office
in writing within 30 days after receipt of the statement.
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ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Fund no longer are available for investment or if, in the Company's
judgment, further investment in any Underlying Fund should become inappropriate
in view of the purposes of the Variable Account or the affected Sub-Account, the
Company may withdraw the shares of that Underlying Fund and substitute shares of
another registered open-end management company. The Company will not substitute
any shares attributable to a Contract interest in a Sub-Account without notice
to the Owner and prior approval of the SEC and state insurance authorities, to
the extent required by the 1940 Act or other applicable law. The Variable
Account may, to the extent permitted by law, purchase other securities for other
contracts or permit a conversion between contracts upon request by an Owner.
The Company also reserves 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,
the Company may, in its 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 to be determined by the Company.
Shares of the Underlying Funds also are issued to variable accounts of the
Company and its affiliates which issue variable life contracts ("mixed
funding"). Shares of the Underlying 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 the Company and the Underlying Funds
do not currently foresee any such disadvantages to either variable life
insurance owners or variable annuity owners, the Company 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, the
Company will bear the attendant expenses.
If any of these substitutions or changes is made, the Company may endorse the
Contract to reflect the substitution or change, and will notify Owners of all
such changes. If the Company deems 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-Account(s) may be operated as a management company under the
1940 Act, may be deregistered under the 1940 Act if registration is no longer
required, or may be combined with other Sub-Accounts or other separate accounts
of the Company.
The Company reserves the right, subject to compliance with applicable law and to
the provisions of the Participation Agreements, to:
(1) transfer assets from the Variable Account or Sub-Account to another of
the Company's variable 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 for
the Fund shares held by a Sub-Account, in the event that Fund shares are
unavailable for investment, or if the Company determines that further
investment in such 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 be made without notice to Owners in
accordance with the 1940 Act.
41
<PAGE>
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves 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 Owners the benefit of, any federal or state
statute, rule or regulation (or any laws, regulations or rules of any
jurisdiction in which the Company is doing business), 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. Owners will be given written
notice of such changes.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Sub-Account in
accordance with instructions received from Owners. 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
the Company. Shares for which no timely instructions are received will be voted
in proportion to the instructions that are received. The Company also will vote
shares in a Sub-Account that it owns and which are not attributable to Contracts
in the same proportion. If the 1940 Act or any rules thereunder should be
amended or if the present interpretation of the 1940 Act or such rules should
change, and as a result the Company determines that it is permitted to vote
shares in its own right, whether or not such shares are attributable to the
Contract, the Company reserves the right to do so.
The number of votes which an Owner may cast will be determined by the Company as
of the record date established by the Underlying Fund. During the accumulation
period, the number of Underlying Fund shares attributable to each Owner will be
determined by dividing the dollar value of the Accumulation Units of the
Sub-Account credited to the Contract by the net asset value of one Underlying
Fund share. During the annuity period, the number of Underlying Fund shares
attributable to each Owner will be determined by dividing the reserve held in
each Sub-Account for the Owner's Variable Annuity by the net asset value of one
Underlying Fund share. Ordinarily, the Owner's 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.
The Company does not pay commissions to representatives of Allmerica
Investments, Inc. or to independent broker-dealers who sell the Contract.
However, a representative of Allmerica Investments, Inc. or an independent
broker-dealer may assess an advisory fee as compensation for his or her
services. To the extent permitted by NASD rules, promotional incentives or
payments may be provided to such broker-dealers based on sales volumes, the
assumption of wholesaling functions, or other sales-related criteria. Additional
payments may be made for other services not directly related to the sale of the
Contract, including the recruitment and training of personnel, production of
promotional literature, and similar services.
The Company intends to recoup the cost of promotional and other sales expenses
through profits from the Company's General Account, which may include amounts
derived from mortality and risk charges.
Owners may direct any inquiries to their financial representative or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-533-7881.
42
<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 its total assets or that relates to the Separate
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 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.
Based on a third party assessment, the Company determined that significant
portions of its software required modification or replacement to enable its
computer systems to properly process dates beyond December 31, 1999. The Company
has completed the process of modifying or replacing existing software and
believes that this action will resolve the Year 2000 issue. However, should
there be serious unanticipated interruptions from unknown sources, the Year 2000
issue could have a material adverse impact on the operations of the Company.
Specifically, the Company could experience, among other things, an interruption
in its ability to collect and process premiums, process claim payments,
safeguard and manage its 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 the financial position
of the Company.
The Company is engaged in formal communications with all of its significant
suppliers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 issue. The Company's
total Year 2000 project cost and estimates to complete the project include the
estimated costs and time associated with the Company's involvement on a third
party's Year 2000 program, and are based on presently available information.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have material adverse effect on the Company. The
Company does not believe that it has material exposure to contingencies related
to the Year 2000 issue for the products it has sold. Although the Company does
not believe that there is a material contingency associated with the Year 2000
issue, there can be no assurance that exposure for material contingencies will
not arise.
The cost of the Year 2000 project is being 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.
The Company and its affiliates have incurred and expensed approximately $61
million related to the assessment, plan development and substantial completion
of the Year 2000 project through June 30, 1999. The total remaining cost of the
project is estimated between $10-$15 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.
43
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account generally are not subject to regulation under the
provisions of the 1933 Act or the 1940 Act. Disclosures regarding the fixed
portion of the annuity Contract and the Fixed Account may be subject to the
provisions of the 1933 Act concerning the accuracy and completeness of
statements made in this Prospectus. The disclosures in this APPENDIX A have not
been reviewed by the SEC.
The Fixed Account is part of the Company's General Account which is made up of
all of the general assets of the Company other than those allocated to a
separate account. Allocations to the Fixed Account become part of the assets of
the Company and are used to support insurance and annuity obligations. A portion
or all of net payments may be allocated to accumulate at a fixed rate of
interest in the Fixed Account. Such net amounts are guaranteed by the Company as
to principal and a minimum rate of interest. Under the Contract, the minimum
interest which may be credited on amounts allocated to the Fixed Account is 3%
compounded annually. Additional "Excess Interest" may or may not be credited at
the sole discretion of the Company.
STATE RESTRICTIONS. In Massachusetts, payments and transfers to the Fixed
Account are subject to the following restrictions:
If a Contract is issued prior to the Annuitant's 60th birthday, allocations
to the Fixed Account will be permitted until the Annuitant's 61st birthday.
On and after the Annuitant's 61st birthday, no additional Fixed Account
allocations will be accepted. If a Contract is issued on or after the
Annuitant's 60th birthday, up through and including the Annuitant's 81st
birthday, Fixed Account allocations will be permitted during the first
Contract year. On and after the first Contract anniversary, no additional
allocations to the Fixed Account will be permitted. If a Contract is issued
after the Annuitant's 81st birthday, no payments to the Fixed Account will
be permitted at any time.
In Oregon, no payments to the Fixed Account will be permitted if a Contract is
issued after the Annuitant's 81st birthday. If an allocation designated as a
Fixed Account allocation is received at the Principal Office during a period
when the Fixed Account is not available due to the limitations outlined above,
the monies will be allocated to the Money Market Sub-Account.
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAMS. To the extent
permitted by law, the Company reserves the right to offer Enhanced Automatic
Transfer Program(s) from time to time. If you elect to participate, the Company
will credit an enhanced interest rate to payments made to the Enhanced Automatic
Transfer Program. Eligible payments:
- must be new payments to the Contract, including the initial payment,
- must be allocated to the Fixed Account, which will be the source account,
- must be automatically transferred out of the Fixed Account to one or more
Sub-Accounts over a specified time period and
- will receive the enhanced rate while they remain in the Fixed Account.
You may be able to establish more than one Enhanced Automatic Transfer Program.
Payments made to the Contract during the same month will be part of the same
Enhanced Automatic Transfer Program if the length of the time period is the same
and the enhanced rate is the same. The allocation for all of the amounts in the
same program will be in accordance with the instructions for the most recent
payment to this program. The monthly transfer will be made on the date
designated for the initial payment to this program. The amount allocated will be
determined by dividing the amount in the program by the number of remaining
months. For
A-1
<PAGE>
example, for a six-month program, the first automatic transfer will be 1/6th of
the balance; the second automatic transfer will be 1/5th of the balance, and so
on.
Payments to different Enhanced Automatic Transfer Programs will be handled in
accordance with the instructions for each particular program.
A-2
<PAGE>
APPENDIX B -- PERFORMANCE INFORMATION
This Contract was first offered to the public in ____. 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 the Table 1 reflect the applicable
deductions for the Contract fee, Sub-Account charges and Underlying Fund charges
under this Contract and also assume that the Contract is surrendered at the end
of the applicable period. Performance results in Table 2 do not include the
Contract fee and assume that the Contract is not surrendered at the end of the
applicable period. Neither set of tables include optional Rider charges. 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.
Quotations of average annual total return as shown in the Table 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 0.80%, the
effect of the $35 annual Contract fee, and the Underlying Fund charges which
would be assessed if the investment were completely withdrawn at the end of the
specified period. The calculation is not adjusted to reflect the deduction of
any optional Rider charges. Quotations of supplemental average total returns, as
shown in Table 2, are calculated in exactly the same manner and for the same
periods of time except that it does not reflect the Contract fee and assumes
that the Contract is not surrendered at the end of the periods shown.
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.
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
B-1
<PAGE>
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; or
(2) other groups of variable annuity separate accounts or other investment
products tracked by Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds and other investment products by
overall performance, investment objectives, and assets, or tracked by
other services, companies, publications, or persons, 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, the Company 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 the Company's 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.
B-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
TABLE 1
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF UNDERLYING FUND*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR
UNDERLYING FUND ENDED 5 10 YEARS OR SINCE
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/98 YEARS INCEPTION IF LESS
- ---------------------------------------- --------------- --------------- -------- -----------------
<S> <C> <C> <C> <C>
Equity Index Fund........................ 9/28/90 25.55% 20.65% 17.97%
Money Market Fund........................ 4/29/85 2.92% 2.63% 3.03%
</TABLE>
TABLE 2
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF UNDERLYING FUND*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR
UNDERLYING FUND ENDED 5 10 YEARS OR SINCE
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/98 YEARS INCEPTION IF LESS
- ---------------------------------------- --------------- --------------- -------- -----------------
<S> <C> <C> <C> <C>
Equity Index Fund........................ 9/28/90 27.30% 22.40% 19.72%
Money Market Fund........................ 4/29/85 4.67% 4.38% 4.78%
</TABLE>
*While this Contract utilizes an existing Separate Account, the Sub-Accounts are
new so there are no historical figures available.
B-3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
TABLE 1
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF UNDERLYING FUND*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR
UNDERLYING FUND ENDED 5 10 YEARS OR SINCE
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/98 YEARS INCEPTION IF LESS
- ---------------------------------------- --------------- --------------- -------- -----------------
<S> <C> <C> <C> <C>
Equity Index Fund........................ 9/28/90 25.80% 20.90% 18.22%
Money Market Fund........................ 4/29/85 3.17% 2.88% 3.28%
</TABLE>
TABLE 2
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF UNDERLYING FUND*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR
UNDERLYING FUND ENDED 5 10 YEARS OR SINCE
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/98 YEARS INCEPTION IF LESS
- ---------------------------------------- --------------- --------------- -------- -----------------
<S> <C> <C> <C> <C>
Equity Index Fund........................ 9/28/90 27.30% 22.40% 19.72%
Money Market Fund........................ 4/29/85 4.67% 4.38% 4.78%
</TABLE>
*While this Contract utilizes an existing Separate Account, the Sub-Accounts are
new so there are no historical figures available.
B-4
<PAGE>
APPENDIX C
THE MARKET VALUE ADJUSTMENT
MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)] to the power of n/365 -1
A payment of $50,000 is made on the Issue Date and no additional payments are
made. The following examples assume:
1. The payment was allocated to a ten-year Guarantee Period Account with a
Guaranteed Interest Rate of 8%.
2. The date of surrender is seven years (2,555 days) from the expiration
date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at the
end of three years.
4. No transfers or withdrawals affecting this Guarantee Period Account have
been made.
5. Surrender charges, if any, are calculated in the same manner as shown in
the examples in Part 1.
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)*
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365 -1
= [(1+.08)/(1+.10)] to the power of 2555/365 -1
= (.98182) to the power of 7 -1
= -.12054
The market value adjustment = the market value factor multiplied by the withdrawal
= -.12054 X $62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)*
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365-1
= [(1+.08)/(1+.07)] to the power of 2555/365-1
= (1.00935) to the power of 7-1
= .06728
The market value adjustment = the market value factor multiplied by the withdrawal
= .06728 X $62,985.60
= $4,237.90
</TABLE>
*Uncapped is a straight application of the Market Value Adjustment formula when
the value produced is less than the cap.
C-1
<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)*
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365-1
= [(1+.08)/(1+.11)] to the power of 2555/365-1
= (.97297) to the power of 7-1
= -.17454
The market value adjustment = Minimum of the market value factor multiplied by the
withdrawal or the negative of the excess interest
earned over 3%
= Minimum (-.17454 X $62,985.60 or -$8,349.25)
= Minimum (-$10,992.38 or -$8,349.25)
= -$8,349.25
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)*
Assume that on the date of surrender, the current rate (j) is 5.00% or 0.05
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365-1
= [(1+.08)/(1+.05)] to the power of 2555/365-1
= (1.02857) to the power of 7 - 1
= .21798
The market value adjustment = Minimum of the market value factor multiplied by the
withdrawal or the excess interest earned over 3%
= Minimum of (.21798 X $62,985.60 or $8,349.25)
= Minimum of ($13,729.78 or $8,349.25)
= $8,349.25
</TABLE>
*Capped takes into account the excess interest part of the Market Value
Adjustment formula when the value produced is greater than the cap.
C-2
<PAGE>
APPENDIX D
EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS
Assume in the examples below that a 65-year-old male annuitizes his contract
exactly two years after the Issue Date. The annuitization amount is $250,000.
Further assume that he selects a variable Life with Period Certain annuity
payout option of Single Life with Payments Guaranteed for 10 Years, an Assumed
Investment Return ("AIR") of 3%, and an annual Change Frequency. Assume that the
Annuity Value purchases 1,370 Annuity Units and the first monthly annuity
benefit payment is equal to $1,370. The following examples assume a net return
of 8% (gross return of 9.4%).
PRESENT VALUE WITHDRAWALS
EXAMPLE 1. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Present Value Withdrawal available at the beginning of
the tenth contract year (eighth year of the Annuity Payout phase).
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment prior to withdrawal = $1,909.09
Rate used in Present Value Determination = 3% (3% AIR)
Present Value of Future Guaranteed Annuity Benefit Payments = $65,849.08
Maximum Present Value Withdrawal Amount = $49,386.81 ($65,849.08 * 75%)
Annuity Units after withdrawal = 342.50 (1,370 * (1 -
(49,386.81/65,849.08)))
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment after withdrawal = $477.27
Because this is a Present Value Withdrawal, the number of Annuity Units will
increase to 1,370 after the end of the 10-year period during which the Company
guaranteed to make payments.
PAYMENT WITHDRAWALS
EXAMPLE 2. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Payment Withdrawal of 10 monthly annuity benefit
payments at the beginning of the tenth contract year (eighth year of the Annuity
Payout phase).
Last Monthly Annuity Benefit Payment = $1,820.71
Withdrawal Amount = $18,207.10 (10 * 1,820.71)
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment prior to withdrawal = $1,909.09
Rate used in Present Value Determination = 3% (3% AIR)
Present Value of Future Annuity Benefit Payments = $268,826.18
Annuity Units after withdrawal = 1,272.71 (1,370 * (1 -
(18,207.10/268,826.18)))
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment after withdrawal = $1,779.80
Because this is a Payment Withdrawal, the number of Annuity Units will not
increase after the end of the 10-year period during which the Company guaranteed
to make payments.
D-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY CONTRACTS
FUNDED THROUGH
SUB-ACCOUNTS OF
SEPARATE ACCOUNT VA-K
INVESTING IN SHARES OF ALLMERICA INVESTMENT TRUST
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE ALLMERICA ____ ADVANTAGE PROSPECTUS FOR 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
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE COMPANY............ 2
SERVICES.................................................................. 3
UNDERWRITERS.............................................................. 3
ANNUITY BENEFIT PAYMENTS.................................................. 4
PERFORMANCE INFORMATION .................................................. 5
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 a 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, 2 Sub-Accounts of the Variable Account are available under the
Allmerica ___ Advantage contract (the "Contract"). Each Sub-Account invests
in a corresponding investment portfolio of Allmerica Investment Trust (the
"Trust"). The Trust is managed by Allmerica Financial Investment Management
Services, Inc.
The Trust is an open-end, diversified management investment company. Two
different funds of the Trust are available under the Contract: the Equity
Index Fund and the Money Market Fund. Each Fund 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.
2
<PAGE>
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 (commonly referred to
as Separate Account VA-K) 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.
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. No commissions will be paid for sales of Contract A3030-99.
However, a representative of Allmerica Investments or an independent
broker-dealer may assess an advisory fee as compensation for his or her
services.
All persons selling the Contract are required to be licensed by their
respective state insurance authorities for the sale of variable annuity
policies. To the extent permitted by NASD rules, promotional incentives or
payments also may be provided to such entities based on sales volumes, the
assumption of wholesaling functions or other sales-related criteria.
Additional payments may be made for other services not directly related to
the sale of the Contract, including the recruitment and training of
personnel, production of promotional literature and similar services.
The aggregate amounts of commissions paid to representatives of Allmerica
Investments, Inc. with respect to sales of contracts A3018-91, A3021-93,
A3025-96 and A3029-99 were $36,853,600.78 in 1998, $34,693,060.08 in 1997 and
$32,954,782.25 in 1996.
3
<PAGE>
ANNUITY BENEFIT PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "Computation of Values" in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated
by the following hypothetical example: Assume that the assets of a
Sub-Account at the beginning of a one-day Valuation Period were $5,000,000;
that the value of an Accumulation Unit on the previous date was $1.135000;
and that during the Valuation Period, the investment income and net realized
and unrealized capital gains exceed net realized and unrealized capital
losses by $1,675. The Accumulation Unit Value at the end of the current
Valuation Period would be calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
(1) Accumulation Unit Value -- Previous Valuation Period.................................... $ 1.135000
(2) Value of Assets -- Beginning of Valuation Period........................................ $5,000,000
(3) Excess of Investment Income and Net Gains Over Capital Losses........................... $ 1,675
(4) Adjusted Gross Investment Rate for the Valuation Period (3) divided by (2).............. 0.000335
(5) Annual Charge (one-day equivalent of 0.80% per annum)................................... 0.000022
(6) Net Investment Rate (4) - (5)........................................................... 0.000313
(7) Net Investment Factor 1.000000 + (6).................................................... 1.000313
(8) Accumulation Unit Value -- Current Period (1) x (7)..................................... $ 1.135355
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains of $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.135405.
The method for determining the amount of annuity benefit payments is
described in detail under "Variable Annuity Benefit Payments" in the
Prospectus.
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 Owner 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 Accumulated 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 $44.80
($44,800 divided by 1,000) multiplied by $6.57, or $294.34.
Next, assume that the Annuity Unit Value for the assumed investment return of
3.0% per annum for the Valuation Date as of which the first payment was
calculated was $1.100000. Annuity Unit Values will not be the same as
Accumulation Unit Values because the former reflect the 3.0% assumed
investment return used in the annuity rate calculations. When the Annuity
Unit Value of $1.100000 is divided into the first monthly payment the number
of Annuity Units represented by that payment is determined to be 267.5818.
The value of this same number of Annuity Units will be paid in each
subsequent month under most options. Assume further that the net investment
factor for the 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 investment return 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
4
<PAGE>
Value of $1.105121 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 $1.105121, which produces a
current monthly payment of $295.71.
PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the Prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other material information on
various topics of interest to Owners and prospective Owners. These topics may
include the relationship between sectors of the economy and the economy as a
whole and its effect on various securities markets, investment strategies and
techniques (such as value investing, market timing, dollar cost averaging,
asset allocation, constant ratio transfer and account rebalancing), the
advantages and disadvantages of investing in tax-deferred and taxable
investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and
investment alternatives to certificates of deposit and other financial
instruments, including comparisons between the Contract and the
characteristics of and market for such financial instruments. Total return
data and supplemental total return information may be advertised based on the
period of time that an Underlying Fund and an underlying Sub-Account have
been in existence, even if longer than the period of time that the Contract
has been offered. The results for any period prior to a Contract being
offered will be calculated as if the Contract had been offered during that
period of time, with all charges assumed to be those applicable to the
Contract.
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 0.80% 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.
The calculations of Total Return include the deduction of the $35 annual
Contract fee.
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 3.63%
Effective 3.70%
5
<PAGE>
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
The calculations of yield and effective yield reflect the $35 annual Contract
fee.
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Separate Account VA-K.
6
<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 LLP
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>
<CAPTION>
1997
----------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ------------- --------- ---------- ---------- --------
U.S. Treasury securities and U.S. government and agency
<S> <C> <C> <C> <C>
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
- ------------- -------- --------
<S> <C> <C>
Geographic region:
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
- ------------- -------- -------- --------
<S> <C> <C> <C>
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
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>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT ACCOUNTANTS' REPORT (UNAUDITED)
AFC has made certain changes to its corporate structure effective July 1, 1999.
These changes include the transfer of FAFLIC's ownership of Allmerica Property &
Casualty Companies, Inc., as well as several non-insurance subsidiaries, from
FAFLIC to AFC. In addition, certain changes affected AFLIAC. SMAFCO transferred
its ownership in AFLIAC to FAFLIC. Hence, AFLIAC became a wholly owned
subsidiary of FAFLIC. Further, four non-insurance subsidiaries previously held
by SMAFCO were contributed to AFLIAC. Under an agreement with the Commonwealth
of Massachusetts Insurance Commissioner ("the Commissioner"), AFC has
contributed to FAFLIC capital of $125.0 million and agreed 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 Commissioner. This transaction was approved by the
Commissioner on May 24, 1999.
In 1998, the net income of the subsidiaries, which was reported in SMAFCO's
results of operations, to be transferred to AFLIAC from SMAFCO pursuant to the
aforementioned change in corporate structure was $18.8 million. As of
December 31, 1998, the total assets and total shareholders' equity of these
subsidiaries were $16.8 million and $9.2 million, respectively.
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 purposes and granting final approval of the settlement
agreement.
F-22
<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
<TABLE>
<CAPTION>
<S> <C>
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 Post-Effective Amendment No. 14 of Registration
Statement No. 33-39702/811-6293, 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 Services Agreement was previously filed on April 24,
1998 in Post-Effective Amendment No. 14 of Registration Statement No. 33-39702/811-6293,
and is incorporated by reference herein.
(b) Sales Agreements were previously filed on April 24, 1998 in Post-Effective Amendment No. 14 of
Registration Statement No. 33-39702/811-6293, and are incorporated by reference herein.
(c) General Agent's Agreement was previously filed on April 24, 1998 in Post-Effective Amendment No. 14 of
Registration Statement No. 33-39702/811-6293, and is incorporated by reference herein.
(d) Career Agent Agreement with Commission Schedule was previously filed on April 24, 1998 in Post-Effective
Amendment No. 14 of Registration Statement No. 33-39702/811-6293, and is incorporated
by reference herein.
(e) Registered Representative's Agreement was previously filed on April 24, 1998 in Post-Effective Amendment
No. 14 of Registration Statement No. 33-39702/811-6293, and is incorporated by reference herein.
EXHIBIT 4 (a) Contract Form A3030-99 is filed herewith;
(b) Specification Pages Form A8030-99 is filed herewith; and
<PAGE>
(c) Enhanced Death Benefit Rider with 5% Accumulation and Ratchet (Form 3263-99) was previously filed on
September 14, 1999 in Registrant's initial Registration Statement No. 333-87099/811-6293
and is incorporated by reference herein.
EXHIBIT 5 Application Form 11214 was previously filed on September 14, 1999 in Registrant's initial Registration
Statement No. 333-87099/811-6293 and is incorporated by reference herein.
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 Post-Effective Amendment No. 9 of Registration Statement
No. 33-39702/811-6293, and are incorporated by reference herein.
EXHIBIT 7 Not Applicable.
EXHIBIT 8 (a) Fidelity Service Agreement was previously filed on April 30, 1996 in Post-Effective Amendment
No. 11 of Registration Statement 33-39702/811-6293, 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 Post-Effective Amendment No. 12 of Registration Statement
No. 33-39702/811-6293, and is incorporated by reference herein.
(c) Fidelity Service Contract, effective as of January 1, 1997, was previously filed on April 2, 1997 in
Post-Effective Amendment No. 12 of Registration Statement No. 33-39702/811-6293, and
is incorporated by reference herein.
(d) T. Rowe Price Service Agreement was previously filed on April 24, 1998 in Post-Effective Amendment
No. 14 of Registration Statement No. 33-39702/811-6293, and is incorporated by reference herein.
(e) BFDS Agreements for lockbox and mailroom services were previously filed on April 24, 1998 in
Post-Effective Amendment No. 14 of Registration Statement No. 33-39702/811-6293, and
are incorporated by reference herein.
(f) Directors' Power of Attorney is filed herewith.
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 Schedule for Computation of Performance Quotations is filed herewith.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 (a) Participation Agreement with Allmerica Investment Trust was previously filed on
April 24, 1998 in Post-Effective Amendment No. 14 of Registration Statement
No. 33-39702/811-6293, and is incorporated by reference herein.
</TABLE>
<PAGE>
ITEM 25. DIRECTORS AND EXECUTIVE 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
<TABLE>
<CAPTION>
NAME AND POSITION WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------------------- ----------------------------------------------
<S> <C>
Bruce C. Anderson Director (since 1996), Vice President (since 1984) and Assistant
Director Secretary (since 1992) of First Allmerica
Warren E. Barnes Vice President (since 1996) and Corporate Controller (since 1998) of
Vice President and First Allmerica
Corporate Controller
Robert E. Bruce Director and Chief Information Officer (since 1997) and Vice President
Director and Chief Information (since 1995) of First Allmerica; and Corporate Manager (1979 to 1995) of
Officer Digital Equipment Corporation
Mary Eldridge Secretary (since 1999) of First Allmerica; Secretary since (1999) of
Secretary Allmerica Investments, Inc.; and Secretary (since 1999) of Allmerica
Financial Investment Management Services, Inc.
John P. Kavanaugh Director and Chief Investment Officer (since 1996) and Vice President
Director, Vice President and (since 1991) of First Allmerica; and Vice President (since 1998) of
Chief Investment Officer Allmerica Financial Investment Management Services, Inc.
John F. Kelly Director (since 1996), Senior Vice President (since 1986), General
Director, Vice President and Counsel (since 1981) and Assistant Secretary (since 1991) of First
General Counsel Allmerica; Director (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 and President (since
Director 1996) of The Hanover Insurance Company; and Vice President (1993 to 1996)
of The Hanover Insurance Company
James R. McAuliffe Director (since 1996) of First Allmerica; Director (since 1992),
Director 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 (since 1989) of First
Director and Chairman of Allmerica; Director (since 1989) of Allmerica Investments, Inc.; and
the Board Director and Chairman of the Board (since 1990) of Allmerica Financial
Investment Management Services, Inc.
<PAGE>
Edward J. Parry, III Director and Chief Financial Officer (since 1996) and Vice President and
Director, Vice President, Treasurer (since 1993) of First Allmerica; Treasurer (since 1993) of
Chief Financial Officer and Allmerica Investments, Inc.; and Treasurer (since 1993) of Allmerica
Treasurer Financial Investment Management Services, Inc.
Richard M. Reilly Director (since 1996) and Vice President (since 1990) of First Allmerica;
Director, President and Director (since 1990) of Allmerica Investments, Inc.; and Director and
Chief Executive Officer President (since 1998) of Allmerica Financial Investment Management
Services, Inc.
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First Allmerica; Chief
Director 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 1990) of First Allmerica;
Director and Vice President Director (since 1991) of Allmerica Investments, Inc.; and Director (since
1991) of Allmerica Financial Investment Management Services, Inc.
</TABLE>
<PAGE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
<TABLE>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | | |
________________________________________________________________________________________________________________________________
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Financial Allmerica, Allmerica First Allmerica AFC Capital Allmerica First Sterling
Asset Profiles, Inc. Inc. Funding Financial Life Trust I Services Limited
Management, Inc. Corp. Insurance Corporation
Company
Massachusetts California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| | |
| ___________________________________________________________ ________________
| | | | |
| 100% 99.2% 100% 100%
| Advantage Allmerica Allmerica First Sterling
| Insurance Trust Financial Life Reinsurance
| Network, Inc. Company, N.A. Insurance and Company
| Annuity Company Limited
|
| Delaware Federally Chartered Delaware Bermuda
| |
|_________________________________________________________________________________________________________________________
| | | | | | | | | |
| 100% 100% 100% 100% 100% 100% 100% 100% 100%
| Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica
| Investments, Investment Financial Financial Investments Investments Investments Investments Investments
| Inc. Management Investment Services Insurance Insurance Insurance Insurance Insurance
| Company, Inc. Management Insurance Agency Inc. Agency of Agency Inc. Agency Inc. Agency Inc.
| Services, Inc. Agency, Inc. of Alabama Florida Inc. of Georgia of Kentucky of Mississippi
|
|Massachusetts Massachusetts Massachusetts Massachusetts Alabama Florida Georgia Kentucky Mississippi
|
________________________________________________________________
| | | |
100% 100% 100% 100%
Allmerica Sterling Risk Allmerica Allmerica
Property Management Benefits, Inc. Asset
& Casualty Services, Inc. Management,
Companies, Inc. Limited
Delaware Delaware Florida Bermuda
|
________________________________________________
| | |
100% 100% 100%
The Hanover Allmerica Citizens
Insurance Financial Insurance
Company Insurance Company
Brokers, Inc. of Illinois
New Hampshire Massachusetts Illinois
|
________________________________________________________________________________________________________________________________
| | | | | | | |
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Allmerica The Hanover Hanover Texas Citizens Massachusetts Allmerica AMGRO
Financial Plus American Insurance Corporation Bay Insurance Financial Inc.
Benefit Insurance Insurance Management Company Alliance
Insurance Agency, Inc. Company Company, Inc. Insurance
Company Company
Pennsylvania Massachusetts New Hampshire Texas Delaware New Hampshire New Hampshire Massachusetts
| |
________________________________________________ ________________
| | | |
100% 100% 100% 100%
Citizens Citizens Citizens Lloyds Credit
Insurance Insurance Insurance Corporation
Company Company Company
of Ohio of America of the
Midwest
Ohio Michigan Indiana Massachusetts
|
_________________
|
100%
Citizens
Management
Inc.
Michigan
- ----------------- ----------------- -----------------
Allmerica Greendale AAM
Equity Special Equity Fund
Index Pool Placements
Fund
Massachusetts Massachusetts Massachusetts
- -------- Grantor Trusts established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
--------------- ----------------
Allmerica Allmerica
Investment Trust Securities
Trust
Massachusetts Massachusetts
- -------- Affiliated Management Investment Companies
...............
Hanover Lloyd's
Insurance
Company
Texas
- -------- Affiliated Lloyd's plan company, controlled by Underwriters
for the benefit of The Hanover Insurance Company
----------------- -----------------
AAM Growth AAM High Yield
& Income Fund, L.L.C.
Fund L.P.
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
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
--- ------- -----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
AAM Growth & Income Fund, L.P. 440 Lincoln Street Limited Partnership
Worcester MA 01653
Advantage Insurance Network, Inc. 440 Lincoln Street Insurance Agency
Worcester MA 01653
AFC Capital Trust I 440 Lincoln Street Statutory Business Trust
Worcester MA 01653
Allmerica Asset Management Limited 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Benefits, Inc. 440 Lincoln Street Non-insurance medical services
Worcester MA 01653
Allmerica Equity Index Pool 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
Allmerica Financial Alliance Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
Allmerica Financial Benefit Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
<PAGE>
Allmerica Financial Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Financial Insurance Brokers, Inc. 440 Lincoln Street Insurance Broker
Worcester MA 01653
Allmerica Financial Life Insurance and 440 Lincoln Street Life insurance, accident and health
Annuity Company (formerly known as SMA Life Worcester MA 01653 insurance, annuities, variable
Assurance Company) annuities and variable life insurance
Allmerica Financial Services Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding vehicle for
Worcester MA 01653 commercial paper
Allmerica, Inc. 440 Lincoln Street Common employer for Allmerica
Worcester MA 01653 Financial Corporation entities
Allmerica Financial Investment Management 440 Lincoln Street Investment advisory services
Services, Inc. Worcester MA 01653
(formerly known as Allmerica Institutional
Services, Inc. and 440 Financial Group of
Worcester, Inc.)
Allmerica Investment Management Company, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
Allmerica Investments Insurance Agency Inc. 200 Southbridge Parkway Insurance Agency
of Alabama Suite 400
Birmingham, AL 35209
Allmerica Investments Insurance Agency of 14211 Commerce Way Insurance Agency
Florida, Inc. Miami Lakes, FL 33016
Allmerica Investment Insurance Agency Inc. 1455 Lincoln Parkway Insurance Agency
of Georgia Suite 300
Atlanta, GA 30346
Allmerica Investment Insurance Agency Inc. Barkley Bldg-Suite 105 Insurance Agency
of Kentucky 12700 Shelbyville Road
Louisiana, KY 40423
Allmerica Investments Insurance Agency Inc. 631 Lakeland East Drive Insurance Agency
of Mississippi Flowood, MS 39208
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
<PAGE>
Allmerica Plus Insurance Agency, Inc. 440 Lincoln Street Insurance Agency
Worcester MA 01653
Allmerica Property & Casualty Companies, Inc. 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services Corporation 440 Lincoln Street Internal administrative services
Worcester MA 01653 provider to Allmerica Financial
Corporation entities
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national trust company
Worcester MA 01653
AMGRO, Inc. 100 North Parkway Premium financing
Worcester MA 01605
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of America 645 West Grand River Multi-line property and casualty
Howell MI 48843 insurance
Citizens Insurance Company of Illinois 333 Pierce Road Multi-line property and casualty
Itasca IL 60143 insurance
Citizens Insurance Company of the Midwest 3950 Priority Way South Multi-line property and casualty
Drive, Suite 200 insurance
Indianapolis IN 46280
Citizens Insurance Company of Ohio 8101 N. High Street Multi-line property and casualty
P.O. Box 342250 insurance
Columbus OH 43234
Citizens Management, Inc. 645 West Grand River Services management company
Howell MI 48843
5421 Avenida Encinas
Financial Profiles Carlsbad, CA 92008 Computer software company
First Allmerica Financial Life Insurance 440 Lincoln Street Life, pension, annuity, accident and
Company (formerly State Mutual Life Worcester MA 01653 health insurance company
Assurance Company of America)
First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653
First Sterling Reinsurance Company 440 Lincoln Street Reinsurance Company
Limited Worcester MA 01653
Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
The Hanover American Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
<PAGE>
The Hanover Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
Hanover Texas Insurance Management Company, 801 East Campbell Road Attorney-in-fact for Hanover Lloyd's
Inc. Richardson TX 75081 Insurance Company
Hanover Lloyd's Insurance Company 801 East Campbell Road Multi-line property and casualty
Richardson TX 75081 insurance
Lloyds Credit Corporation 440 Lincoln Street Premium financing service franchises
Worcester MA 01653
Massachusetts Bay Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Sterling Risk Management Services, Inc. 440 Lincoln Street Risk management services
Worcester MA 01653
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of October 31, 1999, there were 79,302 Contract holders of qualified
Contracts and 23,679 Contract holders of non-qualified Contracts.
As of October 31, 1999, there were no Contract Form A3030-99 Owners since
sales had not yet begun.
ITEM 28. INDEMNIFICATION
Article VIII of the Bylaws of the Depositor state: Each Director and each
Officer of the Corporation, whether or not in office, (and his executors or
administrators), shall be indemnified or reimbursed by the Corporation
against all expenses actually and necessarily incurred by him in the defense
or reasonable settlement of any action, suit, or proceeding in which he is
made a party by reason of his being or having been a Director or Officer of
the Corporation, including any sums paid in settlement or to discharge
judgement, except in relation to matters as to which he shall be finally
adjudged in such action, suit or proceeding to be liable for negligence or
misconduct in the performance of his duties as such Director or Officer; and
the foregoing right of indemnification or reimbursement shall not affect any
other rights to which he may be entitled under the Articles of Incorporation,
any statute, bylaw, agreement, vote of stockholders, or otherwise.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Allmerica Investments, Inc. also acts as principal underwriter for
the following:
- VEL Account, VEL II Account, VEL Account III, Select Account III,
Inheiritage Account, Separate Account IMO, Separate Account SPL-D,
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
<PAGE>
- 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
<TABLE>
<CAPTION>
NAME POSITION OR OFFICE WITH UNDERWRITER
---- ------------------------------------
<S> <C>
Emil J. Aberizk, Jr. Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Mary Eldridge Secretary
Philip L. Heffernan Vice President
John F. Kelly Director
Daniel Mastrototaro Vice President
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
</TABLE>
(c) As indicated in Part B (Statement of Additional Information) in
response to Item 20(c), the aggregate amount of commissions retained
by Allmerica Investments, Inc., the principal underwriter of the
Contracts, was $36,853,600.78 for sales of variable contracts funded
by the Registrant in 1998. No other commissions or compensation was
received by the principal underwriter, directly or indirectly, from
the Registrant during the Registrant's last fiscal year.
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Each account, book or other document required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3
thereunder are maintained by the Company at 440 Lincoln Street, Worcester,
Massachusetts.
ITEM 31. MANAGEMENT SERVICES
The Company provides daily unit value calculations and related services for
the Company's separate accounts.
ITEM 32. UNDERTAKINGS
(a) The Registrant hereby undertakes to file a post-effective amendment
to this registration statements as frequently as is necessary to
ensure that the audited financial statements in the registration
statement are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted.
(b) The Registrant hereby undertakes 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 and any financial statements promptly upon written or
oral request, according to the requirements of Form N-4.
(d) Insofar as indemnification for liability arising under the
1933 Act may be permitted to Directors, Officers and Controlling
Persons of Registrant under any registration statement,
underwriting agreement or otherwise, Registrant has been advised
that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than
the payment by Registrant of expenses incurred or paid by a
Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted
by such Director, Officer or Controlling Person in connection
with the securities being registered, Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be
governed by the final adjudication of such issue.
(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).
<PAGE>
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
Pre-effective Amendment No. 1 to its 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 15th day of
December, 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
Pre-effective Amendment No. 1 to its Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ---- ----
<S> <C> <C>
/s/ Warren E. Barnes Vice President and Corporate Controller December 15, 1999
- ------------------------------------
Warren E. Barnes
Edward J. Parry* Director, Vice President, Chief Financial
- ------------------------------------ Officer and Treasurer
Richard M. Reilly* Director, President and
- ------------------------------------ Chief Executive Officer
John F. O'Brien* Director and Chairman of the Board
- ------------------------------------
Bruce C. Anderson* Director
- ------------------------------------
Robert E. Bruce* Director and Chief Information Officer
- ------------------------------------
John P. Kavanaugh* Director, Vice President and
- ------------------------------------ Chief Investment Officer
John F. Kelly* Director, Vice President and
- ------------------------------------ General Counsel
J. Barry May* Director
- ------------------------------------
James R. McAuliffe* Director
- ------------------------------------
Robert P. Restrepo, Jr.* Director
- ------------------------------------
Eric A. Simonsen* Director and Vice President
- ------------------------------------
</TABLE>
*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 July 1, 1999 duly executed
by such persons.
/s/ Sheila B. St. Hilaire
- ------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
<PAGE>
EXHIBIT TABLE
Exhibit 4(a) Contract Form A3030-99
Exhibit 4(b) Specification Pages Form A8030-99
Exhibit 8(f) Directors' Power of Attorney
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
Exhibit 13 Schedule for Computation of Performance Quotations
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity benefit payments and other values provided by this contract, when
based on the investment performance of the Variable Account, may increase or
decrease and are not guaranteed as to fixed dollar amount. Please refer to
the Value of the Variable Account section for additional information.
Values removed from a Guarantee Period Account prior to the end of its
Guarantee Period may be subject to a Market Value Adjustment that may
increase or decrease the values. A negative Market Value Adjustment will
never be applied to the Death Benefit. A positive Market Value Adjustment, if
applicable, will be added to the Death Benefit when the benefit paid is the
contract's Accumulated Value. Please refer to the Market Value Adjustment
section for additional information.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of
its authorized representatives within ten days after receipt. If returned,
the Company will refund an amount equal to the Accumulated Value, after
application of any Market Value Adjustment, plus any fees or other charges
imposed. If, however, the contract is issued as an Individual Retirement
Annuity (IRA), the Company will refund the greater of the above or the gross
payments.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
This is a legal contract between Allmerica Financial Life Insurance and
Annuity Company (the Company) and the Owner and is issued in consideration of
the Initial Payment shown on the Specifications page. Additional Payments are
permitted. Payments may be allocated to Variable Sub-Accounts, the Fixed
Account or Guarantee Period Accounts. While this contract is in effect, the
Company agrees to pay annuity benefit payments beginning on the Annuity Date
or to pay a Death Benefit to the Beneficiary if an Owner dies prior to the
Annuity Date.
President Secretary
Flexible Payment Deferred Variable and Fixed Annuity
Annuity Benefit Payments Payable on the Annuity Date
Death Benefit Payable to Beneficiary if Owner Dies prior to Annuity Date
Non-Participating
Form A3030-99 1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SPECIFICATONS
DEFINITIONS
OWNER, ANNUITANT AND BENEFICIARY
THE ACCUMULATION PHASE
PAYMENTS
VALUES
TRANSFER
WITHDRAWAL AND SURRENDER
DEATH BENEFIT
THE PAYOUT PHASE
ANNUITY BENEFIT
TRANSFER
WITHDRAWAL
PRESENT VALUE OF ANNUITY BENEFIT PAYMENTS
DEATH OF THE ANNUITANT
ANNUITY BENEFIT PAYMENT OPTIONS
ANNUITY BENEFIT PAYMENT GUARANTEE OPTIONS
ANNUITY OPTION TABLES
GENERAL PROVISIONS
</TABLE>
Form A3030-99 2
<PAGE>
DEFINITIONS
Accumulated Value The aggregate value of all accounts in
this contract before the Annuity Date. As
long as the Accumulated Value is greater
than zero, the contract will stay in effect.
Accumulation Unit A measure used to calculate the value
of a Sub-Account before annuity benefit
payments begin.
Annuitant On and after the Annuity Date, the person
upon whose continuation of life annuity
benefit payments involving life contingency
depend. Joint Annuitants are permitted and
unless otherwise indicated, any reference to
Annuitant shall include joint Annuitants.
Annuity Date The date annuity benefit payments
begin. The Annuity Date is shown on the
Specifications page.
Annuity Unit A measure used to calculate annuity
benefit payments under a variable annuity
option.
Beneficiary The person, persons or entity entitled to
the Death Benefit prior to the Annuity Date
or any annuity benefit payments upon the
death of the Owner on or after the Annuity
Date.
Company Allmerica Financial Life Insurance and
Annuity Company.
Contract Year A one-year period based on the issue date or
an anniversary thereof.
Effective Valuation Date The Valuation Date on or immediately following
the day a payment, request for transfer, withdrawal
or surrender, or proof of death is received at
the Principal Office.
Fixed Account The part of the Company's General
Account to which all or a portion of a
Payment or transfer may be allocated.
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.
Guarantee Period The number of years that a Guaranteed
Interest Rate may be credited to a Guarantee
Period Account.
Guarantee Period Account An account which corresponds to a Guaranteed
Interest Rate for a specified Guarantee Period
and is supported by assets in a Separate
Account. The Owner may only invest in a
Guarantee Period Account prior to the
Annuity Date.
Guaranteed Interest Rate The annual effective rate of interest after
daily compounding credited to a Guarantee
Period Account.
Market Value Adjustment A positive or negative adjustment to earnings
in a Guarantee Period Account assessed if
any portion of a Guarantee Period Account is
withdrawn or transferred prior to the end of
its Guarantee Period.
Form A3030-99 3
<PAGE>
Owner 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 Owner shall include joint
Owners.
Pro Rata How a Payment or withdrawal may be
allocated among the accounts. A Pro Rata
allocation or withdrawal will be made in the
same proportion that the value of each
account bears to the Accumulated Value.
Request A request or notice made by the Owner, in a
manner consistent with the Company's current
procedures, which is received and recorded
by the Company.
Separate Account A segregated account established by
the Company. The assets in a Separate
Account are not commingled with the
Company's general assets and obligations.
The assets of a Separate Account are not
subject to claims arising out of any other
business the Company may conduct.
State The state or jurisdiction in which the contract
is issued.
Sub-Account A Variable Account subdivision that invests
exclusively in shares of a corresponding
Fund.
Surrender Value The amount payable to the Owner on
full surrender after application of any
Market Value Adjustment and Contract Fee.
Survivor Annuity Benefit The number of Annuity Units (under a variable joint
Percentage life annuitization option) or the dollar value of
the annuity benefit payments (under a fixed
joint life annuitization option) paid during
the surviving Annuitant's life may be less
than or equal to the number of Annuity Units
paid when both individuals are living. The
Survivor Annuity Benefit Percentage is the
percentage of total Annuity Units or dollars
paid in each annuity benefit during the
survivor's life. For example, with a Joint
and Two-thirds Survivor Option, the Survivor
Annuity Benefit Percentage is 66 2/3 %. This
percentage is only applicable after the
death of the first Annuitant.
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, or such other dates when there is
sufficient trading in a Fund's portfolio
securities such that the current unit value
may be materially affected.
Valuation Period The interval between two consecutive
Valuation Dates.
Variable Account The Company's Separate Account,
consisting of Sub-Accounts that invest in
the underlying Funds.
Form A3030-99 4
<PAGE>
OWNER, ANNUITANT AND BENEFICIARY
Owner When the contract is issued, the Owner will
be as shown on the Specifications page. The
Owner may be changed in accordance with the
terms of this contract. Upon the death of an
Owner prior to the Annuity Date, a Death
Benefit is paid. The Maximum Alternative
Annuity Date is based upon the age of the
Owner.
The Owner may exercise all rights and
options granted in this contract or by the
Company, subject to the consent of any
irrevocable Beneficiary. Where there are
joint Owners, the consent of both is
required in order to exercise any ownership
rights.
Assignment Prior to the Annuity Date and prior to the
death of an Owner, the Owner may be
changed at any time. Only the Owner may
assign this contract. An absolute
assignment will transfer ownership to
the assignee. This contract may also be
collaterally assigned as security. The
limitations on ownership rights while
the collateral assignment is in effect
are stated in the assignment.
Additional limitations may exist for
contracts issued under provisions of the
Internal Revenue Code.
An assignment will take place only when the
Company has actually received a Request in
writing and recorded the change at the
Principal Office. The Company will not be
deemed to know of the assignment until such
time. When recorded, the assignment will
take effect as of the date it was signed.
The assignment will be subject to payments
made or actions taken by the Company before
the change was recorded.
The Company will not be responsible for the
validity of any assignment nor the extent of
any assignee's interest. The interests of
the Beneficiary will be subject to any
assignment.
Annuitant When the contract is issued, the Annuitant
will be as shown on the Specifications page.
The Annuitant may be changed in accordance with
the terms of this contract. Prior to the
Annuity Date, an Annuitant may be
replaced or added unless the Owner is
a non-natural person. At all times
there must be at least one Annuitant.
If the Annuitant dies and a replacement
is not named, the Owner will be considered
to be the new Annuitant. Upon the
death of an Annuitant prior to the Annuity
Date, a Death Benefit is not paid
unless the Owner is a non-natural person.
A change of Annuitant will take place only
when the Company has actually received a
Request in writing and recorded the change
at the Principal Office. The Company will
not be deemed to know of the change of
Annuitant until such time. When recorded,
the change of Annuitant will take effect as
of the date it was signed. The change of
Annuitant will be subject to payments made
or actions taken by the Company before the
change was recorded.
Form A3030-99 5
<PAGE>
Beneficiary The Beneficiary is as named on the
Specifications page unless subsequently
changed. The Owner may declare any
Beneficiary to be revocable or irrevocable.
A revocable Beneficiary may be changed at
any time prior to the Annuity Date and before
the death of an Owner or after the Annuity
Date and before the death of the Annuitant.
An irrevocable Beneficiary must consent in
writing to any change. Unless otherwise
indicated, the Beneficiary will be
revocable.
A Beneficiary change must be made in writing
in a form acceptable to the Company and will
be subject to the rights of any assignee of
record. When the Company receives the form,
the change will take place as of the date it
was signed, even if an Owner or the
Annuitant dies after the form is signed but
prior to the Company's receipt of the form.
Any rights created by the change will be
subject to payments made or actions taken by
the Company 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, unless the Owner directs
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
the Owner or the Owner's estate. At the
death of the first joint Owner prior to the
Annuity Date, the surviving joint Owner is
the sole, primary Beneficiary
notwithstanding that the designated
Beneficiary may be different.
The Beneficiary cannot assign, transfer,
commute, anticipate or encumber the proceeds
or payments unless given that right by the
Owner.
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 A3030-99 6
<PAGE>
THE ACCUMULATION PHASE
PAYMENTS
Payments Each Payment is equal to the gross payment
less the amount of any applicable premium
tax. The Company reserves the right to
deduct the amount of the premium tax from
the Accumulated Value at a later date rather
than when the premium tax liability is first
incurred by the Company. In no event will an
amount be deducted for premium taxes before
the Company has incurred a tax liability
under applicable State law.
Initial Payment The Initial Payment is shown on the
Specifications page.
Additional Payments Prior to the Annuity Date and
before the death of an Owner, the Owner may
make additional Payments of at least the
Minimum Additional Payment Amount (see
Specifications page). Total Payments made
may not exceed [$5,000,000] without the
Company's consent.
Payment Allocations The Initial Payment is allocated
in accordance with the Payment Allocation,
shown on the Specifications page. Each
subsequent Payment will be allocated in the
same manner unless allocation instructions
accompany the Payment or the Payment
Allocation is changed by the Owner.
The minimum amount that may be allocated to
the Guarantee Period Account is shown on the
Specifications page. If the Owner requests
an allocation less than the minimum amount,
the Company reserves the right to apply that
amount to the [money market Sub-Account.]
VALUES
Value of the Variable The value of a Sub-Account on a Valuation
Account Date is determined by multiplying the
Accumulation Units in that Sub-Account by
the Accumulation Unit Value as of the
Valuation Date.
Form A3030-99 7
<PAGE>
Accumulation Units are purchased when an
amount is allocated to a Sub-Account. The
number of Accumulation Units purchased
equals that amount divided by the applicable
Accumulation Unit Value as of the Valuation
Date.
Accumulation Unit The value of a Sub-Account Accumulation Unit
Values as of any Valuation Date is determined by
multiplying the value of an Accumulation
Unit for the preceding Valuation Date by the
Net Investment Factor for that Valuation
Period.
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 applicable Rider
charges; and
(d) is the Administrative Charge
applicable to the current Valuation
Period (see Specifications page).
The Company assumes the risk that its actual
mortality expense experience may exceed the
amounts provided under the contract. The
Company guarantees that the charge for
mortality and expense risks and the
administrative charge 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.
Value of the Fixed Amounts allocated to the Fixed Account receive
Account interest at rates periodically set
by the Company. The Company guarantees that
the initial rate of interest in effect when
an amount is allocated to the
Fixed Account will remain in effect for that
amount for one year or until such amount is
transferred out of the Fixed Account,
whichever is sooner. Thereafter, the rate of
interest for that amount will be the
Company's current interest rate, but no less
than the Minimum Fixed Account Guaranteed
Interest Rate (see Specifications page).
The value of the Fixed Account on any date
is the sum of amounts allocated to the Fixed
Account plus interest compounded and
credited daily at the rates applicable to
those amounts. The value of the Fixed
Account will be at least equal to the
minimum required by law in the State in
which this contract is delivered.
Form A3030-99 8
<PAGE>
Value of the Guarantee Amounts allocated to the same Guarantee
Period Accounts Period Account on the same day will
be treated as one Guarantee Period Account.
The interest rate in effect when
an amount is allocated to a Guarantee Period
Account is guaranteed for the duration of
the Guarantee Period. Each time the
Guaranteed Interest Rate changes for a
particular Guarantee Period, a new Guarantee
Period Account is established.
The value of a Guarantee Period Account on
any date is the sum of amounts allocated to
that Guarantee Period Account plus interest
compounded and credited daily at the rate
applicable to that amount.
Guaranteed Interest The Company will periodically set Guaranteed
Rates Interest Rates for each available Guarantee
Period. These rates will be guaranteed
for the duration of the respective Guarantee
Periods. A Guaranteed Interest Rate will
never be less than the Guarantee Period
Account Minimum Interest Rate (see
Specifications page).
Renewal Guarantee Periods At least 45 days (but not more than 75 days)
prior to the end of a Guarantee Period, the
Company will notify the Owner in writing of the
expiration of that Guarantee Period. The Owner may
transfer amounts to the Sub-Accounts, the Fixed
Account or establish a new Guarantee Period
Account of any duration then offered by the
Company as of the day following the expiration of
the Guarantee Period. The transfer will not be
subject to a Market Value Adjustment; see "Market
Value Adjustment," page [13]. Guaranteed Interest
Rates corresponding to the available Guarantee
Periods may be higher or lower than the previous
Guaranteed Interest Rate. If reallocation
instructions are not received at the Principal
Office before the end of a Guarantee Period, the
Guarantee Period Account value will be
automatically applied to a new Guarantee Period
Account with the same Guarantee Period unless:
(a) less than the Guarantee Period
Account Minimum Allocation
Amount (see Specifications
page) remains in the Guarantee
Period Account on its
expiration date; or
(b) the Guarantee Period would extend
beyond the Annuity Date or is no longer
available.
In such cases, the Guarantee Period Account
value will be transferred to the [money
market Sub-Account.]
Contract Fee Prior to the Annuity Date on each
contract anniversary and when the contract
is surrendered, the Company will deduct a
Contract Fee (see Specifications page) Pro
Rata.
Form A3030-99 9
<PAGE>
TRANSFER
Prior to the Annuity Date, the Owner may
transfer amounts among accounts by Request
to the Principal Office. Transfers to a
Guarantee Period Account must be at least
equal to the Minimum Guarantee Period
Account Allocation Amount (see
Specifications page). If the Owner requests
the transfer of a smaller amount to the
Guarantee Period Account, the Company may
transfer that amount to the [money market
Sub-Account.]
Any transfer from a Guarantee Period Account
prior to the end of its Guarantee Period
will be subject to a Market Value
Adjustment.
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.
The Company reserves the right to establish
and impose reasonable rules restricting
transfers. All transfers are subject to the
Company's consent.
WITHDRAWAL AND SURRENDER
Prior to the Annuity Date, the Owner may, by
Request, withdraw a part of the Surrender
Value or surrender the contract for its
Surrender Value.
Any withdrawal must be at least the Minimum
Withdrawal Amount (see Specifications page).
A withdrawal will not be permitted if the
Accumulated Value remaining in the contract
would be less than the Minimum Accumulated
Value After Withdrawal (see Specifications
page). The Request must indicate the dollar
amount to be paid and the accounts from
which it is to be withdrawn. A withdrawal
from a Guarantee Period Account will be
subject to a Market Value Adjustment.
When surrendered, this contract terminates
and the Company has no further liability
under it. The Surrender Value will be based
on the Accumulated Value on the Effective
Valuation Date.
Amounts taken from the Variable Account will
be paid within 7 days of the date a Request
is received. The Company reserves the right
to delay payments subject to applicable
laws, rules and regulations governing
variable annuities.
Amounts taken from the Fixed Account or the
Guarantee Period Accounts will normally be
paid within 7 days of the date a Request is
received. The Company 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 rate mandated by the
appropriate State.
Form A3030-99 10
<PAGE>
Market Value Adjustment A transfer, withdrawal or surrender from
a Guarantee Period Account after the
expiration of its Guarantee Period will
not be subject to a Market Value
Adjustment. A Market Value Adjustment
will apply to all other transfers,
withdrawals or surrenders from, a Guarantee
Period Account. Amounts in a Guarantee
Period Account that are applied under an
Annuity Option are treated as withdrawals
when calculating the Market Value Adjustment.
The Market Value Adjustment will be determined
by multiplying the amount taken from each
Guarantee Period Account by the market value
factor. The market value factor for each
Guarantee Period Account is equal to:
n/365
(1+i)
(1+j) -1
where:
i - is the Guaranteed Interest Rate
expressed as a decimal (for example:
3% = 0.03) being credited to the
current Guarantee Period;
j - is the new Guaranteed Interest
Rate, expressed as a decimal, for a
Guarantee Period with a duration
equal to the number of years
remaining in the current Guarantee
Period, rounded to the next higher
number of whole years. If that rate
is not available, the Company will
use a suitable rate or index allowed
by the Department of Insurance; and
n - is the number of days remaining
from the Effective Valuation Date to
the end of the current Guarantee
Period.
If the Guaranteed Interest Rate being
credited is lower than the new Guaranteed
Interest Rate, the Market Value Adjustment
will decrease the Guarantee Period Account
value. Similarly, if the Guaranteed Interest
Rate being credited is higher than the new
Guaranteed Interest Rate, the Market Value
Adjustment will increase the Guarantee
Period Account value. The Market Value
Adjustment will never result in a change to
the value more than the interest earned in
excess of an amount based on the Guarantee
Period Account Minimum Interest Rate (see
Specifications page).
Form A3030-99 11
<PAGE>
DEATH BENEFIT
At the death of an Owner prior to the
Annuity Date, the Company will pay to the
Beneficiary a Death Benefit upon receipt at
the Principal Office of proof of death. If
the Owner is a non-natural person, prior to
the Annuity Date, a Death Benefit is paid on
the death of an Annuitant upon receipt at
the Principal Office of proof of death.
Death Benefit The Death Benefit will be the greater of:
(a) the Accumulated Value on the Effective
Valuation Date, increased by any
positive Market Value Adjustment; or
(b) the sum of the gross payments made
under this contract prior to the
date of death, proportionately
reduced to reflect all partial
withdrawals.
For each withdrawal, the
proportionate reduction is
calculated by multiplying the Death
Benefit under the (b) option,
immediately prior to the withdrawal,
by the following:
Amount of the withdrawal
--------------------------
Accumulated Value immediately prior to the withdrawal
Payment of the Death Unless the Owner has specified otherwise,
Benefit the Death Benefit will be paid to the
Beneficiary within 7 days of the Effective
Valuation Date. Alternatively, the Beneficiary
may, by a Request in writing, elect to:
(a) defer distribution of the Death Benefit
for a period no more than 5 years from
the date of death; or
(b) receive distributions over his/her
life expectancy (or over a period
not extending beyond such life
expectancy). Distributions must
begin within one year from the date
of death.
If distribution of the Death Benefit is
deferred under (a) or (b), any value in the
Guarantee Period Accounts will be
transferred to the [money market
Sub-Account]. The excess, if any, of the
Death Benefit over the Accumulated Value
will also be transferred to the [money
market Sub-Account.] The Beneficiary may, by
Request, effect transfers and withdrawals,
but may not make additional Payments. If
there are multiple Beneficiaries, the
consent of all is required.
If the sole Beneficiary is the deceased
Owner's spouse, the Beneficiary may, by
Request in writing, continue the contract
and become the new Owner and Annuitant
subject to the following:
(a) any value in the Guarantee Period Accounts
will be transferred to the [money
market Sub-Account];
(b) the excess, if any, of the Death
Benefit over the contract's
Accumulated Value will also be
transferred to the [money market
Sub-Account];
(c) additional Payments may be made; and
(d) any subsequent spouse of the new
Owner, if named as the Beneficiary,
may not continue the contract.
Form A3030-99 12
<PAGE>
THE PAYOUT PHASE
ANNUITY BENEFIT
Annuity Options Annuity Options are available on a
fixed, variable or combination fixed and
variable basis. The Annuity Options
described below or any alternative option
offered by the Company may be chosen. If no
option is chosen, monthly benefit payments
will be made under the Life Annuity with
Cash Back option.
The Owner may also elect to have the Death
Benefit applied under any Annuity Option not
extending beyond the Beneficiary's life
expectancy. Such an election may not be
altered by the Beneficiary.
Fixed annuity options are funded through the
General Account. Variable annuity options
may be funded through one or more of the
Sub-Accounts. Not all Sub-Accounts may be
made available.
Selection of Annuity The Owner must select an Annuity Benefit
Benefit Payments Payment Option. Annuity benefit payments
will be paid monthly or at any other
frequency currently offered by
the Company. If the first payment would be
less than the Minimum Annuity Benefit
Payment (see Specifications page), a single
payment will be made instead. If a life
annuity option has been elected,
satisfactory proof of the date of birth of
the Annuitant must be received at the
Principal Office before any payment is made.
Also, if a life annuity option has been
elected, the Company may require from time
to time satisfactory proof that the
Annuitant is alive.
Annuity Benefit In the case of a variable annuity option, the
Payment Change Frequency Owner must select an Annuity Benefit Payment
Change Frequency. This is the frequency of
change in the dollar value of the variable
annuity benefit payments. For example, if an
annual Annuity Benefit Payment Change
Frequency is chosen, the dollar value of
variable annuity benefit payments will
remain constant within each one-year period.
The Owner must also select
the date of the first change.
Assumed Investment In the case of a variable annuity option, the Owner
Return must select an Assumed Investment Return ("AIR").
This rate is used to determine the initial
variable annuity benefit payment and how the
payment will change over time in response to
the 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 benefit payment attributable to
that Sub-Account will be constant. If the
actual performance is greater than the AIR,
the annuity benefit payment will increase.
If the actual performance is less than the
AIR, the annuity benefit payment will
decrease.
Reversal of Decision The Owner may reverse the decision to annuitize
To Annuitize by a Request in writing within 90 days
after the Annuity Date. Upon receipt of such
notice, the Company will place the contract back
to the Accumulation Phase subject to the following:
Form A3030-99 13
<PAGE>
(a) The funds applied under a variable
annuity option during this period
will be treated as if they had been
invested in the Accumulation Phase
of the contract, with the same
allocations that were in effect
since the Annuity Date.
(b) The funds applied under a fixed
annuity option during this period
will be treated as if they had been
invested in the Accumulation Phase
of the contract in the Fixed
Account, since the Annuity Date.
(c) Any annuity benefit payment paid or
withdrawal taken during this period
will treated as a withdrawal of the
Surrender Value as of the date of
the payment or withdrawal. Fixed
annuity benefit payments will be
treated as withdrawals from the
Fixed Account. Variable annuity
benefit payments will be treated as
withdrawals from the variable
Sub-Accounts.
(d) If the Company learns of the Owner's
decision to reverse after the
Maximum Alternate Annuity Date (see
Specifications page) the Owner must
immediately select another Annuity
Benefit Payment Option.
Annuity Value The Annuity Value will be the Accumulated
Value, after application of any applicable
Market Value Adjustment less any applicable
premium tax. For a Death Benefit annuity,
the Annuity Value will be the amount of
the Death Benefit, less any applicable
premium tax. The Annuity Value applied
under a variable Annuity Option is based on
the Accumulation Unit Value on a Valuation
Date not more than four weeks, uniformly
applied, before the Annuity Date.
The amount of the first annuity benefit
payment under all available options except
period certain options will depend on the
age and/or sex of the Annuitant on the
Annuity Date and the Annuity Value applied.
Period certain options are based only on the
duration of payments and the Annuity Value.
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 funding the
annuity benefit payments 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.
Each variable annuity benefit payment is
equal to the number of Annuity Units
multiplied by the applicable value of an
Annuity Unit, except that under a Joint and
Survivor Option, after the first death, the
number of units in each payment is equal to
the total number of units multiplied by the
Survivor Annuity Benefit Percentage.
Form A3030-99 14
<PAGE>
Variable annuity benefit payments will
increase or decrease with the value of the
Annuity Units as of the date of the first
payment of each Annuity Benefit Payment
Change Frequency. The Company guarantees
that the amount of each variable annuity
benefit payment will not be affected by
changes in mortality and expense experience.
Number of Annuity Units For each Sub-Account the number of
Annuity Units determining the benefit
payable is equal to the amount of the
first annuity benefit payment divided by
the value of the Annuity Unit as of the
Valuation Date used to calculate the
amount of the first payment. Once annuity
benefit payments begin, the number
of Annuity Units will not change unless
a split, a withdrawal or a transfer is made.
Payment of Annuity Annuity Benefit Payments are paid to
Benefit Payments the Owner. By Request in writing, the
Owner may direct that payments are made
to another person, persons or entity.
If an Owner, who is not also an Annuitant,
dies on or after the Annuity Date, the
following occurs:
(a) If the deceased Owner was the sole
Owner, then the remaining annuity
benefit payments will be payable to
the Beneficiary in accordance with
the terms of the Annuity Option
selected. Upon the death of a sole
Owner, the Beneficiary becomes the
Owner of the contract.
(b) If the contract has joint Owners,
then the remaining annuity benefit
payments will be payable to the
surviving joint Owner in accordance
with the terms of the Annuity Option
selected. Upon the death of the
surviving joint Owner, the
Beneficiary becomes the Owner of the
contract.
TRANSFER
After the Annuity Date and prior to the
death of the Annuitant, the Owner may
transfer among Sub-accounts by Request to
the Principal Office.
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.
The Company reserves the right to establish
and impose reasonable rules restricting
transfers. All transfers are subject to the
Company's consent.
WITHDRAWAL
After the Annuity Date and prior to the
death of the Annuitant, the Owner may have
the right, based on the Annuity Option
selected, to make withdrawals. If the Death
Benefit is applied under an Annuity Option
the Beneficiary may also make withdrawals in
accordance with this provision.
Form A3030-99 15
<PAGE>
Amounts withdrawn that were applied under a
variable Annuity Option will be paid within
7 days of the date a Request is received.
The Company reserves the right to delay
payments subject to applicable laws, rules
and regulations governing variable
annuities.
Amounts withdrawn that were applied under a
fixed Annuity Option will normally be paid
within 7 days of the date a Request is
received. The Company may defer payment for
up to six months from the date a Request is
received. 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.
Only one Request for withdrawal under each
provision may be made each calendar year.
Payment Withdrawal Each calendar year, the Owner can request
Amount Option up to an amount equal to the Payment
Withdrawal Amount (see Specifications page)
multiplied by the previous annuity
benefit payment.
For fixed Annuity Options, each withdrawal
proportionately reduces the dollar amount of
each future annuity benefit payment. The
proportionate reduction is calculated by
multiplying the dollar amount of each future
annuity benefit payment by the following:
Amount of the withdrawal
-------------------------
Present Value of all remaining fixed annuity
benefit payments immediately prior the withdrawal.
For variable Annuity Options, each
withdrawal proportionately reduces the
number of Annuity Units in each future
annuity benefit payment. The proportionate
reduction is calculated by multiplying the
number of Annuity Units in each future
annuity benefit payment by the following:
Amount of the withdrawal
------------------------
Present Value of all remaining variable annuity
benefit payments immediately prior to the withdrawal.
Present Value Over the life of the contract, for period
Withdrawal Option certain, life with period certain and cash
back Annuity Options when there are
remaining guaranteed payments, the Owner
may request withdrawals which represent a
percentage of the Present Value of those
remaining guaranteed annuity benefit
payments. Each year a withdrawal is taken
under this provision, the Company records
the percentage withdrawn. Each withdrawal
proportionately reduces future annuity
benefit payments. (See proportionate
reduction calculation below.) The total
percentage withdrawn over the life of the
contract cannot exceed the Present Value
Withdrawal Amount (see Specifications page).
Form A3030-99 16
<PAGE>
For fixed Annuity Options, each withdrawal
proportionately reduces the dollar amount of
each future annuity benefit payment. The
proportionate reduction is calculated by
multiplying the dollar amount of each future
annuity benefit payment by the following:
Amount of the withdrawal
-------------------------
Present Value of all remaining fixed guaranteed
annuity benefit payments immediately prior
to the withdrawal
For variable Annuity Options, each
withdrawal proportionately reduces any
remaining guaranteed payments. The
proportionate reduction is calculated by
multiplying the number of Annuity Units in
each future annuity benefit payment by the
following:
Amount of the withdrawal
-------------------------
Present Value of all remaining variable guaranteed
annuity benefit payments immediately prior
to the withdrawal
If an Annuitant is still living after there
are no remaining guaranteed payments under a
life with period certain or life with cash
back payout:
(a) for variable Annuity Options, the
number of Annuity Units will
increase to the number of Annuity
Units payable prior to any
withdrawals, adjusted for transfers.
(b) for fixed Annuity Options, the
dollar amount of the annuity benefit
payments will increase to the amount
payable prior to any withdrawals,
adjusted for transfers.
PRESENT VALUE OF ANNUITY BENEFIT PAYMENTS
For a variety of purposes, it is at times
necessary to determine the Present Value of either
all future annuity benefit payments or of future
guaranteed annuity benefit payments. Present
Values are calculated based on the Annuity 2000
Mortality Table, male, female or unisex
rates as appropriate, and the interest rate or
AIR used to determine the annuity benefit
payments.
DEATH OF THE ANNUITANT
Unless otherwise indicated by the Owner,
upon the death of the Annuitant, the Present
Value of the remaining guaranteed annuity
benefit payments may be paid to the Owner.
Form A3030-99 17
<PAGE>
ANNUITY BENEFIT PAYMENT OPTIONS
PERIOD CERTAIN ANNUITY:
Periodic annuity benefit payments for a
chosen number of years. The number of years
selected may be from 5 to 30.
LIFE ANNUITY:
(a) Single Life - Periodic annuity
benefit payments during the
Annuitant's life. The annuity
benefit payments do not continue
after the death of the Annuitant.
(b) Joint and Survivor - Periodic annuity
benefit payments during the joint
lifetime of the joint Annuitants.
For variable options, after the
first death, the number of units in
each payment during the lifetime
of the survivor is equal to the total
number of units multiplied by the
Survivor Annuity Benefit Percentage.
For fixed options, after the first
death, the dollar amount of each
payment during the lifetime of the
survivor is equal to the dollar value
of each payment paid prior to
such death multiplied by the Survivor
Annuity Benefit Percentage.
ANNUITY BENEFIT PAYMENT GUARANTEE OPTIONS
If a life Annuity Option has been elected,
the Owner may also select one of the
following guarantees:
PERIOD CERTAIN
Periodic guaranteed payments for a period of
ten years, or any other period currently
made available by the Company.
CASH BACK:
Upon notification of the Annuitant's death,
any excess of the Annuity Value applied over
the total amount of the annuity benefit
payments will be paid to the Owner or
Beneficiary, whichever is applicable.
ANNUITY OPTION RATES
The first variable annuity benefit payment
will be based on the Annuity Option Rates
made available by the Company on the rate
basis available at the time the Annuity
Option is selected. The fixed annuity
benefit payments will be based on the
greater of the guaranteed Annuity Option
Rates shown in the tables on the following
pages or the Company's non-guaranteed
current Annuity Option Rates applicable to
this class of contracts. The Company
guarantees that once an Annuity Option is
selected, the annuity benefit payments will
not be affected by changes in mortality and
expense experience.
Form A3030-99 18
<PAGE>
ANNUITY OPTION TABLES
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIES
<TABLE>
<CAPTION>
Age Nearest Life Annuity with Life Life Annuity
Payment Payments Guaranteed Annuity with Cashback
for 10 Years
Male Female Unisex Male Female Unisex Male Female Unisex
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 4.05 3.81 3.91 4.08 3.83 3.93 3.90 3.72 3.79
51 4.11 3.87 3.97 4.15 3.89 3.99 3.96 3.77 3.85
52 4.18 3.93 4.03 4.22 3.95 4.06 4.01 3.82 3.90
53 4.25 3.99 4.10 4.30 4.01 4.13 4.07 3.88 3.96
54 4.33 4.06 4.17 4.38 4.08 4.20 4.14 3.94 4.02
55 4.41 4.13 4.24 4.46 4.15 4.28 4.20 3.99 4.07
56 4.49 4.20 4.32 4.55 4.23 4.36 4.27 4.06 4.14
57 4.58 4.28 4.40 4.65 4.31 4.45 4.34 4.12 4.21
58 4.68 4.36 4.49 4.75 4.40 4.54 4.42 4.19 4.28
59 4.78 4.45 4.58 4.86 4.49 4.64 4.50 4.26 4.36
60 4.88 4.54 4.67 4.98 4.59 4.74 4.58 4.34 4.44
61 4.99 4.63 4.77 5.10 4.69 4.85 4.67 4.42 4.52
62 5.10 4.73 4.88 5.23 4.80 4.97 4.76 4.50 4.60
63 5.23 4.84 4.99 5.37 4.92 5.10 4.85 4.59 4.69
64 5.35 4.95 5.11 5.52 5.04 5.24 4.95 4.68 4.79
65 5.48 5.07 5.24 5.69 5.18 5.38 5.06 4.78 4.89
66 5.62 5.20 5.37 5.86 5.32 5.54 5.17 4.89 5.00
67 5.77 5.33 5.51 6.04 5.47 5.70 5.28 4.99 5.11
68 5.92 5.47 5.65 6.24 5.64 5.88 5.40 5.11 5.23
69 6.07 5.62 5.80 6.45 5.82 6.07 5.52 5.23 5.35
70 6.23 5.78 5.96 6.67 6.01 6.27 5.66 5.36 5.48
71 6.39 5.94 6.12 6.90 6.21 6.49 5.79 5.49 5.61
72 6.56 6.11 6.29 7.16 6.44 6.72 5.94 5.63 5.75
73 6.73 6.29 6.47 7.43 6.68 6.98 6.09 5.78 5.90
74 6.90 6.48 6.65 7.71 6.94 7.25 6.24 5.94 6.06
75 7.08 6.67 6.83 8.02 7.22 7.54 6.41 6.11 6.23
</TABLE>
These tables are based on an annual interest rate of 3%
and the Annuity 2000 Mortality Tables.
Form A3030-99 19
<PAGE>
ANNUITY OPTION TABLES (Continued)
First Monthly Annuity Benefit Payment
for Each $1,000 of Annuity Value Applied
Joint and Survivor Life Annuity
Older Age
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 60 65 70 75 80
Y 50 3.53 3.61 3.68 3.73 3.76 3.79 3.80
O 55 3.77 3.88 3.97 4.04 4.08 4.11
U 60 4.10 4.25 4.36 4.45 4.50
N 65 4.55 4.74 4.90 5.01
G 70 5.16 5.43 5.64
E 75 6.02 6.41
R 80 7.25
A
G
E
Joint and Two-Thirds Survivor Life Annuity
Older Age
50 55 60 65 70 75 80
Y 50 3.80 3.93 4.09 4.25 4.43 4.61 4.80
O 55 4.11 4.29 4.49 4.70 4.91 5.13
U 60 4.53 4.77 5.02 5.29 5.55
N 65 5.09 5.42 5.75 6.07
G 70 5.88 6.31 6.75
E 75 6.99 7.59
R 80 8.58
A
G
E
</TABLE>
These tables are based on an annual interest
rate of 3 % and the Annuity 2000 Mortality Table
Form A3030-99 20
<PAGE>
ANNUITY OPTION TABLES (CONTINUED)
First Monthly Annuity Benefit Payment
for Each $1,000 of Annuity Value Applied
Number of Years Variable or Certain Annuity
for a Certain Period
5 17.91
10 9.61
15 6.87
20 5.51
25 4.71
30 4.18
These tables are based on an annual interest
rate of 3% and the Annuity 2000 Mortality Tables.
Form A3030-99 21
<PAGE>
GENERAL PROVISIONS
Entire Contract The entire contract consists of
this contract, any application attached at
issue, riders, Specifications pages and
endorsements.
Misstatement of Age If the age or sex of an individual is
or Sex misstated, the Company will adjust all
benefits payable to that which would
be available at the correct age or sex.
Any underpayments already made by
the Company will be paid immediately. Any
overpayments will be deducted from future
annuity benefits payments.
Failure to Notify Company After the Annuity Date and once notified
of Annuitant Death of the Annuitant's death, the Company
reserves the right to recover
any overpaid annuity benefit 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 The Company cannot challenge the validity of
this contract after it has been in force for
more than two years from the date of issue.
Change of Annuity Date The Owner may change the Annuity Date
by Request at any time after the issue
date. The request must be received at
the Principal Office at least one month
before the new Annuity Date. To the
extent permitted by applicable laws,
rules and regulations governing variable
annuities, the new Annuity Date must
be no later than the Maximum Alternative
Annuity Date shown on the Specifications page.
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 The Company will furnish an annual
report to the Owner containing a statement
of the number and value of Accumulation
Units credited to the Sub-Accounts, the
value of the Fixed Account and the Guarantee
Period Accounts and any other information
required by applicable law, rules and
regulations.
Addition, Deletion, or The Company reserves the right, subject to
Substitution of compliance with applicable law, to add
Investments to, delete from, or substitute for the
shares of a Fund that are held by the
Sub-Accounts or that the Sub-Accounts may
purchase. The Company also reserves the
right to eliminate the shares of any Fund no
longer available for investment or if the
Company believes further investment in the
Fund is no longer appropriate for the
purposes of the Sub-Accounts.
Form A3030-99 22
<PAGE>
The Company will not substitute shares
attributable to any interest in a
Sub-Account without notice to the Owner 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
Owners.
The Company reserves the right, subject to
compliance with applicable laws, to
establish additional Separate Accounts,
Guarantee Period Accounts and Sub-Accounts
and to make them available to any class or
series of contracts as the Company considers
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. The Company also reserves
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,
the Company 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 the Company
considers 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 de-registered under the Act in the
event registration is no longer required, or
may be combined with other accounts of the
Company.
Changes in Law The Company reserves the right to
make any changes to provisions of the
contract to comply with, or give Owners the
benefit of, any federal or State statute,
rule, or regulation.
Change of Name Subject to compliance with
applicable law, the Company reserves the
right to change the names of the Variable
Account or the Sub-Accounts.
Federal Tax The Variable Account is not currently
Considersations subject to tax, but the Company reserves the
right to assess a charge for taxes if the
Variable Account becomes subject to tax.
Splitting of Units The Company reserves 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
the Owner, the Annuitant, any Beneficiary,
or the Company.
Insulation of Separate The investment performance of Separate
Account Account assets is determined separately from
the other assets of the Company. 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 the
Company may conduct.
Form A3030-99 23
<PAGE>
Flexible Payment Deferred Variable and Fixed Annuity
Annuity Benefit Payments Payable on the Annuity Date
Death Benefit Payable to Beneficiary if Owner Dies prior to Annuity Date
Non-Participating
Form A3030-99 24
<PAGE>
SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
Contract Type: [NQ] Contract Number: [zz00600000]
Issue Date: [ ] Annuity Date: [xx/xx/xxxx]
(Must be at least [1] year after the issue date)
Owner: [John Doe] Owner Date of Birth: [xx/xx/xxxx]
Joint Owner: [Jane Doe] Joint Owner Date of Birth: [xx/xx/xxxx]
Annuitant: [John Doe] Annuitant Date of Birth: [xx/xx/xxxx]
Joint Annuitant: [Jane Doe] Joint Annuitant Date of Birth: [xx/xx/xxxx]
Annuitant Sex: [Male] Beneficiary(ies):
Joint Annuitant Sex: [Female] Primary: Surviving Joint Owner, if any
1st Contingent: [John Doe]
2nd Contingent: [Jane Doe]
Minimum Fixed Account Minimum Additional Payment
Guaranteed Interest Rate: [3%] Amount: [$50.00]
Guarantee Period Account Guarantee Period Account
Minimum Interest Rate: [3%] Minimum Allocation Amount: [$1,000.00]
Minimum Withdrawal Minimum Accumulated Value
Amount: [$100.00] After Withdrawal: [$10,000.00]
Minimum Annuity Maximum Alternative Annuity Date: [xx/yy/zzzz]
Benefit Payment: [$100.00] (Must be at least [1] year after the issue date)
Mortality and Expense Risk Charge: [.65%] on an annual basis of the daily value of the Sub-Account
assets.
Administrative Charge: [.15%] on an annual basis of the daily value of the Sub-Account
assets.
Contract Fee: [$35, if the Accumulated Value is less than $75,000.00.]
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
[(1-800-782-8380)]
</TABLE>
A8030-99
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Owner: [John Doe] Contract Number: [zzz0000000]
Joint Owner: [Jane Doe]
Initial Payment: [$50,000.00]
Payment Allocation: (The Initial Payment is allocated in the following manner:)
Variable Sub-Accounts:
-----------------------
Select Emerging Markets Fund
Select International Equity Fund
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Strategic Growth Fund
Fidelity VIP Growth Portfolio
Select Growth and Income Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Select Income Fund
Money Market Fund
Fixed Account
--------------
</TABLE>
A8030-99
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Owner: [John Doe] Contract Number: [zzz0000000]
Joint Owner: [Jane Doe]
Guarantee Period Accounts
-------------------------
Guarantee Interest Expiration
Period Rate Date
------- ------- ------
[2 years
3 years
4 years
5 years
6 years
7 years
8 years
9 years
10 years]
-------
100% TOTAL
</TABLE>
A8030-99
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
RIDER(S) SELECTED:
[Enhanced Death Benefit Rider:]
[EDB Effective Annual Yield [5%]]
[EDB Charge: [.25%] on an annual basis of the Accumulated Value
of the contract deducted Pro Rata on the last day
of each month]
</TABLE>
A8030-99
<PAGE>
SPECIFICATIONS (SUPPLEMENT)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Contract Type: [Non-qualified] Contract Number: [??00600000]
Owner: [John Doe] Owner Date of Birth: [xx/xx/xxxx]
Joint Owner: [John Doe] Joint Owner Date of Birth: [xx/xx/xxxx]
Annuitant: [John Doe] Annuitant Date of Birth: [xx/xx/xxxx]
Joint Annuitant: [John Doe] Joint Annuitant Date of Birth: [xx/xx/xxxx]
Annuitant Sex: [Male] Beneficiary(ies):
Joint Annuitant Sex: [Male] Primary: Surviving Joint Owner, if any
1st Contingent: [John Doe]
2nd Contingent: [John Doe]
Payee: [John Doe]
Payee Address: [ 1 Main Street, Anytown, USA ]
Annuity Date: [xx/yy/zzzz]
Expiration of 90-Day Period: [xx/yy/zzzz]
Annuity Benefit Payment Option: [Joint with 2/3 Survivor Option]
Survivor Annuity Benefit Percentage: [66 2/3%]
Percentage under a Fixed Annuity Option: [30%]
Percentage under a Variable Annuity Option: [70%]
Assumed Investment Return: [4%]
Annuity Benefit Payment Change Frequency: [Annual]
Annuity Benefit Frequency: [Monthly]
[Payment Withdrawal Amount [10] times the previous annuity
benefit payment
[but not more than the remaining
guaranteed annuity benefit payments.]]
[Present Value Withdrawal Amount: [75%] of Present Value of remaining guaranteed
annuity benefit payments.]
Mortality and Expense Risk Charge: [.65% ] on an annual basis of the daily value of the Sub-Account assets.
Administrative Charge: [.15%] on an annual basis of the daily value of the Sub-Account assets.
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
[(1-800-782-8380)]
</TABLE>
A8030-99
<PAGE>
SPECIFICATONS (SUPPLEMENT)
Variable Allocation on Annuity Date:
Sub-Accounts:
-------------
Select Emerging Markets Fund
Select International Equity Fund
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Strategic Growth Fund
Fidelity VIP Growth Portfolio
Select Growth and Income Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Select Income Fund
Money Market Fund
A8030-99
<PAGE>
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint Richard M. Reilly,
John F. Kelly, Joseph W. MacDougall, Jr., and Sheila B. St. Hilaire, and each of
them singly, our true and lawful attorneys, with full power to them and each of
them, to sign for us, and in our names and in any and all capacities, any and
all Registration Statements and all amendments thereto, including post-effective
amendments, with respect to the Separate Accounts supporting variable life and
variable annuity contracts issued by Allmerica Financial Life Insurance and
Annuity Company, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and with any other regulatory agency or state authority that may so require,
granting unto said attorneys and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys or any of them may lawfully do or cause to be done by virtue hereof.
Witness our hands on the date set forth below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John F. O'Brien Director and Chairman of the Board 7/1/99
- -------------------------- ------
John F. O'Brien
/s/ Bruce C. Anderson Director 7/1/99
- -------------------------- ------
Bruce C. Anderson
Director and Chief Information Officer 7/1/99
- -------------------------- ------
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President and 7/1/99
- -------------------------- Chief Investment Officer ------
John P. Kavanaugh
/s/ John F. Kelly Director, Vice President and 7/1/99
- -------------------------- General Counsel ------
John F. Kelly
/s/ J. Barry May Director 7/1/99
- -------------------------- ------
J. Barry May
Director 7/1/99
- -------------------------- ------
James R. McAuliffe
/s/ Edward J. Parry, III Director, Vice President, Chief Financial 7/1/99
- -------------------------- Officer and Treasurer ------
Edward J. Parry, III
/s/ Richard M. Reilly Director, President and 7/1/99
- -------------------------- Chief Executive Officer ------
Richard M. Reilly
Director 7/1/99
- -------------------------- ------
Robert P. Restrepo, Jr.
/s/ Eric A. Simonsen Director and Vice President 7/1/99
- -------------------------- ------
Eric A. Simonsen
/s/ Phillip E. Soule Director 7/1/99
- -------------------------- ------
Phillip E. Soule
</TABLE>
<PAGE>
December 15, 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 Pre-effective Amendment No. 1 to the 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 Pre-effective Amendment No. 1 to the
Registration Statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company in accordance with
their terms and when sold will be legally issued, fully paid and
non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this
Pre-effective Amendment No. 1 to the 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 Pre-effective Amendment No. 1 to the 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 statement 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
December 17, 1999
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
AGENCY NO LOAD Since Inception of Underlying Portfolio
1 Year Without Surrender
Equity Index Fund (1.2730411.000000)/1.000000 = 27.30%
Money Market Fund (1.0466601.000000)/1.000000 = 4.67%
Since Inception of Underlying Portfolio
5 Years Without Surrender
Equity Index Fund ((2.747693/1.000000)^(.200000))1 = 22.40%
Money Market Fund ((1.238946/1.000000)^(.200000))1 = 4.38%
Since Inception of Underlying Portfolio
10 Years or Since Inception Without Surrender
Equity Index Fund ((4.426309/1.000000)^(365/3016))1 = 19.72%
Money Market Fund ((1.594350/1.000000)^(0.100000))1 = 4.78%
<PAGE>
AGENCY NO LOAD AFLIAC Since Inception of Underlying Portfolio
1 Year With Complete Withdrawal
Equity Index Fund ((1.2730411.000000)/1.000000)0.01750 = 25.55%
Money Market Fund ((1.0466601.000000)/1.000000)0.01750 = 2.92%
Since Inception of Underlying Portfolio
5 Years With Complete Withdrawal
Equity Index Fund (((2.747693/1.000000)^(.200000))1)0.01750 = 20.65%
Money Market Fund (((1.238946/1.000000)^(.200000))1)0.01750 = 2.63%
Since Inception of Underlying Portfolio
10 Years or Since Inception With Complete Withdrawal
Equity Index Fund (((4.426309/1.000000)^(365/3016))1)0.01750 = 17.97%
Money Market Fund (((1.594350/1.000000)^(0.100000))1)0.01750 = 3.03%
</TABLE>
