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File Nos. 333-81861
811-6293
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 1
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 39
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
_X_ on May 1, 2000 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 CONTRACTS
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").
The Rule 24f-2 Notice for the issuer's fiscal year ended December 31, 1999
was filed on or before March 30, 2000.
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CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF ITEMS
CALLED FOR BY FORM N-4
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<CAPTION>
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ---------------- ---------------------
<S> <C>
1...........................Cover Page
2...........................Special Terms
3...........................Summary of Fees and Expenses; Summary of the Contract Features
4...........................Condensed Financial Information; Performance Information
5...........................Description of the Companies, the Variable Accounts, the Trust, Fidelity VIP, Fidelity
VIP II, T. Rowe Price International Series, Inc. and DGPF.
6...........................Charges and Deductions
7...........................Description of the Contract
8...........................Electing the Annuity Income Date; Choosing an Income Option; Description of
Annuity Benefit Options; Variable Annuity Payments
9...........................Death Benefit
10..........................Variable Annuity Payments; Distribution
11..........................Withdrawals; Texas Optional Retirement Program
12..........................Federal Tax Considerations
13..........................Legal Matters
14..........................Statement of Additional Information - Table of Contents
<CAPTION>
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ----------------- ----------------------------------------------
15..........................Cover Page
16..........................Table of Contents
17..........................General Information and History
18..........................Services
19..........................Underwriters
20..........................Underwriters
21..........................Performance Information
22..........................Annuity Benefit Payments
23..........................Financial Statements
</TABLE>
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ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WORCESTER, MASSACHUSETTS
SEPARATE ACCOUNT VA-K
This Prospectus provides important information about the Allmerica Immediate
Advantage Variable Annuity contracts issued by Allmerica Financial Life
Insurance and Annuity Company (in all jurisdictions except New York) or by First
Allmerica Financial Life Insurance Company (in New York). The Contract is a
single payment immediate combination variable and fixed annuity offered on both
a group and individual basis. PLEASE READ THIS PROSPECTUS CAREFULLY BEFORE
INVESTING AND KEEP IT FOR FUTURE REFERENCE. ANNUITIES INVOLVE RISKS INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information dated May 1, 2000 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
1-800-723-6550. 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 Contract offers a Variable Income Option and a Fixed Income Option. The
Variable Income Option is supported by a legally segregated separate account of
the Company called the Variable Account. The Variable Account is subdivided into
Sub-Accounts. Each Sub-Account invests exclusively in shares of the following
funds:
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Select Emerging Markets Fund Overseas Portfolio
Select International Equity Fund Equity-Income Portfolio
Select Aggressive Growth Fund Growth Portfolio
Select Capital Appreciation Fund High Income Portfolio
Select Value Opportunity Fund
Select Growth Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Select Strategic Growth Fund Asset Manager Portfolio
Core Equity Fund
Equity Index Fund T. ROWE PRICE INTERNATIONAL SERIES, INC.
Select Growth and Income Fund T. Rowe Price International Stock Portfolio
Select Investment Grade Income Fund
Government Bond Fund DELAWARE GROUP PREMIUM FUND
Money Market Fund DGPF International Equity Series
</TABLE>
The Company's General Account will support the Fixed Income Option.
THIS ANNUITY IS NOT A BANK DEPOSIT OR OBLIGATION; FEDERALLY INSURED; OR ENDORSED
BY ANY BANK OR GOVERNMENTAL AGENCY.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
DATED MAY 1, 2000
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS............................................... 4
SUMMARY OF FEES AND EXPENSES................................ 6
SUMMARY OF CONTRACT FEATURES................................ 10
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS, THE
TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE AND
DGPF....................................................... 14
INVESTMENT OBJECTIVES AND POLICIES.......................... 15
PERFORMANCE INFORMATION..................................... 18
DESCRIPTION OF THE CONTRACT................................. 20
A. Single Purchase Payment.............................. 20
B. Right to Cancel...................................... 20
C. Electing the Annuity Income Date..................... 21
D. Choosing an Income Option............................ 21
E. Description of Annuity Benefit Options............... 22
F. Variable Annuity Payments............................ 23
Net Investment Factor............................... 23
The Annuity Unit and Annuity Unit Value............. 23
Determination of First Annuity Payment.............. 23
Determination of the Number of Annuity Units........ 23
Dollar Amount of First Variable Annuity Payment..... 24
Dollar Amount of Subsequent Variable Annuity
Payments............................................ 24
Payment of Annuity Payments......................... 24
G. Transfers of Annuity Units........................... 24
Automatic Account Rebalancing....................... 25
H. Withdrawals.......................................... 25
Calculation of Proportionate Reduction.............. 26
Calculation of Present Value........................ 27
I. Death Benefit........................................ 28
Death of an Owner or an Annuitant Before the Annuity
Income Date......................................... 28
Payment of the Death Benefit........................ 28
The Spouse of the Deceased Owner as Beneficiary..... 28
Death of the Owner or the Annuitant After the
Annuity Income Date................................. 29
J. General Restrictions on Payments..................... 29
K. Telephone Authorization.............................. 29
L. Assignment........................................... 29
M. NORRIS Decision....................................... 29
CHARGES AND DEDUCTIONS...................................... 30
A. Variable Account Deductions.......................... 30
Mortality and Expense Risk Charge................... 30
Administrative Expense Charge....................... 30
Expenses of the Underlying Funds.................... 30
B. Premium Taxes........................................ 30
C. Transfer Charge...................................... 31
D. Withdrawal Adjustment Charge......................... 31
FEDERAL TAX CONSIDERATIONS.................................. 32
A. Annuity Contracts in General......................... 32
B. Tax on Annuity Payments.............................. 32
C. Tax on Withdrawals................................... 32
Withdrawals Before the Annuity Income Date.......... 32
Withdrawals After the Annuity Income Date........... 33
D. Exchanges............................................ 33
E. Tax Withholding...................................... 33
</TABLE>
2
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<TABLE>
<S> <C>
F. Diversification and Control of Underlying Assets..... 34
STATEMENTS AND REPORTS...................................... 34
LOANS....................................................... 34
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS........... 34
CHANGES TO COMPLY WITH LAW AND AMENDMENTS................... 35
VOTING RIGHTS............................................... 35
DISTRIBUTION................................................ 35
LEGAL MATTERS............................................... 36
FURTHER INFORMATION......................................... 36
APPENDIX A -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND
PAYMENT WITHDRAWALS........................................ A-1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY............................. 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE
COMPANY.................................................... 3
SERVICES.................................................... 3
UNDERWRITERS................................................ 4
ANNUITY BENEFIT PAYMENTS.................................... 5
EXCHANGE OFFER.............................................. 5
PERFORMANCE INFORMATION..................................... 7
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
3
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SPECIAL TERMS
ANNUITANT: the person who must be alive for annuity payments to be made (unless
payments are guaranteed). Joint Annuitants are permitted and, unless otherwise
indicated, any reference to Annuitant shall include Joint Annuitants. In
contrast, the person to whom annuity payments are made is the Owner (or a person
requested by the Owner). The Annuitant and the Owner may be the same individual.
ANNUITY INCOME DATE: the date annuity payments begin. The Annuity Income Date
must be within twelve months of the Contract's Issue Date.
ANNUITY UNIT: a measure used to calculate annuity payments under a Variable
Income Option.
ASSUMED INVESTMENT RETURN (AIR): used to calculate the initial variable annuity
payment and to determine how the payment will change over time in response to
the investment performance of the selected Sub-Accounts.
BENEFICIARY: the person, persons or entity entitled to the Death Benefit upon
the death of the Owner prior to the Annuity Income Date or remaining annuity
payments, if any, upon the death of the Owner on or after the Annuity Income
Date.
CHANGE FREQUENCY: the frequency (monthly, quarterly, semi-annually or annually)
that the dollar value of an annuity payment under a Variable Income Option will
change due to investment performance.
COMPANY (WE, US OR OUR): Allmerica Financial Life Insurance and Annuity Company
(in all jurisdictions except New York) or First Allmerica Financial Life
Insurance Company (in New York).
CONTRACT VALUE: the Present Value of all future and/or remaining annuity
payments. (See the section entitled "Present Value Determination").
CONTRACT YEAR: a period of twelve consecutive months starting on the Contract's
Issue Date or on any anniversary of the Issue Date.
DATE OF FIRST CHANGE: the date on which your variable annuity payment will
change in value for the first time.
FIXED INCOME OPTION: an income option with annuity payments that are fixed in
amount (unless a withdrawal is taken or as a result of the death of the first
Joint Annuitant).
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
ISSUE DATE: the date the Contract is issued and the date that is used to
determine Contract days, Contract months, Contract years and anniversaries.
NET PAYMENT: the Single Purchase Payment less any premium tax.
OWNER (YOU OR YOUR): the person, persons (Joint Owners) or entity entitled to
exercise the rights and privileges under this Contract. Unless otherwise
indicated, any reference to You and Your shall include Joint Owners.
SUB-ACCOUNT: a subdivision of the Variable Account. Each Sub-Account available
under the Contract invests exclusively in the shares of a corresponding fund of
Allmerica Investment Trust ("Trust"), a corresponding portfolio of the Fidelity
Variable Insurance Products Fund ("Fidelity VIP"), the Asset Manager Portfolio
of the Fidelity Variable Insurance Products Fund II ("Fidelity VIP II") or the
T. Rowe Price International Stock
4
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Portfolio of T. Rowe Price International Series, Inc. ("T. Rowe Price"); or the
DGPF International Equity Series of the Delaware Group Premium Fund ("DGPF").
UNDERLYING FUND (FUNDS): an investment portfolio of the Trust, Fidelity VIP,
Fidelity VIP II, T. Rowe Price or DGPF in which a Sub-Account invests.
VALUATION DATE: a day on which the net asset value of the unit values of the
Sub-Accounts are determined. Valuation Dates currently occur on each day on
which the New York Stock Exchange is open for trading.
VALUATION PERIOD: a period used in measuring the investment experience of a
Sub-Account. The Valuation Period begins at the close of one Valuation Date and
ends at the close of the next succeeding Valuation Date.
VARIABLE ACCOUNT: one of our separate accounts, which we call Separate Account
VA-K, consisting of assets segregated from our other assets. The investment
performance of the assets of each of our separate accounts (and, under the
Contract, each Sub-Account) is determined separately from our other assets and
the assets are not chargeable with liabilities arising out of any other business
which we may conduct.
VARIABLE INCOME OPTION: an income option providing for annuity payments varying
in amount in accordance with the investment experience of the Underlying Funds
selected.
VARIABLE INCOME OPTION RATE: the factor applied to the portion of the Net
Payment allocated to the Variable Income Option and used to determine the number
of Annuity Units in each annuity payment. The factor takes into account the
Issue Date, the Annuity Income Date, annuity benefit option, the Assumed
Investment Return, the Change Frequency and Date of First Change.
5
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SUMMARY OF FEES AND EXPENSES
There are certain fees and expenses that you will bear under the Allmerica
Immediate Advantage Variable Annuity Contract. The purpose of the following
tables is to assist you in understanding these fees and expenses. The tables
show (1) charges under the Contract, including (2) annual expenses of the
Sub-Accounts, and (3) annual expenses of the Funds. Contract charges including
the annual Sub-Account expenses are specified under the terms of the Contract.
Annual Fund expenses are not fixed or specified under the terms of the Contract
and will vary from year to year. In addition to the charges and expenses
described below, premium taxes are applicable in some states and deducted as
described under "B. Premium Taxes" under CHARGES AND DEDUCTIONS.
<TABLE>
<CAPTION>
CHARGE
(1) CONTRACT CHARGES: ------
<S> <C>
None
TRANSFER CHARGE:
We currently do not charge for processing transfers and
guarantee that the first 12 transfers in a Contract year
will not be subject to a transfer charge. For each
subsequent transfer, we reserve the right to assess a
charge, guaranteed never to exceed $25, to reimburse us
for the costs of processing the transfer.
WITHDRAWAL ADJUSTMENT CHARGE:
After the Issue Date, you may request withdrawals, which
will result in a calculation by the Company of the Present
Value of future annuity payments. For withdrawals taken
within 5 years from the Issue Date, the Assumed Investment
Return ("AIR") you have chosen (in the case of a Variable
Income Option) or the interest rate (in the case of a Fixed
Income Option) used to determine the Present Value is
increased by a Withdrawal Adjustment Charge in the following
manner:
ADJUSTMENT TO AIR OR INTEREST RATE:
If 15 or more years of annuity payments are being 1.00%
valued, the increase is
If 10-14 years of annuity payments are being valued, the 1.50%
increase is
If less than 10 years of annuity payments are being 2.00%
valued, the increase is
The increase to the AIR or interest rate used to determine
the Present Value results in a greater proportionate
reduction in the number of Annuity Units (under a variable
income option) or dollar amount (under a fixed income
option), than if the increase had not been made. Because
each variable annuity 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 payments. See "H.
Withdrawals" under DESCRIPTION OF THE CONTRACT for
additional information.
(2) ANNUAL SUB-ACCOUNT EXPENSES:
(on an annual basis as a percentage of average daily net
assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.20%
------
Total Annual Expenses: 1.45%
</TABLE>
6
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(3) ANNUAL UNDERLYING FUND EXPENSES: In addition to the charges described above,
certain fees and expenses are deducted from the assets of the Underlying Funds.
The levels of fees and expenses vary among the Underlying Funds. The following
table shows the expenses of the Underlying Funds as a percentage of average
daily net assets for the year ended December 31, 1999, as adjusted for material
changes. For more information concerning fees and expenses, see the prospectuses
of the Underlying Funds.
<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER EXPENSES TOTAL FUND
(AFTER ANY (AFTER ANY EXPENSES (AFTER ANY
FUND VOLUNTARY WAIVERS) REIMBURSEMENTS) WAIVERS/REIMBURSEMENTS)
- ---- ------------------ --------------- -----------------------
<S> <C> <C> <C>
Select Emerging Markets Fund............ 1.35% 0.57% 1.92%(1)(2)
Select International Equity Fund........ 0.89% 0.13% 1.02%(1)(2)
DGPF International Equity Series........ 0.83% 0.12% 0.95%(3)
Fidelity VIP Overseas Portfolio......... 0.73% 0.18% 0.91%(4)
T. Rowe Price International Stock
Portfolio.............................. 1.05% 0.00% 1.05%
Select Aggressive Growth Fund........... 0.81%* 0.06% 0.87%(1)(2)*
Select Capital Appreciation Fund........ 0.90%* 0.07% 0.97%(1)*
Select Value Opportunity Fund........... 0.90% 0.07% 0.97%(1)(2)
Select Growth Fund...................... 0.78% 0.05% 0.83%(1)(2)
Select Strategic Growth Fund............ 0.85% 0.35% 1.20%(1)(2)
Core Equity Fund........................ 0.43% 0.05% 0.48%(1)(2)
Fidelity VIP Growth Portfolio........... 0.58% 0.08% 0.66%(4)
Equity Index Fund....................... 0.28% 0.07% 0.35%(1)
Select Growth and Income Fund........... 0.67% 0.07% 0.74%(1)(2)
Fidelity VIP Equity-Income Portfolio.... 0.48% 0.09% 0.57%(4)
Fidelity VIP II Asset Manager
Portfolio.............................. 0.53% 0.10% 0.63%(4)
Fidelity VIP High Income Portfolio...... 0.58% 0.11% 0.69%
Select Investment Grade Income Fund..... 0.43% 0.07% 0.50%(1)
Government Bond Fund.................... 0.50% 0.12% 0.62%(1)
Money Market Fund....................... 0.24% 0.05% 0.29%(1)
</TABLE>
*Effective September 1, 1999, the management fee rates for the Select Aggressive
Growth Fund and Select Capital Appreciation Fund were revised. The Management
Fee and Total Fund Expense ratios shown in the table above have been adjusted to
assume that the revised rates took effect January 1, 1999.
(1)Until further notice, Allmerica Financial Investment Management
Services, Inc. ("AFIMS") has declared a voluntary expense limitation of 1.50% of
average net assets for Select International Equity Fund, 1.35% for Select
Aggressive Growth Fund and Select Capital Appreciation Fund, 1.25% for Select
Value Opportunity Fund, 1.20% for Select Growth Fund and Core Equity Fund, 1.10%
for Select Growth and Income Fund, 1.00% for Select Investment Grade Income Fund
and Government Bond Fund, and 0.60% for Money Market Fund and Equity Index Fund.
The total operating expenses of these Funds of the Trust were less than their
respective expense limitations throughout 1999.
Until further notice, AFIMS has declared a voluntary expense limitation of 1.20%
of average daily net assets for the Select Strategic Growth Fund. In addition,
AFIMS has agreed to voluntarily waive its management fee to the extent that
expenses of the Select Emerging Markets Fund exceed 2.00% of the Fund's average
daily net assets, except that such waiver shall not exceed the net amount of
management fees earned by AFIMS from the Fund after subtracting fees paid by
AFIMS to a sub-advisor.
Until further notice, the Select Value Opportunity Fund's management fee rate
has been voluntarily limited to an annual rate of 0.90% of average daily net
assets, and total expenses are limited to 1.25% of average daily net assets.
7
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The declaration of a voluntary management fee or expense limitation in any year
does not bind AFIMS to declare future expense limitations with respect to these
Funds. These limitations may be terminated at any time.
(2)These Funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. These amounts have been treated as reductions
of expenses. After reduction of the rebate, the total annual fund operating
expenses would have been 1.01% for Select International Equity Fund, 1.88% for
Select Emerging Markets Fund, 0.84% for Select Aggressive Growth Fund, 0.88% for
Select Value Opportunity Fund, 0.81% for Select Growth Fund, 1.17% for Select
Strategic Growth Fund, 0.45% for Core Equity Fund, and 0.73% for Select Growth
and Income Fund.
(3)The investment adviser for the DGPF International Equity Series is Delaware
International Advisers Ltd. ("Delaware International"). Effective May 1, 2000
through October 31, 2000, Delaware International has agreed voluntarily to waive
its management fee and reimburse the Series for expenses to the extent that
total expenses will not exceed 0.95%. This limitation replaces a prior
limitation of 0.95% that expired on April 30, 2000. The fee ratios shown above
have been restated, if necessary, to reflect the new voluntary limitation which
took effect on May 1, 2000. The declaration of a voluntary expense limitation
does not bind Delaware International to declare future expense limitations with
respect to this Series. For the fiscal year ended December 31, 1999, before
waiver and/or reimbursement by Delaware International, total fund expenses as a
percentage of average daily net assets were 0.97%.
(4)A portion of the brokerage commissions that certain funds paid was used to
reduce fund expenses. In addition, through arrangements with certain funds', or
Fidelity Management & Research Company on behalf of certain funds', custodian
credits realized as a result of uninvested cash balances were used to reduce a
portion of the fund's expenses. Including these reductions, total operating
expenses presented in the table would have been 0.87% for the Fidelity VIP
Overseas Portfolio; 0.56% for the Fidelity VIP Equity-Income Portfolio; 0.62%
for the Fidelity VIP II Asset Manager Portfolio and 0.65% for the Fidelity VIP
Growth Portfolio.
The Underlying Fund information above was provided by the Underlying Funds and
was not independently verified by the Company.
Expense limitations described above may not include extraordinary expenses, such
as litigation.
EXPENSE EXAMPLES: The following examples demonstrate the cumulative expenses
which an Owner would pay at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets and assumes that the Underlying Fund expenses
listed above remain the same in each of the 1, 3, 5 and 10-year intervals.
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 LESS THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND IS NOT A REPRESENTATION OF PAST OR FUTURE
RETURNS.
8
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Table (1) If you do not surrender your Contract at the end of the applicable
time period, you would pay the following expenses on a $1,000 investment,
assuming the election of a 10-year period certain option, a 3% AIR and a 5%
annual return on assets:
<TABLE>
<CAPTION>
FUNDS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund............................... $34 $94 $143 $206
Select International Equity Fund........................... $25 $69 $105 $151
DGPF International Equity Series........................... $24 $67 $102 $146
Fidelity VIP Overseas Portfolio............................ $24 $66 $100 $144
T. Rowe Price International Stock Portfolio................ $25 $70 $106 $152
Select Aggressive Growth Fund.............................. $23 $65 $ 98 $142
Select Capital Appreciation Fund........................... $24 $67 $103 $148
Select Value Opportunity Fund.............................. $24 $67 $103 $148
Select Growth Fund......................................... $23 $63 $ 97 $139
Select Strategic Growth Fund............................... $26 $74 $112 $162
Core Equity Fund........................................... $19 $54 $ 82 $118
Fidelity VIP Growth Portfolio.............................. $21 $59 $ 90 $129
Equity Index Fund.......................................... $18 $50 $ 76 $110
Select Growth and Income Fund.............................. $22 $61 $ 93 $134
Fidelity Equity-Income Portfolio........................... $20 $56 $ 86 $123
Fidelity VIP II Asset Manager Portfolio.................... $21 $58 $ 88 $127
Fidelity VIP High Income Portfolio......................... $21 $60 $ 91 $131
Select Investment Grade Income Fund........................ $19 $54 $ 83 $119
Government Bond Fund....................................... $21 $58 $ 88 $126
Money Market Fund.......................................... $17 $48 $ 74 $106
</TABLE>
Table (2) If you surrender* your Contract at the end of the applicable time
period, you would pay the following expenses on a $1,000 investment, assuming
the election of a 10 year period certain option, a 3% AIR, and a 5% net annual
return on assets:
<TABLE>
<CAPTION>
FUNDS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund............................... $106 $141 $169 $206
Select International Equity Fund........................... $ 97 $116 $131 $151
DGPF International Equity Series........................... $ 96 $114 $128 $146
Fidelity VIP Overseas Portfolio............................ $ 96 $113 $127 $144
T. Rowe Price International Stock Portfolio................ $ 97 $117 $132 $152
Select Aggressive Growth Fund.............................. $ 95 $112 $125 $142
Select Capital Appreciation Fund........................... $ 96 $115 $129 $148
Select Value Opportunity Fund.............................. $ 96 $115 $129 $148
Select Growth Fund......................................... $ 95 $111 $123 $139
Select Strategic Growth Fund............................... $ 99 $121 $139 $162
Core Equity Fund........................................... $ 91 $101 $108 $118
Fidelity VIP Growth Portfolio.............................. $ 93 $106 $116 $129
Equity Index Fund.......................................... $ 90 $ 98 $103 $110
Select Growth and Income Fund.............................. $ 94 $109 $119 $134
Fidelity Equity-Income Portfolio........................... $ 92 $104 $112 $123
Fidelity VIP II Asset Manager Portfolio.................... $ 93 $105 $115 $127
Fidelity VIP High Income Portfolio......................... $ 93 $107 $117 $131
Select Investment Grade Income Fund........................ $ 92 $102 $109 $119
Government Bond Fund....................................... $ 93 $105 $114 $126
Money Market Fund.......................................... $ 89 $ 96 $100 $106
</TABLE>
*A surrender is only available if the Payment for a Certain Number of Years
option is elected.
9
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SUMMARY OF CONTRACT FEATURES
WHAT IS THE ALLMERICA IMMEDIATE ADVANTAGE VARIABLE ANNUITY?
The Allmerica Immediate Advantage Variable Annuity contract ("Contract") is an
insurance contract designed to provide you, the Owner, with monthly annuity
income during the lifetime of the Annuitant or Joint Annuitants, or for a period
of years. The Contract combines the concept of professional money management
with the attributes of an annuity contract. Features available through the
Contract include:
- A menu of investment options that you can customize to support your
annuity payments;
- Underlying Funds managed by experienced professional investment advisers;
- Income that you can receive for life;
- Access to your money through withdrawals; and
- The ability to tailor your income stream by choosing from multiple annuity
benefit options and selecting the first date the amount of your payments
will change.
You may allocate your Net Payment to the Fixed Income Option or the Variable
Income Option, or a combination of both. If you select the Variable Income
Option, you may allocate your money to the Sub-Accounts investing in the
Underlying Funds. You select the investment allocation most appropriate for your
income needs. As those needs change, you may also change your allocation without
incurring any tax consequences.
WHAT CHOICES DO I MAKE WHEN I PURCHASE THE CONTRACT?
At the time you apply for the Contract, you choose:
- the Annuitant(s) and the Beneficiary(ies);
- the date annuity payments begin, which must be within twelve months of the
Contract's Issue Date;
- the annuity benefit option;
- whether you want variable annuity payments based on the investment
performance of the Underlying Funds (the Variable Income Option), fixed
annuity payments with payment amounts guaranteed by the Company (the Fixed
Income Option), or a combination of fixed and variable annuity payments;
- a Change Frequency, if you allocate any portion of the Net Payment to the
Variable Income Option (and you may select the first date your annuity
payment will change); and
- one of the available Assumed Investment Returns ("AIR") if you allocate
any portion of the Net Payment to the Variable Income Option.
On the Annuity Income Date, you, or the payee you designate, will begin to
receive income based on one of the several annuity benefit options available
under the Contract.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner"), and us, Allmerica Financial Life
Insurance and Annuity Company (for contracts issued in all jurisdictions except
New York) or First Allmerica Financial Life
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Insurance Company (for contracts issued in New York). Each Contract has an Owner
(or Joint Owners), an Annuitant (or Joint Annuitants) and one or more
Beneficiaries.
The Annuitant is the person whose life is used to determine the duration of
annuity payments involving a life contingency, unless payments are guaranteed
for a certain number of years. The Beneficiary is the person, persons or entity
entitled to the Death Benefit upon the death of the Owner prior to the Annuity
Income Date or remaining annuity payments, if any, upon the death of the Owner
on or after the Annuity Income Date. If the contract has Joint Owners and one
Owner dies, the surviving Joint Owner is the primary Beneficiary.
HOW MUCH CAN I INVEST?
You may make a single purchase payment to the Contract. This payment is subject
to a $75,000 minimum. The maximum single purchase payment is $5,000,000 without
our prior approval. No additional payments may be made.
WHAT ARE MY INVESTMENT CHOICES?
You may allocate the Net Payment to the Fixed Income Option, the Variable Income
Option, or a combination of both. Once selected, the Income Option may not be
changed. If you select the Variable Income Option, you can allocate the Net
Payment among the Sub-Accounts investing in the Underlying Funds.
VARIABLE INCOME OPTION: You have a choice of Sub-Accounts investing in the
following Underlying Funds:
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Select Emerging Markets Fund Overseas Portfolio
Select International Equity Fund Equity-Income Portfolio
Select Aggressive Growth Fund Growth Portfolio
Select Capital Appreciation Fund High Income Portfolio
Select Value Opportunity Fund
Select Growth Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Select Strategic Growth Fund II
Core Equity Fund Asset Manager Portfolio
Equity Index Fund
Select Growth and Income Fund T. ROWE PRICE INTERNATIONAL SERIES, INC.
Select Investment Grade Income Fund T. Rowe Price International Stock
Government Bond Fund Portfolio
Money Market Fund DELAWARE GROUP PREMIUM FUND
DGPF International Equity Series
</TABLE>
FOR A MORE DETAILED DESCRIPTION OF THE UNDERLYING FUNDS, SEE INVESTMENT
OBJECTIVES AND POLICIES.
FIXED INCOME OPTION: If you select the Fixed Income Option, your money will be
supported by the General Account, which consists of all the Company's assets
other than those allocated to the Variable Account and any other separate
account.
CAN I MAKE TRANSFERS AMONG THE VARIABLE SUB-ACCOUNTS?
If you select the Variable Income Option, you may transfer among the
Sub-Accounts investing in the Underlying Funds. You will incur no current taxes
on transfers while your money remains in the Contract. See "G. Transfers of
Annuity Units" under DESCRIPTION OF THE CONTRACT.
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
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charge guaranteed never to exceed $25. The automatic rebalancing under an
Automatic Account Rebalancing program counts as one transfer for purposes of the
12 transfers guaranteed to be free of transfer charge in each Contract year.
Each subsequent automatic rebalancing 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 TO MAKE A WITHDRAWAL?
You have the right to make withdrawals after the Annuity Income Date. The type
of withdrawal and the number of withdrawals that may be made each calendar year
depends upon whether the annuity benefit option is based upon the life of one or
more Annuitants with no guaranteed payments (a "Life Annuity" option), under a
life annuity benefit option that in part provides for a guaranteed number of
payments (a "Life Annuity with Payment for a Certain Number of Years" or "Life
Annuity with Cash Back" option), or an annuity benefit option based on a
guaranteed number of payments (a "Payment for a Certain Number of Years"
option). Under a Life Annuity option, the Owner may make one Payment Withdrawal
each calendar year. Under a Life Annuity with Payment for a Certain Number of
Years or a Life Annuity with Cash Back option, the Owner may make one Payment
Withdrawal and one Present Value Withdrawal in each calendar year. Under a
Payment for a Certain Number of Years option, the Owner may make multiple
Present Value Withdrawals each calendar year. For more information, see "H.
Withdrawals" under DESCRIPTION OF THE CONTRACT.
WHAT HAPPENS UPON DEATH OF THE OWNER OR THE ANNUITANT?
Before the Annuity Income Date, if an Owner or an Annuitant dies, a death
benefit will be paid.
After the Annuity Income Date, if an Owner or an Annuitant dies, we will
continue to pay remaining annuity payments, if any, in accordance with the terms
of the annuity benefit option selected. See "I. Death Benefit" under DESCRIPTION
OF THE CONTRACT.
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
We will deduct, on a daily basis, an annual mortality and expense risk charge
and administrative expense charge equal to 1.25% and 0.20%, respectively, of the
average daily net assets invested in each Fund. The Funds will incur certain
management fees and expenses that are described in "Expenses of the Underlying
Funds" under "A. Variable Account Deductions" and in the Fund prospectuses
accompanying this Prospectus. These charges vary among the Underlying Funds and
may change from year to year. In addition, 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.
Depending upon the state in which you live, a deduction for state and local
premium taxes, if any, may be made as described under "B. Premium Taxes" under
CHARGES AND DEDUCTIONS.
You may request a withdrawal after the Annuity Income Date. Any withdrawals will
result in a calculation by the Company of the present value of future annuity
payments. For withdrawals taken within 5 years from the Issue date, an
adjustment is made to the Assumed Investment Return ("AIR") you have chosen (in
the case of a Variable Income Option) and/or the interest rate (in the case of a
Fixed Income Option) used to calculate the present value of the future annuity
payments.
The adjustment to the AIR or the interest rate used to determine the Present
Value results in lower future annuity payments than if the adjustment had not
been made. See "H. Withdrawals" under DESCRIPTION OF THE CONTRACT for additional
information.
For more information regarding the charges applied to your Contract, see CHARGES
AND DEDUCTIONS.
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CAN I EXAMINE THE CONTRACT?
Your Contract will be delivered to you after your purchase. If you return the
Contract to the Company within ninety days of receipt, the Contract will be
canceled. See the "Right to Examine" provision on the cover of your Contract. If
you cancel the Contract within ninety days after you received it, you will
receive a refund of the Contract Value on the date the Contract is returned to
us, plus any premium tax deducted on the Issue Date. However, if state law
requires or if the Contract was issued as an Individual Retirement Annuity
("IRA"), and if you return the Contract within ten days after you have received
it, you will receive a refund of the Single Purchase Payment less any annuity
payments made and/or withdrawals taken. See "B. Right to Cancel" under
DESCRIPTION OF THE CONTRACT.
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
You can make several changes after receiving your Contract:
- You may change the Beneficiary, unless you have designated a Beneficiary
irrevocably;
- You may change the person(s) you have designated to receive your annuity
payments;
- If you selected the Variable Income Option, you may make transfers among
your current investments without any tax consequences;
- You may make withdrawals; and
- You may cancel the Contract within ninety days of delivery.
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DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS,
THE TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE, AND DGPF
THE COMPANIES. Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial") is a life insurance company organized under the laws of
Delaware in July 1974. Its Principal Office is located at 440 Lincoln Street,
Worcester, MA 01653, telephone 508-855-1000. Allmerica Financial is subject to
the laws of the state of Delaware governing insurance companies and to
regulation by the Commissioner of Insurance of Delaware. In addition, Allmerica
Financial is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1999,
Allmerica Financial had over $17 billion in assets and over $26 billion of life
insurance in force.
Effective October 1, 1995, Allmerica Financial changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
Allmerica Financial is a wholly owned subsidiary of First Allmerica Financial
Life Insurance Company that, in turn, is a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC").
First Allmerica Financial Life Insurance Company (First Allmerica), organized
under the laws of Massachusetts in 1844, is among the five oldest life insurance
companies in America. As of December 31, 1999, First Allmerica and its
subsidiaries had over $25 billion in combined assets and over $43 billion of
life insurance in force. Effective October 16, 1995, First Allmerica converted
from a mutual life insurance company known as State Mutual Life Assurance
Company of America to a stock life insurance company and adopted its present
name. First Allmerica is a wholly owned subsidiary of AFC. First Allmerica's
principal office ("Principal Office") is located at 440 Lincoln Street,
Worcester, MA 01653, telephone 508-855-1000.
First Allmerica is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, First Allmerica is subject to the insurance laws
and regulations of other states and jurisdictions in which it is licensed to
operate.
Both Allmerica Financial and First Allmerica are charter members of the
Insurance Marketplace Standards Association ("IMSA"). Companies that belong to
IMSA subscribe to a rigorous set of standards that cover the various aspects of
sales and service for individually sold life insurance and annuities. IMSA
members have adopted policies and procedures that demonstrate a commitment to
honesty, fairness and integrity in all customer contacts involving sales and
service of individual life insurance and annuity products.
THE VARIABLE ACCOUNTS. Each Company maintains a separate account called
Separate Account VA-K (the "Variable Account"). The Variable Account of
Allmerica Financial was authorized by vote of our Board of Directors on
November 1, 1990. The Variable Account of First Allmerica was authorized by vote
of our Board of Directors on November 1, 1990. Each Variable Account is
registered with the SEC as a unit investment trust under the 1940 Act. This
registration does not involve the supervision or management of investment
practices or policies of the Variable Accounts or the Company by the SEC.
Separate Account VA-K is a separate investment account of the Company. The
assets used to fund the variable portions of the Contracts are set aside in the
Sub-Accounts of the Variable Account, and are kept separate and apart from the
general assets of the Company. Each Sub-Account is administered and accounted
for as part of our general business, but the income, capital gains, or capital
losses of each Sub-Account are allocated to such Sub-Account, without regard to
other income, capital gains, or capital losses of the Company. Obligations under
the Contracts are our obligations. Under Delaware and Massachusetts law, the
assets of the Variable Account may not be charged with any liabilities arising
out of any other business of the Company.
We reserve the right, subject to compliance with applicable law, to change the
names of the Variable Account and the Sub-Accounts. We also offer other variable
annuity contracts investing in the Variable Account which are not discussed in
this Prospectus. In addition the Variable Account may invest in other underlying
funds which are not available to the Contracts described in this Prospectus.
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ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust (the "Trust") is an
open-end, diversified management investment company registered with the SEC
under the 1940 Act. Thirteen investment portfolios of the Trust are currently
available under the Contract, each issuing a series of shares: the Core Equity
Fund, Select Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, Select International Equity Fund, Select Emerging Markets
Fund, Select Strategic Growth Fund, Select Aggressive Growth Fund, Select
Capital Appreciation Fund, Select Growth Fund, Select Growth and Income Fund and
Select Value Opportunity Fund. Shares of the Trust are not offered to the
general public but solely to such variable accounts.
Allmerica Financial Investment Management Services, Inc. ("AFIMS"), a wholly
owned subsidiary of Allmerica Financial, serves as the investment adviser of the
Trust and has entered into sub-advisory agreements with other investment
managers ("Sub-Advisers") who manage the investments of the Funds.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND. Fidelity Variable Insurance Products
Fund ("Fidelity VIP") managed by Fidelity Management & Research Company ("FMR"),
is an open-end, diversified management investment company registered with the
SEC under the 1940 Act. Four of its investment portfolios are available under
the Contract: Fidelity VIP High Income Portfolio, Fidelity VIP Equity-Income
Portfolio, Fidelity VIP Growth Portfolio and Fidelity VIP Overseas Portfolio.
FMR is one of America's largest investment management organizations and has its
principal business address at 82 Devonshire Street, Boston, Massachusetts. It
provides a number of mutual funds and other clients with investment research and
portfolio management services.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II. Fidelity Variable Insurance
Products Fund II ("Fidelity VIP II"), managed by FMR (see discussion above) is
an open-end, diversified management investment company registered with the SEC
under the 1940 Act. One of its investment portfolios is available under the
Contract: Fidelity VIP II Asset Manager Portfolio.
T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International
Series, Inc. ("T. Rowe Price"), managed by Rowe Price-Fleming
International, Inc. ("Price-Fleming"), is an open-end, diversified management
investment company registered with the SEC under the 1940 Act. One of its
investment portfolios is available under the Contracts: the T. Rowe Price
International Stock Portfolio. One of its affiliates, T. Rowe Price
Associates, Inc., serves as the Sub-Adviser to the Select Capital Appreciation
Fund.
DELAWARE GROUP PREMIUM FUND. Delaware Group Premium Fund ("DGPF") is an
open-end, diversified, management investment company registered with the SEC
under the 1940 Act. DGPF was established to provide a vehicle for the investment
of assets of various separate accounts supporting variable insurance contracts.
One investment portfolio is available under the Contract, the International
Equity Series. The investment adviser for the International Equity Series is
Delaware International Advisers Ltd. ("Delaware International").
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds is set forth
below. The Underlying Funds are listed by general investment risk
characteristics. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS AND OTHER RELEVANT
INFORMATION REGARDING THE UNDERLYING INVESTMENT COMPANIES MAY BE FOUND IN THEIR
RESPECTIVE PROSPECTUSES, WHICH ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING. The Statements of Additional Information ("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.
SELECT EMERGING MARKETS FUND -- The Select Emerging Markets Fund seeks long-term
growth of capital by investing in the world's emerging markets.
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<PAGE>
SELECT INTERNATIONAL EQUITY FUND -- The Select International Equity Fund seeks
maximum long-term total return (capital appreciation and income) primarily by
investing in common stocks of established non-U.S. companies.
DGPF INTERNATIONAL EQUITY SERIES -- The International Equity Series of DGPF
seeks long-term growth without undue risk to principal by investing primarily in
equity securities of foreign issuers providing the potential for capital
appreciation and income.
FIDELITY VIP OVERSEAS PORTFOLIO -- The Overseas Portfolio of Fidelity VIP seeks
long-term growth of capital primarily through investments in foreign securities
and provides a means to diversify their own portfolios by participating in
companies and economies outside of the United States.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO -- The T. Rowe Price International
Stock Portfolio seeks long-term growth of capital through investments primarily
in common stocks of established, non-U.S. companies.
SELECT AGGRESSIVE GROWTH FUND -- The Select Aggressive Growth Fund seeks
above-average capital appreciation by investing primarily in common stocks of
companies which are believed to have significant potential for capital
appreciation.
SELECT CAPITAL APPRECIATION FUND -- The Select Capital Appreciation Fund seeks
long-term growth of capital. Realization of income is not a significant
investment consideration and any income realized on the Fund's investments will
be incidental to its primary objective. The Fund invests primarily in common
stock of industries and companies which are believed to be experiencing
favorable demand for their products and services, and which operate in a
favorable competitive environment and regulatory climate.
SELECT VALUE OPPORTUNITY FUND -- The Select Value Opportunity Fund seeks
long-term growth by investing principally in a diversified portfolio of common
stocks of small and mid-size companies whose securities at the time of purchase
are considered by the Sub-Adviser to be undervalued.
SELECT GROWTH FUND -- The Select Growth Fund seeks to achieve long-term growth
of capital by investing in a diversified portfolio consisting primarily of
common stocks selected on the basis of their long-term growth potential.
SELECT STRATEGIC GROWTH FUND -- The Select Strategic Growth Fund seeks long-term
growth of capital by investing primarily in common stocks of established
companies.
CORE EQUITY FUND -- The Core Equity Fund is invested in common stocks and
securities convertible into common stocks that are believed to represent
significant underlying value in relation to current market prices. The objective
of the Core Equity Fund is to achieve long-term growth of capital. Realization
of current investment income, if any, is incidental to this objective. This Fund
was formerly known as the Growth Fund.
FIDELITY VIP GROWTH PORTFOLIO -- The Growth Portfolio of Fidelity VIP seeks to
achieve capital appreciation. The Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation also may be found in other types of securities, including bonds and
preferred stocks.
EQUITY INDEX FUND -- The Equity Index Fund seeks to provide investment results
that correspond to the aggregate price and yield performance of a representative
selection of United States publicly traded common stocks. The Equity Index Fund
seeks to achieve its objective by attempting to replicate the aggregate price
and yield performance of the Standard & Poor's Composite Index of 500 Stocks.
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SELECT GROWTH AND INCOME FUND -- The Select Growth and Income Fund seeks a
combination of long-term growth of capital and current income. The Fund will
invest primarily in dividend-paying common stocks and securities convertible
into common stocks.
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- The Equity-Income Portfolio of Fidelity
VIP seeks reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio also will consider the
potential for capital appreciation. The Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the S&P 500.
FIDELITY VIP II ASSET MANAGER PORTFOLIO -- The Asset Manager Portfolio of
Fidelity VIP II seeks high total return with reduced risk over the long term by
allocating its assets among domestic and foreign stocks, bonds and short-term
money market instruments.
FIDELITY VIP HIGH INCOME PORTFOLIO -- The High Income Portfolio of Fidelity VIP
seeks to obtain a high level of current income by investing primarily in
high-yielding, lower-rated fixed-income securities (commonly referred to as
"junk bonds"), while also considering growth of capital. These securities often
are considered to be speculative, and involve greater risk of default or price
changes than securities assigned a high quality rating.
SELECT INVESTMENT GRADE INCOME FUND -- The Select Investment Grade Income Fund
is invested in a diversified portfolio of fixed income securities with the
objective of seeking as high a level of total return (including both income and
capital appreciation) as is consistent with prudent investment management. This
fund was formerly known as the Investment Grade Income Fund.
GOVERNMENT BOND FUND -- The Government Bond Fund has the investment objectives
of seeking high income, preservation of capital and maintenance of liquidity,
primarily through investments in debt instruments issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, and in related options,
futures and repurchase agreements.
MONEY MARKET FUND -- The Money Market Fund is invested in a diversified
portfolio of high-quality, short-term money market instruments with the
objective of obtaining maximum current income consistent with the preservation
of capital and liquidity.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUB-ACCOUNTS WHICH
BEST MEET YOUR INDIVIDUAL NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE AND DGPF, ALONG WITH
THIS PROSPECTUS. IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE
AVAILABILITY OF PARTICULAR SUB-ACCOUNTS. THE INVESTMENT ADVISER OR SUB-ADVISER
OF AN UNDERLYING FUND MAY MANAGE OTHER MUTUAL FUNDS THAT HAVE SIMILAR NAMES,
GOALS, AND/OR STRATEGIES AS THOSE OF AN UNDERLYING FUND. DESPITE THESE
SIMILARITIES, THERE MAY BE DIFFERENCES BETWEEN THE UNDERLYING FUND AND THE OTHER
FUND MANAGED BY THE SAME ADVISER, WHICH COULD RESULT IN DIFFERENCES IN THE RISKS
AND RETURNS OF THE TWO FUNDS. NO REPRESENTATION IS MADE THAT ANY UNDERLYING FUND
IS SIMILAR TO OR DIFFERENT FROM OTHER FUNDS MANAGED BY THE SAME ADVISER. FOR
INFORMATION ON AN UNDERLYING FUND, CONSULT ITS PROSPECTUS.
If there is a material change in the investment objective of a Fund, you will be
notified of the change. If a portion of your Variable Income Option is allocated
to that Fund, you may transfer this amount without charge to another Fund. We
must receive your written request within 60 days of the latest of the:
- effective date of the change in the investment objective or
- receipt of the notice of your right to transfer.
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PERFORMANCE INFORMATION
In order to help people understand how investment performance can affect money
invested in the Sub-Accounts, the Company may advertise "total return" and
average annual total return performance information based on (1) the periods
that the Sub-Accounts have been in existence and (2) the periods that the
Underlying Funds have been in existence. Performance results in Tables 1 and 2
are calculated with all charges assumed to be those applicable to the Contract,
the Sub-Accounts and the Underlying Funds. Both the total return and yield
figures are based on historical earnings and are not intended to indicate future
performance. All performance tables referenced in this section may be found in
the SAI. (Because Table 1 presents performance of a Sub-Account from its
inception through December 31, 1999 and the Sub-Accounts were not created until
after December 31, 1999, no performance numbers are currently shown in this
Table. The discussion below reflects the manner in which performance will be
calculated in the future for Table 1.)
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 Tables 1 and 2 are
calculated in the manner prescribed by the SEC and show the percentage rate of
return of a hypothetical initial investment of $1,000 for the most recent one,
five and ten year period or for a period covering the time the Sub-Account has
been in existence, if less than the prescribed periods. The calculation is
adjusted to reflect the deduction of the annual Sub-Account asset charge of
1.45% and the Underlying Fund charges which would be assessed if the investment
were completely withdrawn at the end of the specified period.
The performance shown in Table 2 is calculated in exactly the same manner as
that in Table 1; however, the period of time is based on the Underlying Fund's
lifetime, which predates the Sub-Account's inception date. These performance
calculations are based on the assumption that the Sub-Account corresponding to
the applicable Underlying Fund was actually in existence throughout the stated
period and that the contractual charges and expenses during that period were
equal to those currently assessed under the Contract.
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 investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors
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as representative of the securities markets in general; (2) other groups of
variable annuity separate accounts or other investment products tracked by
Lipper, Inc., a widely used independent research firm which ranks mutual funds
and other investment products by overall performance, investment objectives, and
assets, or tracked by other services, companies, publications, or persons, who
rank such investment products on overall performance or other criteria; or
(3) the Consumer Price Index (a measure for inflation) to assess the real rate
of return from an investment in the Sub-Account. Unmanaged indices may assume
the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses. In addition, relevant
broad-based indices and performance from independent sources may be used to
illustrate the performance of certain contract features.
At times, we may also advertise the ratings and other information assigned to it
by independent rating organizations such as A.M. Best Company ("A.M. Best"),
Moody's Investors Service ("Moody's"), Standard & Poor's Insurance Rating
Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's ratings reflect
their current opinion of our relative financial strength and operating
performance in comparison to the norms of the life/health insurance industry.
S&P's and Duff & Phelps' ratings measure the ability of an insurance company to
meet its obligations under insurance policies it issues and do not measure the
ability of such companies to meet other non-policy obligations. The ratings also
do not relate to the performance of the Underlying Funds.
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DESCRIPTION OF THE CONTRACT
Subject to certain restrictions discussed below, you have the right:
- to select the annuity benefit option under which annuity payments are to
be made;
- to determine whether those payments are to be made on a fixed basis (the
Fixed Income Option), a variable basis (the Variable Income Option), or a
combination fixed and variable basis;
- to allocate any portion of the Net Payment to the Variable Income Option.
If so, you must choose:
- how to allocate the Net Payment;
- a Change Frequency (you may select the first date your annuity payment
will change);
- one of the available Assumed Investment Returns ("AIR") for a Variable
Income Option (see "F. Variable Annuity Payments" below for details);
- to elect how the Beneficiary should receive annuity payments, if any;
and
- to receive annuity payments (or designate someone else to receive
annuity payments).
A. SINGLE PURCHASE PAYMENT
You may make a single purchase payment to buy the Contract. This payment is
subject to a $75,000 minimum. The maximum single purchase payment is $5,000,000
without our prior approval. No additional payments may be made.
The Company issues the Contract when its underwriting requirements are met.
These requirements include receipt of the payment and allocation instructions by
the Company at its Principal Office. These requirements also may include the
proper completion of an application; however, where permitted, the Company may
issue a Contract without completion of an application and/or signature for
certain classes of Contracts.
Payments are to be made payable to the Company. The Net Payment is credited to
the Contract and allocated as requested as of the date that all issue
requirements are properly met. If all issue requirements are not completed
within five business days of the Company's receipt of the single purchase
payment, the payment will be returned immediately unless the Owner specifically
consents to the holding of it pending completion of the outstanding issue
requirements.
B. RIGHT TO CANCEL
If you return the Contract to the Company within 90 days of receipt, the
Contract will be cancelled.
If you purchase a Contract intended to qualify as an IRA or if you purchase the
Contract in a state that requires a full refund, you may cancel the Contract and
receive a refund as specified below.
REFUND WITHIN TEN DAYS OF RECEIPT. If you return the Contract within ten days
(or longer if required by law) after you have received it, we will refund the
Single Purchase Payment less the total amount of all annuity payments made or
withdrawals taken.
REFUND AFTER TEN DAYS BUT WITHIN NINETY DAYS. If you return the Contract after
ten days but within ninety days after the Issue Date, we will pay to you the
Contract Value as of the date the Contract is returned to us plus any premium
tax deducted on the Issue Date.
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If you purchase a Contract that is not intended to qualify as an IRA or if you
purchase the Contract in a state that does not require a full refund, you may
cancel the Contract at any time within 90 days after receipt of the Contract and
receive a refund. If you return the Contract, we will pay to you the Contract
Value as of the date the Contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
At the time the Contract is issued, the "Right to Examine" provision on the
cover of the Contract will specifically indicate what the refund will be and the
time period allowed to exercise the right to cancel.
In order to cancel the contract, you must mail or deliver the Contract to the
agent through whom it was purchased, to our Principal Office at 440 Lincoln
Street, Worcester, MA 01653, or to any local agent of the Company. Mailing or
delivery must occur within ten or ninety days, as applicable, after receipt of
the Contract for cancellation to be effective. We ordinarily will send you a
refund within seven days.
C. ELECTING THE ANNUITY INCOME DATE
Annuity payments under the Contract will begin on the Annuity Income Date. You
select the Annuity Income Date at the time of issue. The Annuity Income Date
must be within twelve months of the Contract's Issue Date. You may not select
the 29th, 30th or 31st day of the month for the Annuity Income Date.
The Internal Revenue Code (the "Code") and/or the terms of qualified plans may
impose limitations on the age at which annuity payments may commence and the
type of annuity benefit option that may be elected. You should carefully review
the Annuity Income Date and the annuity benefit options with your tax advisor.
See also FEDERAL TAX CONSIDERATIONS for further information.
D. CHOOSING AN INCOME OPTION
You may choose a Fixed Income Option, a Variable Income Option or a combination
of Fixed and Variable.
If you select a Fixed Income Option, each monthly annuity payment will be equal
to the first (unless a withdrawal is made or as a result of the death of the
first Joint Annuitant). Any portion of the Net Payment allocated to the Fixed
Income Option will become part of our General Account.
If you select a Variable Income Option, you will receive monthly annuity
payments based on the value of the Annuity Units in the chosen Sub-Account(s).
Since the value of an Annuity Unit in a Sub-Account reflects the investment
performance of the Sub-Account, the amount of annuity payments will vary. Under
this Contract, you may choose the frequency with which you want annuity payments
to vary (the Change Frequency), which may be monthly, quarterly, semi-annually,
or annually. The Change Frequency is the frequency that changes due to the
Sub-Account's investment performance will be reflected in the dollar value of a
variable annuity payment. For example, if a monthly Change Frequency is in
effect, payments may vary on a monthly basis. If a quarterly Change Frequency is
selected, the amount of each monthly payment may change every three months and
will be level within each three month cycle.
The amount of your annuity payment will change for the first time one Change
Frequency Cycle after the Issue Date. (For example, if a quarterly Change
Frequency is chosen, your annuity payments will change for the first time three
months after the Annuity Income Date.) However, if you would like the amount of
the payment to change sooner, you can indicate the desired month.
The income option selected must result in an initial payment of at least $100 (a
lower amount may be required in certain jurisdictions.) We reserve the right to
increase this minimum amount. If the income option selected does not produce an
initial payment which meets this minimum, a single payment may be made.
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E. DESCRIPTION OF ANNUITY BENEFIT OPTIONS
The Company currently provides the following annuity benefit options:
LIFE ANNUITY OPTIONS
- SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life.
Payments cease with the last annuity payment due prior to the Annuitant's
death.
- JOINT LIFE ANNUITY WITH SURVIVOR BENEFIT -- Monthly payments during the
Joint Annuitants' lifetimes. Upon the first death, payments will continue
to you or the Beneficiary (whichever is applicable) for the survivor's
remaining lifetime based on the previously elected level of 100%,
two-thirds (66.67%) or one-half (50%) of the total number of Annuity Units
for a Variable Income Option or the annuity payment for a Fixed Income
Option.
LIFE ANNUITY WITH PAYMENT FOR A CERTAIN NUMBER OF YEARS OPTIONS
- SINGLE LIFE ANNUITY -- Monthly payments guaranteed for a specified number
of years and continuing thereafter during the Annuitant's lifetime. If the
Annuitant dies before all guaranteed payments have been made, the
remaining payments continue to you or the Beneficiary (whichever is
applicable).
- JOINT LIFE ANNUITY WITH SURVIVOR BENEFIT -- Monthly payments guaranteed
for a specified number of years and continuing during the Joint
Annuitants' lifetimes. Upon the first death, payments continue for the
survivor's remaining lifetime based on the previously elected level of
100%, two-thirds (66.67%) or one-half (50%) of the total number of Annuity
Units for a Variable Income Option or the annuity payment for a Fixed
Income Option. If the surviving Annuitant dies before all guaranteed
payments have been made, the remaining payments continue to you or the
Beneficiary (whichever is applicable).
LIFE ANNUITY WITH CASH BACK OPTIONS
- SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life. At
the Annuitant's death, any excess of the Net Payment, over the total
amount of annuity payments made and withdrawals taken, will be paid to you
or the Beneficiary (whichever is applicable).
- JOINT LIFE ANNUITY WITH SURVIVOR BENEFIT -- Monthly payments during the
Joint Annuitants' lifetimes. Upon the first death, payments continue for
the survivor's remaining lifetime based on the previously elected level of
100%, two-thirds (66.67%) or one-half (50%) of the total number of Annuity
Units for a Variable Income Option or the annuity payment for a Fixed
Income Option. At the surviving Annuitant's death, any excess of the Net
Payment, over the total amount of annuity payments made and withdrawals
taken, will be paid to you or the Beneficiary (whichever is applicable).
PAYMENT FOR A CERTAIN NUMBER OF YEARS OPTION
Monthly annuity payments for a chosen number of years ranging from five to
thirty, or any other period certain option currently offered by the Company, are
available. The Payment for a Certain Number of Years option does not involve a
life contingency. In the computation of the annuity payments under this option,
the charge for annuity rate guarantees, which includes a factor for mortality
risks, is made.
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F. VARIABLE ANNUITY PAYMENTS
NET INVESTMENT FACTOR. The Net Investment Factor is an index that measures the
investment performance of a Sub-Account from one Valuation Period to the next.
This factor is equal to 1.000000 plus the result of dividing (1) by (2) and
subtracting (3) and (4) where:
(1) is the investment income of a Sub-Account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(2) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(3) is a charge for mortality and expense risks equal to 1.25% on an annual
basis of the daily value of the Sub-Account's assets; and
(4) is an administrative charge equal to 0.20% on an annual basis of the
daily value of the Sub-Account's assets.
THE ANNUITY UNIT AND ANNUITY UNIT VALUE. The Annuity Unit is a measure used to
value the monthly annuity payments under a Variable Income Option. The value of
an Annuity Unit in each Sub-Account on its inception date was set at $1.00. The
value of an Annuity Unit under a Sub-Account on any Valuation Date thereafter is
equal to the value of the Annuity Unit on the immediately preceding Valuation
Date multiplied by the product of:
(1) a discount factor equivalent to the Assumed Investment Return ("AIR")
and
(2) the Net Investment Factor of the Sub-Account funding the annuity
payments for the applicable Valuation Period.
Subject to the chosen Change Frequency, annuity payments will increase if the
annualized Net Investment Factor during that period is greater than the AIR and
will decrease if it is less than the AIR. Where permitted by law, the Owner may
select an AIR of 3%, 5%, or 7%. A higher AIR will result in a higher initial
payment. However, subsequent payments will increase more slowly during periods
when actual investment performance exceeds the AIR and will decrease more
rapidly during periods when investment performance is less than the AIR.
DETERMINATION OF FIRST ANNUITY PAYMENT. The amount of the first periodic
variable annuity payment depends on the:
- annuity benefit option chosen;
- length of the annuity benefit option elected;
- age of the Annuitant;
- gender of the Annuitant (if applicable, see "M. NORRIS Decision"):
- value of the amount applied under the annuity benefit option;
- applicable annuity benefit option rates based on the Annuity 2000
Mortality Table; and
- AIR selected.
DETERMINATION OF THE NUMBER OF ANNUITY UNITS. We have Variable Income Option
Rates that determine the dollar amount of the first monthly payment under each
Variable Income Option for each $1,000 of Net Payment. We calculate this amount
assuming there is no change in the Annuity Unit Value. We then divide the
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amount of the first annuity payment attributable to a particular Sub-Account by
the Annuity Unit Value of that Sub-Account to determine the number of Annuity
Units credited to your Contract. This number of Annuity Units remains fixed
under all annuity benefit options, except Joint and Survivor annuity benefit
options that reduce the number of Annuity Units upon the first death. However,
the number of variable annuity units under any annuity benefit option could
change if transfers or withdrawals are made.
DOLLAR AMOUNT OF FIRST VARIABLE ANNUITY PAYMENT. The dollar amount of the first
variable annuity payment will equal the number of Annuity Units of each
Sub-Account multiplied by the value of an Annuity Unit of that Sub-Account on
the applicable Valuation Date.
DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY PAYMENTS. The dollar amount of
subsequent variable annuity payments will vary with the Annuity Unit Value of
the selected Sub-Account(s) on certain dates. The dollar amount of variable
annuity payments remains level until the Date of First Change and within each
Change Frequency cycle. On the Date of First Change and as of the start of each
Change Frequency cycle, the dollar amount of the variable annuity payment is
determined by multiplying the number of Annuity Units of each Sub-Account by the
Annuity Unit Value of that Sub-Account on the applicable Valuation Date.
For an illustration of the calculation of a variable annuity payment using a
hypothetical example, see "Annuity Payments" in the SAI.
PAYMENT OF ANNUITY PAYMENTS. You will receive the annuity payments unless you
request in writing that payments be made to another person, persons, or entity.
If you (or, if there are Joint Owners, the surviving Joint Owner) die on or
after the Annuity Income Date, the Beneficiary will become the Owner of the
Contract. Any remaining guaranteed annuity payments will continue to the
Beneficiary in accordance with the terms of the annuity benefit option selected.
If there are Joint Owners on or after the Annuity Income Date, upon the first
Owner's death, any remaining guaranteed annuity payments will continue to the
surviving Joint Owner in accordance with the terms of the annuity benefit option
selected.
If the Annuitant dies on or after the Annuity Income Date, but before all
guaranteed annuity payments have been made, any remaining guaranteed payments
will continue to be paid to you or the payee you have designated. Upon the death
of the Owner, the Beneficiary will become the Owner. The Beneficiary may elect
to receive in a single sum the Present Value of any remaining guaranteed annuity
payments. For discussion of Present Value calculation, see "Calculation of
Present Value" below.
G. TRANSFERS OF ANNUITY UNITS
You may transfer among the available Sub-Accounts upon written or telephone
request to us. Transfers may be made (a) before the Annuity Income Date and
before the death of an Owner or an Annuitant; or (b) after the Annuity Income
Date and as long as annuity payments are payable under the annuity benefit
option selected. A properly completed authorization form must be on file before
telephone requests will be honored. See "K. Telephone Authorization" under
DESCRIPTION OF THE CONTRACT for more information. A designated number of Annuity
Units equal to the dollar amount of the transfer requested will be exchanged for
an equivalent dollar amount of Annuity Units of another Sub-Account. Transfer
values will be based on the Annuity Unit Value next computed after receipt of
the transfer request.
Currently, we do not charge for transfers. The first 12 transfers in a Contract
year are guaranteed to be free of any transfer charge. For each subsequent
transfer in a Contract year, we reserve the right to assess a charge, guaranteed
never to exceed $25, to reimburse us for the expense of processing transfers.
The automatic rebalancing under an Automatic Account Rebalancing program counts
as one transfer for purposes of the 12 transfers guaranteed to be free of
transfer charge in each Contract year. Each subsequent automatic rebalancing is
without charge and does not reduce the remaining number of transfers which may
be made free of charge in that Contract year.
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Any transfer made because of a material change in the investment objective of a
Sub-Account will not count towards the 12 free transfers, nor will we charge you
a transfer fee. As of the date of this Prospectus, transfers may be made to all
of the Sub-Accounts. However, we reserve the right to establish and impose
reasonable rules restricting transfers. All transfers are subject to our
consent.
AUTOMATIC ACCOUNT REBALANCING. You may request automatic rebalancing of
Sub-Account allocations on a monthly, bi-monthly, quarterly, semi-annual or
annual basis in accordance with your specified percentage allocations. Each
rebalancing will result in a change in the number of Annuity Units. As
frequently as you elect, we will review the percentage allocations in the Funds
and, if necessary, transfer amounts to ensure conformity with the designated
percentage allocation mix. If the amount necessary to re-establish the mix on
any scheduled date is less than $100, no transfer will be made.
Automatic Account Rebalancing will continue until we receive and record your
request to terminate.
H. WITHDRAWALS
WITHDRAWALS AFTER THE ANNUITY INCOME DATE FROM QUALIFIED AND NON-QUALIFIED
CONTRACTS MAY HAVE ADVERSE TAX CONSEQUENCES. BEFORE MAKING A WITHDRAWAL, PLEASE
CONSULT WITH YOUR TAX ADVISOR AND SEE FEDERAL TAX CONSIDERATION, "C. TAX ON
WITHDRAWALS."
You have the right, based on the annuity benefit option selected, to make
withdrawals. Withdrawals may be made (a) before the Annuity Income Date and
before the death of an Owner or an Annuitant, or (b) after the Annuity Income
Date and as long as annuity payments are payable under the annuity benefit
option selected. Two withdrawal options may be available to you: a Payment
Withdrawal Amount option or a Present Value Withdrawal option.
The Owner must submit to the Principal Office a signed, written request
indicating the desired dollar amount of the withdrawal. 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 minimum
amount of a withdrawal is $100. Any withdrawal is normally payable within seven
days following our receipt of the withdrawal request.
The type of withdrawal and the number of withdrawals that may be made each
calendar year depends upon whether the annuity benefit option is based upon the
life of one or more Annuitants with no guaranteed payments (a "Life Annuity
option"), under a life annuity benefit option that in part provides for a
guaranteed number of payments (a "Life Annuity with Payment for a Certain Number
of Years" or "Life Annuity with Cash Back" option), or an annuity benefit option
based on a guaranteed number of payments (a "Payment for a Certain Number of
Years" option).
- - WITHDRAWALS UNDER LIFE ANNUITY OPTIONS
The Owner may make one Payment Withdrawal in each calendar year. A Payment
Withdrawal cannot exceed the previous monthly annuity payment multiplied by
ten (10). The amount of each Payment Withdrawal represents a percentage of
the present value of the remaining annuity payments.
- - WITHDRAWALS UNDER LIFE ANNUITY WITH PAYMENT FOR A CERTAIN NUMBER OF YEARS OR
LIFE ANNUITY WITH CASH BACK OPTIONS
The Owner may make one Payment Withdrawal in each calendar year. A Payment
Withdrawal cannot exceed the previous monthly annuity payment multiplied by
ten (10). The amount of each Payment Withdrawal represents a percentage of
the present value of the remaining annuity payments.
The Owner may make one Present Value Withdrawal in each calendar year, if
there are remaining guaranteed annuity payments. The amount of each Present
Value Withdrawal represents a percentage of
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the present value of the REMAINING GUARANTEED annuity payments. Each year a
Present Value Withdrawal is taken, the Company records the percentage of the
present value of the then remaining guaranteed annuity 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 payments. In year seven, the Owner withdraws
20% of the then present value of the remaining guaranteed annuity payments.
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
payments.)
Under a Life Annuity with Payment for a Certain Number of Years or Life
Annuity with Cash Back option, if the Annuitant is still living after the
guaranteed annuity payments have been made, the number of Annuity Units or
dollar amount applied to future annuity 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 PAYMENT FOR CERTAIN NUMBER OF YEARS OPTIONS
The Owner may make multiple Present Value Withdrawals in each calendar year,
up to 100% of the present value of the guaranteed annuity payments.
Withdrawal of 100% of the present value of the guaranteed annuity 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 payments or remaining
guaranteed annuity payments, respectively, and proportionately reduces the
number of Annuity Units (under a variable income option) or dollar amount (under
a fixed income option) applied to future annuity payments. Because each variable
annuity 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 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
payment or the dollar amount applied to each future fixed annuity payment. Each
Present Value Withdrawal proportionately reduces the number of Annuity Units
applied to each future guaranteed variable annuity payment or the dollar amount
applied to each future guaranteed fixed annuity payment. Because each variable
annuity 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 payments.
- - PAYMENT WITHDRAWALS. Payment Withdrawals are available under Life Annuity,
Life Annuity with Payment for a Certain Number of Years, or Life Annuity with
Cash Back options. The Owner may make one Payment Withdrawal in each calendar
year.
Under a variable income option, the proportionate reduction in Annuity Units
is calculated by multiplying the number of Annuity Units in each future
variable annuity payment (determined immediately prior to the withdrawal) by
the following fraction:
Amount of the variable withdrawal
------------------------------------------
Present value of all remaining variable annuity
payments immediately prior to the withdrawal
Because each variable annuity 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 payments.
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Under a fixed income option, the proportionate reduction is calculated by
multiplying the dollar amount of each future fixed annuity payment by a
similar fraction, which is based on the amount of the fixed withdrawal and
present value of remaining fixed annuity payments.
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
Annuity with Payment for a Certain Number of Years or Life Annuity with Cash
Back options (the Owner may make one Present Value Withdrawal in each calendar
year, if there are remaining guaranteed annuity payments) and under Payment
for a Certain Number of Years options (the Owner may make multiple Present
Value Withdrawals in each calendar year).
Under a variable income option, the proportionate reduction in Annuity Units
is calculated by multiplying the number of Annuity Units in each future
variable guaranteed annuity payment (determined immediately prior to the
withdrawal) by the following fraction:
Amount of the variable withdrawal
-------------------------------------------------
Present value of remaining guaranteed variable annuity
payments immediately prior to the withdrawal
Under a fixed income option, the proportionate reduction is calculated by
multiplying the dollar amount of each future fixed annuity payment by a
similar fraction, which is based on the amount of the fixed withdrawal and
present value of remaining guaranteed fixed annuity payments.
Because each variable annuity 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 payments with respect
to the guaranteed payments. Under a fixed income option, the proportionate
reduction will result in lower fixed annuity payments with respect to the
guaranteed payments. However, under a Life Annuity with Payments for a Certain
Number of Years option or Life Annuity with Cash Back option, if the Annuitant
is still living after the guaranteed number of annuity payments has been made,
the number of Annuity Units or dollar amount of future annuity 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 payments is calculated based 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 payments
(currently the Annuity 2000 Mortality Table with male, female, or unisex rates,
as appropriate). The discount rate is the AIR (for a variable income option) or
the interest rate (for a fixed income option) that was used at the time of
annuitization to determine the annuity payments. If a withdrawal is made within
5 years of the Issue Date, the discount rate is increased by one of the
following charges ("Withdrawal Adjustment Charge"):
- 15 or more years of annuity payments being valued -- 1.00%
- 10-14 years of annuity payments being valued -- 1.50%
- Less than 10 years of annuity payments being valued -- 2.00%
The Withdrawal Adjustment Charge does not apply if a withdrawal is made in
connection with the death of an Annuitant or if a withdrawal is made 5 or more
years after the Issue Date.
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For each Payment Withdrawal, the number of years of annuity 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 payments (currently the Annuity 2000 Mortality Table).
Because the impact of the Withdrawal Adjustment Charge will depend on the type
of the withdrawal taken, you should carefully consider the following before
making a withdrawal (especially if you are making the withdrawal under a Life
with Payment for a Certain Number of Years or Life Annuity with Cash Back
option):
- For a Payment Withdrawal, the present value calculation (including any
applicable adjustments to the discount rate) affects the proportionate
reduction of the remaining number of Annuity Units (under a variable
income option) or dollar amount (under a fixed income option), applied to
each future annuity payment, as explained in "Calculation of Proportionate
Reduction -- Payment Withdrawals," above. If a Withdrawal Adjustment
Charge applies, there will be a larger proportionate reduction in the
number of Annuity Units or the dollar amount applied to each future
annuity payment. This will result in lower future annuity 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. If a Withdrawal Adjustment Charge applies, the discount
factor will be higher, and the maximum amount that can be withdrawn will
be lower. In addition, there will be a larger proportionate reduction in
the number of Annuity Units or the dollar amount applied to each future
guaranteed annuity payment. This will result in lower future annuity
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 B -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS.
I. DEATH BENEFIT
DEATH OF AN OWNER OR AN ANNUITANT BEFORE THE ANNUITY INCOME DATE. If an Owner
or an Annuitant dies before the Annuity Income Date, we will pay a death benefit
equal to the Contract Value determined as of the Valuation Date on which we
receive due proof of death. The death benefit will be paid to the Owner of the
Contract. If there is no Owner or Joint Owner, we will pay the death benefit to
the Beneficiary.
PAYMENT OF THE DEATH BENEFIT. Unless you have specified otherwise, the death
benefit generally will be paid in one lump sum after receipt at the Principal
Office of due proof of death. Instead of payment in one lump sum, the person
entitled to the death benefit may, by written request, elect to receive a life
annuity or an annuity for a certain number of years not extending beyond such
person's life expectancy with annuity payments beginning no later than one year
from the date of death.
THE SPOUSE OF THE DECEASED OWNER AS BENEFICIARY. The deceased Owner's spouse,
if named as the sole Beneficiary, may by written request continue the Contract
in lieu of receiving the death benefit upon the death of the Owner. Upon such
election, the spouse becomes the Owner and Annuitant. As of the date of such
election, annuity payments will be adjusted to reflect any change of Annuitant
and Annuity Income Date. The new Annuity Income Date must be within twelve
months of the Issue Date. Any subsequent spouse of the new Owner, if named as
the Beneficiary, may not continue this Contract.
DEATH OF THE OWNER OR THE ANNUITANT AFTER THE ANNUITY INCOME DATE. If the Owner
or the Annuitant dies after the Annuity Income Date, we will pay the remaining
annuity payments, if any, in accordance with the terms of the annuity benefit
option selected. Any remaining annuity payments will be paid to the Owner of the
Contract. If there is no Owner or Joint Owner, then the Beneficiary will receive
the payments and become
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the Owner of the Contract. The Beneficiary may elect to receive the Present
Value of any remaining payments in one lump sum.
J. GENERAL RESTRICTIONS ON PAYMENTS
For purposes of making annuity payments or payment of other benefits based on
the value of a Sub-Account, the value of an Annuity Unit is determined as of the
end of a Valuation Date, which is currently 4:00 p.m., Eastern time.
Withdrawals, transfers, or payment of a death benefit from amounts under a
Variable Income Option are usually paid within seven days of a request in proper
form or, in the case of a death benefit, after we have received all necessary
documentation. We reserve the right to defer withdrawals or transfers of amounts
allocated to the Company's General Account for a period not to exceed six
months. Deferred amounts will receive interest during the deferral period at a
rate of at least 3%.
We reserve the right to defer payment on withdrawals, transfers, or payment of a
death benefit from amounts in each Sub-Account in any period during which:
- trading on the New York Stock Exchange is restricted as determined by the
SEC or such Exchange is closed for other than weekends and holidays;
- the SEC has by order permitted such suspension; or
- an emergency, as determined by the SEC, exists such that disposal of
portfolio securities or valuation of assets of a Sub-Account is not
reasonably practicable.
K. TELEPHONE AUTHORIZATION
In order for the Owner to be able to initiate transactions over the telephone, a
properly completed authorization must be on file before telephone requests will
be honored. The policy of the Company and its agents and affiliates is that we
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. The Company will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine; otherwise,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions. Such procedures may include, among other things, requiring some
form of personal identification prior to acting upon instructions received by
telephone. All telephone instructions are tape-recorded.
L. ASSIGNMENT
The Contract may not be assigned.
M. 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 Trust,
Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF.
A. VARIABLE ACCOUNT DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE. We assess a charge against the assets of
each Sub-Account to compensate for certain mortality and expense risks we have
assumed. The mortality risk arises from our guarantee that we will make annuity
payments in accordance with annuity rate provisions established at the time the
Contract is issued for the life of the Annuitant (or in accordance with the
annuity benefit option selected), no matter how long the Annuitant lives and no
matter how long all Annuitants as a class live. The mortality charge is deducted
for any annuity benefit option selected on all Contracts, including those that
do not involve a life contingency, even though we do not bear direct mortality
risk with respect to variable annuity settlement options that do not involve
life contingencies. The expense risk arises from our guarantee that the charges
we make will not exceed the limits described in the Contract and in this
Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, we will absorb the losses. To the extent this
charge results in a profit to us, such profit will be available for use by us
for, among other things, the payment of distribution, sales and other expenses.
The mortality and expense risk charge is assessed daily at an annual rate of
1.25% of each Sub-Account's assets. This charge may not be increased.
ADMINISTRATIVE EXPENSE CHARGE. We assess each Sub-Account with a daily charge
at an annual rate of 0.20% of the average daily net assets of the Sub-Account.
This charge may not be increased. The daily Administrative Expense Charge is
assessed to help defray administrative expenses incurred in the administration
of the Sub-Account.
Deductions for the Administrative Expense Charge are designed to reimburse us
for the cost of administration and related expenses. The administrative
functions and expense assumed by us in connection with the Variable Account and
the Contract include, but are not limited to, clerical, accounting, actuarial
and legal services, rent, postage, telephone, office equipment and supplies,
expenses of preparing and printing registration statements, expense of preparing
and typesetting prospectuses and the cost of printing prospectuses not allocable
to sales expense, filing and other fees.
EXPENSES OF THE UNDERLYING FUNDS. Because the Sub-Accounts purchase shares of
the Underlying Funds, the value of the net assets of the Sub-Accounts will
reflect the investment advisory fee and other expenses incurred by the
Underlying Funds. These fees and expenses may vary each year. They are not fixed
or specified under the terms of the Contract, and they are not the
responsibility of the Company. The prospectuses and SAI's of the Trust, Fidelity
VIP, Fidelity VIP II, T. Rowe Price and DGPF contain additional information
concerning expenses of the Underlying Funds.
B. PREMIUM TAXES
Some states and municipalities impose a premium tax on variable annuity
contracts. State premium taxes currently range up to 3.5%. We assess a charge
for state and municipal premium taxes, when applicable, and deduct the amount
paid as a premium tax charge. Our current practice is to deduct the premium tax
charge when the Single Purchase Payment is received.
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C. TRANSFER CHARGE
We currently do not charge for processing transfers. We guarantee that the first
12 transfers in a Contract year will be free of transfer charge, but reserve the
right to assess a charge, guaranteed never to exceed $25, for each subsequent
transfer in a Contract year to reimburse us for the expense of processing
transfers. For more information, see "G. Transfers of Annuity Units" under
DESCRIPTION OF THE CONTRACT.
D. WITHDRAWAL ADJUSTMENT CHARGE
After the Issue Date, each calendar year the Owner may withdraw a portion of the
present value of either all future annuity payments or future guaranteed annuity
payments. If a withdrawal is made within 5 years of the Issue Date, the AIR or
interest rate used to determine the annuity payments is increased by one of the
following adjustments:
15 or more years of annuity payments being valued -- 1.00%
10-14 years of annuity payments being valued -- 1.50%
Less than 10 years of annuity payments being valued -- 2.00%
The adjustment to the AIR or interest rate used to determine the present value
results in lower future annuity payments, and may be viewed as a charge under
the Contract. The Withdrawal Adjustment Charge does not apply if a withdrawal is
made in connection with the death of an Annuitant or if a withdrawal is made 5
or more years after the Issue Date.
For each Payment Withdrawal, the number of years of annuity 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 payments (currently the Annuity 2000 Mortality Table with
male, female, or unisex rates, as appropriate).
For more information see "H. Withdrawals," under DESCRIPTION OF THE CONTRACT.
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FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the federal income tax consequences of
investing in this Contract. It is based upon the Company's understanding of
current U.S. federal tax laws and does not address any state or local tax
issues. THE DISCUSSION IS NOT INTENDED TO BE COMPLETE, NOR IS IT INTENDED AS TAX
ADVICE TO ANY INDIVIDUAL. YOU SHOULD CONSULT YOUR TAX ADVISOR ABOUT YOUR OWN
CIRCUMSTANCES, INCLUDING ANY POSSIBLE APPLICATION OF SPECIAL RULES NOT DISCUSSED
HERE.
The Company intends to assess a charge for any effect which the income, assets,
or existence of the Contract, the Variable Account or the Sub-Accounts may have
upon its tax. The Variable Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes should the Variable
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
Owners and with respect to each separate account as though that separate account
were a separate taxable entity.
A. ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs and for
providing a series of periodic payments for life or a fixed number of years.
Congress has provided special rules in the Internal Revenue Code ("Code") for
how you will be taxed on these periodic payments. There are also special
rules for withdrawals from an annuity that are not in the form of periodic
payments. The rules may apply differently to Qualified Contracts (a retirement
plan which meets the requirements of Code Sections 401, 403, 408 or 408A) and to
Non-Qualified Contracts.
As the Contract Owner, you may be taxed when a distribution occurs, either as an
annuity payment or as a withdrawal.
B. TAX ON ANNUITY PAYMENTS
When amounts are received as annuity payments, a portion of each annuity payment
is treated as a partial return of your single purchase payment and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your single
purchase payment are fully includible in income.
The Code imposes a penalty tax of 10% of the amount includible in income upon
certain distributions from annuity contracts occurring before the owner reaches
age 59 1/2. One of the exceptions from this penalty applies to amounts received
as annuity payments under an immediate annuity. To qualify as an immediate
annuity, a contract must, among other things, provide for a series of
substantially equal periodic payments during the annuity period, and must have
an annuity starting date (that is, the Annuity Income Date) that is no later
than one year from the contract's issue date. We believe that the Contract
should be treated as an immediate annuity, so there should be no penalty
applicable to amounts paid as annuity payments, regardless of the age of the
Contract Owner.
C. TAX ON WITHDRAWALS
WITHDRAWALS BEFORE THE ANNUITY INCOME DATE. When you make a withdrawal, the
amount you receive will not be divided into taxable and non-taxable portions in
the same way as an annuity payment. Withdrawals will be includible to the extent
of the earnings in your Contract. These distributions may also be subject to a
penalty tax equal to 10% of the amount that is includible in income. Some
distributions are exempt from the 10% penalty tax, including: (1) distributions
paid on or after you reach age 59 1/2; (2) distributions paid on or after your
death; and (3) distributions paid if you become disabled (as defined in the
Code). All Non-
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Qualified contracts issued by the Company to you during the same calendar year
will be aggregated to determine the taxable amount of any withdrawal.
WITHDRAWALS AFTER THE ANNUITY INCOME DATE. The Code does not specifically
address refunds or withdrawals from immediate annuity contracts. The Internal
Revenue Service ("IRS") has issued one private letter ruling concluding that the
right to make these withdrawals does not prevent an annuity contract from
qualifying as an immediate annuity. However, the ruling does not clearly state
the effect of an actual withdrawal on the tax treatment of annuity payments made
before and after the withdrawal. If, as a result of a withdrawal, distributions
from a Contract after the annuity starting date were not substantially equal,
there is a risk that the Contract could fail to qualify as an immediate annuity.
In that case, the portion includible in income of each annuity payment received
prior to your attaining age 59 1/2 would be subject to a 10% penalty tax (unless
another exception to the penalty tax is applied). While we currently believe
that a withdrawal will not adversely affect the favorable tax treatment of
annuity payments received before or after the withdrawal and we intend to
perform our tax reporting functions accordingly, there can be no assurance that
the IRS will not take a contrary position. You should obtain competent tax
advice prior to making a withdrawal from your Contract.
It is possible that the IRS will take the view that when withdrawals are taken
after the Annuity Income Date, all amounts received by the taxpayer are 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 after the Annuity Income Date.
Under this view, the Contract Owner would pay income taxes on the entire $20,000
amount in that tax year. For some taxpayers, additional tax penalties may also
apply.
These distributions may also be subject to a penalty tax equal to 10% of the
amount that is includible in income. Some distributions are exempt from the 10%
penalty tax, including: (1) distributions paid on or after you reach age 59 1/2;
(2) distributions paid on or after your death; and (3) distributions paid if you
become disabled (as defined in the Code).
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 ADVISORS PRIOR TO MAKING ANY WITHDRAWALS.
D. EXCHANGES
You may exchange another annuity contract to acquire a Contract. For tax
purposes, the contract Issue Date will be the purchase date of the annuity
contract you exchange. Accordingly, in order for your Contract to qualify as an
immediate annuity, your Annuity Income Date must be no later than one year after
the purchase date of the contract you are exchanging.
If you exchange your Contract in exchange for another annuity contract with the
same Annuitant and Owner, the exchange will generally be treated as a tax-free
exchange. An exchange for a contract with a different Annuitant or Owner would
generally be treated as a taxable exchange.
E. TAX WITHHOLDING
The Company is required to withhold taxes from any payment made from
Non-Qualified and Qualified Contracts, including IRAs, unless you direct
otherwise. You may not direct the Company to refrain from withholding taxes on
certain distributions from a Qualified Contract that is part of a retirement
plan under
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Code Section 401 or 403. In addition, the Company is required to report
distributions from both Qualified and Non-Qualified Contracts to the IRS.
F. DIVERSIFICATION AND CONTROL OF UNDERLYING ASSETS
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order for the contract to be
treated as an annuity contract. The Underlying Funds have committed to us that
they will comply with these requirements.
In addition, Treasury regulations provide that a contract may not be treated as
an annuity contract for tax purposes if the contract owner has control over the
assets underlying the contract. The IRS has not yet issued guidance on whether
the degree of control you exercise over the underlying investments could cause
you to be considered the owner of the Fund shares. If you, rather than the
Company, were considered the owner of the Fund shares, your Contract would not
be treated as an annuity. We believe that we will be the owner of the Fund
shares for tax purposes; however, future IRS guidance may affect this conclusion
and may have retroactive effect. This may affect whether the Underlying Funds
will be able to continue to operate as described in the Funds' prospectus.
Moreover, we reserve the right, but have no obligation, to modify the Contracts
as we deem necessary or appropriate to ensure that the Contracts continue to
qualify as annuities for tax purposes.
STATEMENTS AND REPORTS
You are sent a report semi-annually which provides certain financial information
about the Underlying Funds. At least annually, but possibly as frequent as
quarterly, we will furnish a statement to you containing information about your
Contract, including information as required by applicable law, rules and
regulations. We will also send a confirmation statement to you each time a
transaction is made. (Certain transactions made under recurring payment plans
such as Automatic Account Rebalancing may in the future be confirmed quarterly
rather than by immediate confirmations.) You should review the information in
all statements carefully. All errors or corrections must be reported to us
immediately to assure proper crediting to the Contract. We will assume that all
transactions are accurately reported on confirmation statements and
quarterly/annual statements unless you notify the Principal Office in writing
within 30 days after receipt of the statement.
LOANS
Loans will not be permitted under this contract.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to:
(1) transfer assets from the Variable Account or any of its Sub-Accounts to
another of our separate accounts or sub-accounts having assets of the same
class; (2) to operate the Variable Account or any Sub-Account as a management
investment company under the 1940 Act or in any other form permitted by law;
(3) to deregister the Variable Account under the 1940 Act in accordance with the
requirements of the 1940 Act; (4) to substitute the shares of any other
registered investment company or other investment medium for the Underlying Fund
shares held by a Sub-Account, in the event that Underlying Fund shares are
unavailable for investment, or if we determine that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the Sub-
Account; (5) to change the methodology for determining the Net Investment
Factor; and (6) to change the names of the Variable Account or of the
Sub-Accounts. In no event will the changes described above be made without
notice to you in accordance with the 1940 Act.
We also reserve the right to establish additional sub-accounts of the Variable
Account, each of which would invest in shares corresponding to a new underlying
fund or in shares of another investment company having a
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specified investment objective. Subject to applicable law and any required SEC
approval, we may, in our sole discretion, establish new sub-accounts or
eliminate one or more Sub-Accounts if marketing needs, tax considerations or
investment conditions warrant. Any new sub-accounts may be made available to
existing Owners on a basis which we will determine.
Shares of the Underlying Funds also are issued to the separate accounts of the
Company and our affiliates which issue variable life contracts ("mixed
funding"). Shares of the Funds also are issued to other unaffiliated insurance
companies ("shared funding"). It is conceivable that in the future such mixed
funding or shared funding may be disadvantageous for variable life owners or
variable annuity owners. Although neither we nor any of the underlying
investment companies currently foresee any such disadvantages to either variable
life owners or variable annuity owners, we and the respective trustees intend to
monitor events in order to identify any material conflicts between such owners,
and to determine what action, if any, should be taken in response thereto. If
the trustees were to conclude that separate funds should be established for
variable life and variable annuity separate accounts, we will bear the attendant
expenses.
If any of these substitutions or changes is made, we may endorse the Contracts
to reflect the substitution or change, and will notify you of all such changes.
If we deem it to be in the best interest of Owners, and subject to any approvals
that may be required under applicable law, the Variable Account or any
Sub-Accounts may be operated as a management company under the 1940 Act, may be
deregistered under the 1940 Act if registration is no longer required, or may be
combined with other Sub-Accounts or our other separate accounts.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
We reserve the right, without the consent of Owners, to suspend sales of the
Contract as presently offered, and to make any change to provisions of the
Contract to comply with, or give you the benefit of, any federal or state
statute, rule or regulation, including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation. Any such changes will apply uniformly to all
Contracts that are affected. You will be given written notice of such changes.
VOTING RIGHTS
We will vote Underlying Fund shares held by each Sub-Account in accordance with
instructions received from you. Each person having a voting interest in a
Sub-Account will be provided with proxy materials of the Underlying Fund,
together with a form with which to give voting instructions to us. Shares for
which no timely instructions are received will be voted in proportion to the
instructions that are received. We also will vote shares in a Sub-Account that
we own and which are not attributable to the Contract in the same proportion. If
the 1940 Act or any rules thereunder should be amended or if the present
interpretation of the 1940 Act or such rules should change, and as a result we
determine that we are permitted to vote shares in our own right, whether or not
such shares are attributable to the Contract, we reserve the right to do so.
The number of votes that you may cast will be determined by us as of the record
date established by the Underlying Fund. The number of Underlying Fund shares
will be determined by dividing the reserve held in each Sub-Account for the
Variable Annuity by the net asset value of one Underlying Fund share.
Ordinarily, voting interest in the Underlying Fund will decrease as the reserve
for the Variable Annuity is depleted.
DISTRIBUTION
The Contracts offered by this Prospectus may be purchased from representatives
of Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. ("NASD"). Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, MA 01653, is also the principal underwriter and distributor and is an
indirect wholly owned
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subsidiary of First Allmerica. The Contract also may be purchased from certain
independent broker-dealers that are NASD members.
We pay commissions, not to exceed 5.0% of payments, to registered
representatives of Allmerica Investments, Inc. Alternative commission schedules
are available with varying initial commission amounts based on the Single
Purchase Payment, plus ongoing annual compensation of up to 4% of annuity
payments.
We intend to recoup commissions and other sales expenses through anticipated
profits from our General Account, which may include amounts derived from
mortality and expense risk charges. Commissions paid on the Contract, including
additional incentives or payments, do not result in any additional charge to you
or to the Variable Account. You may direct any inquiries to your financial
representative or to Annuity Client Services, Allmerica Financial Life Insurance
and Annuity Company, 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-723-6550.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party,
or to which the assets of the Variable Account are subject. The Company and the
Principal Underwriter are not involved in any litigation that is of material
importance in relation to their total assets or that relates to the Variable
Account.
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.
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APPENDIX A
EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS
Assume in the examples below that a 64 year old male purchases a contract and
selects a variable annuity payout option of Single Life Annuity with Payments
Guaranteed for 10 Years, annuity payments begin in 12 months, an Assumed
Investment Return ("AIR") of 3%, and an annual Change Frequency. Assume that the
net single payment purchases 1,370 Annuity Units. The following examples assume
the Annuity Unit Value is 1.000000 on the date payments begin and a net return
of 8% (gross return of 9.45%).
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 fourth contract year (the third year of the Annuity Payout phase).
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Payment prior to withdrawal = $1,506.24
Rate used in Calculation of Present Value = 5% (3% AIR plus 2% Withdrawal
Adjustment Charge)
Present Value of Future Guaranteed Annuity Payments = $119,961.92
Maximum Present Value Withdrawal Amount = $89,971.44 ($119,961.92 X 75%)
Annuity Units after withdrawal = 342.50 (1,370 X (1 -
(89,971.44/119,961.92)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Payment after withdrawal = $376.56
Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Calculation of Present Value is increased by a Withdrawal Adjustment
Charge. Since less than 10 years of guaranteed annuity payments are being
valued, the Withdrawal Adjustment Charge is 2%. 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.
EXAMPLE 2. 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 ninth 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 Payment prior to withdrawal = $1,909.09
Rate used in Calculation of Present Value = 3% (3% AIR)
Present Value of Future Guaranteed Annuity Payments = $65,849.08
Maximum Present Value Withdrawal Amount = $49,386.81 ($65,849.08 X 75%)
Annuity Units after withdrawal = 342.50 (1,370 X (1 -
(49,386.81/65,849.08)))
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Payment after withdrawal = $477.27
Because the withdrawal is being made more than 5 years after the Issue Date, the
rate used in the Calculation of Present Value is not increased by a Withdrawal
Adjustment Charge. 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.
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PAYMENT WITHDRAWALS
EXAMPLE 3. 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 fourth contract year (the third year of the
Annuity Payout phase). At that time, the Annuitant's life expectancy is greater
than 15 years.
Last Monthly Annuity Payment = $1,436.50
Withdrawal Amount = $14,365.00 (10 X 1,436.50)
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Payment prior to withdrawal = $1,506.24
Rate used in Calculation of Present Value = 4% (3% AIR plus 1% Withdrawal
Adjustment Charge)
Present Value of Future Annuity Benefit Payments = $234,482.77
Annuity Units after withdrawal = 1,286.07 (1,370 X (1 -
(14,365.00/234,482.77)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Payment after withdrawal = $1,413.96
Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Calculation of Present Value is increased by a Withdrawal Adjustment
Charge. Since there are more than 15 years of annuity payments being valued (the
Annuitant's life expectancy is more than 15 years), the Withdrawal Adjustment
Charge is 1%. 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.
EXAMPLE 4. 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 ninth contract year (eighth year of the Annuity
Payout phase).
Last Monthly Annuity Payment = $1,820.71
Withdrawal Amount = $18,207.10 (10 X 1,820.71)
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Payment prior to withdrawal = $1,909.09
Rate used in Calculation of Present Value = 3% (3% AIR)
Present Value of Future Annuity Payments = $268,826.18
Annuity Units after withdrawal = 1,272.71 (1,370 X (1 -
(18,207.10/268,826.18)))
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Payment after withdrawal = $1,779.80
Because the withdrawal is being made more than 5 years after the Issue Date, the
rate used in the Calculation of Present Value is not increased by a Withdrawal
Adjustment Charge. 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.
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PRESENT VALUE WITHDRAWAL VERSUS PAYMENT WITHDRAWAL
EXAMPLE 5. Assume that the Owner has taken no previous withdrawals and would
like to take a $10,000 withdrawal at the beginning of the fourth contract year
(the third year of the Annuity Payout phase). At that time, the Annuitant's life
expectancy is greater than 15 years. The following examples show the impact of
taking the withdrawal under the Present Value Withdrawal Option and the Payment
Withdrawal Option.
PRESENT VALUE WITHDRAWAL
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Payment prior to withdrawal = $1,506.24
Rate used in Calculation of Present Value = 5% (3% AIR plus 2% Withdrawal
Adjustment Charge)
Present Value of future Guaranteed Annuity Payments = $119,961.92
Withdrawal = $10,000
Annuity Units after withdrawal = 1,255.80 (1,370 X (1 -
(10,000/119,961.92)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Payment after withdrawal = $1,380.67
Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Calculation of Present Value is increased by a Withdrawal Adjustment
Charge. Since less than 10 years of guaranteed annuity payments are being
valued, the Withdrawal Adjustment Charge is 2%. Because this is a Present Value
Withdrawal, the number of Annuity Units will increase to 1,370 at the end of the
10-year period during which the Company guaranteed to make payments.
PAYMENT WITHDRAWAL
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Payment prior to withdrawal = $1,506.24
Rate used in Calculation of Present Value = 4% (3% AIR plus 1% Withdrawal
Adjustment Charge)
Present Value of future Annuity Payments = $234,482.77
Withdrawal = $10,000
Annuity Units after withdrawal = 1,311.57 (1,370 X (1 -
(10,000/$234,482.77)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Payment after withdrawal = $1,442.00
Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Calculation of Present Value is increased by a Withdrawal Adjustment
Charge. Since there are more than 15 years of annuity payments being valued (the
Annuitant's life expectancy is more than 15 years), the Withdrawal Adjustment
Charge is 1%. Because this is a Payment Withdrawal, the number of Annuity Units
will not increase at the end of the 10-year period during which the Company
guaranteed to make payments.
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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, FIDELITY VARIABLE
INSURANCE PRODUCTS FUND, FIDELITY VARIABLE
INSURANCE PRODUCTS FUND II,
T. ROWE PRICE INTERNATIONAL SERIES, INC., AND
DELAWARE GROUP PREMIUM FUND
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE ALLMERICA IMMEDIATE ADVANTAGE VARIABLE ANNUITY
PROSPECTUS OF SEPARATE ACCOUNT VA-K DATED MAY 1, 2000 ("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 1-800-723-6550.
DATED MAY 1, 2000
AFLIAC Allmerica Immediate Advantage
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY............................................2
THE VARIABLE ACCOUNT AND THE COMPANY.......................................3
SERVICES...................................................................3
UNDERWRITERS...............................................................4
ANNUITY BENEFIT PAYMENTS...................................................5
EXCHANGE OFFER.............................................................6
PERFORMANCE INFORMATION....................................................6
FINANCIAL STATEMENTS.....................................................F-1
GENERAL INFORMATION AND HISTORY
Separate Account VA-K (the "Variable Account") is a separate investment
account of Allmerica Financial Life Insurance and Annuity Company (the
"Company") authorized 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, 1999, the Company had over $17 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, 1999, First Allmerica and
its subsidiaries (including the Company) had over $25 billion in combined
assets and over $43 billion in life insurance in force.
Currently, 20 Sub-Accounts of the Variable Account are available under the
Allmerica Immediate Advantage Variable Annuity contract (the "Contract").
Each Sub-Account invests in a corresponding investment portfolio of Allmerica
Investment Trust ("Trust"), Fidelity Variable Insurance Products Fund
("Fidelity VIP"), Fidelity Variable Insurance Products Fund II ("Fidelity VIP
II"), T. Rowe Price International Series, Inc. ("T. Rowe Price"), or Delaware
Group Premium Fund ("DGPF").
The Trust is managed by Allmerica Financial Investment Management Services,
Inc. Fidelity VIP and Fidelity VIP II are managed by Fidelity Management &
Research Company ("FMR"). The T. Rowe Price International Stock Portfolio of
T. Rowe Price is managed by Rowe Price-Fleming International, Inc.
("Price-Fleming"). The International Equity Series of DGPF is managed by
Delaware International Advisers Ltd. ("International Advisers").
2
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The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF are
open-end, diversified management investment companies. Thirteen different
funds of the Trust are available under the Contract: the Select Emerging
Markets Fund, Core Equity Fund (formerly the Growth Fund), Select Strategic
Growth Fund, Select Investment Grade Income Fund, Money Market Fund, Equity
Index Fund, Government Bond Fund, Select International Growth Fund, Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Growth Fund,
Select Growth and Income Fund and Select Value Opportunity Fund. Certain of
these Funds may not be available in all states. Four portfolios of Fidelity
VIP are available under the Contract: the Fidelity VIP High Income Portfolio,
Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio, and
Fidelity VIP Overseas Portfolio. One portfolio of Fidelity VIP II is
available under the Contract: the Fidelity VIP II Asset Manager Portfolio.
One portfolio of T. Rowe Price is available under the Contract: the T. Rowe
Price International Stock Portfolio. The International Equity Series is the
only Series of DGPF available under the Contract. Each Fund, Portfolio and
Series available under the Contract (together, the "Underlying Funds") has
its own investment objectives and certain attendant risks.
TAXATION OF THE CONTRACT, THE VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with
the contracts, other than for state and local premium taxes and similar
assessments when applicable. The Company reserves the right to impose a
charge for any other taxes that may become payable in the future in
connection with the contracts or the Variable Account.
The Variable Account is considered to be a part of and taxed with the
operations of the Company. The Company is taxed as a life insurance company
under subchapter L of the Internal Revenue Code (the "Code"), and files a
consolidated tax return with its parent and affiliated companies.
The Company reserves the right to make a charge for any effect which the
income, assets or existence of the Contract or the Variable Account may have
upon its tax. Such charge for taxes, if any, will be assessed on a fair and
equitable basis in order to preserve equity among classes of Contract Owners
("Owners"). The Variable Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Variable Account. Underlying Fund shares owned by the Sub-Accounts are held
on an open account basis. A Sub-Account's ownership of Underlying Fund shares
is reflected on the records if the Underlying Fund and is not represented by
any transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999,
and the financial statements of Separate Account VA-K of the Company as of
December 31, 1999 and for the periods indicated, included in this Statement
of Additional Information constituting part of this Registration Statement,
have been so included in reliance on the reports of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under
the Contract.
3
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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 the Company, and
presently is indirectly wholly owned by First Allmerica.
The Contract offered by this Prospectus is offered continuously, and may be
purchased from NASD registered representatives of Allmerica Investments and
from certain independent broker-dealers which are NASD members and whose
representatives are authorized by applicable law to sell variable annuity
contracts.
Commissions are paid by the Company to its licensed insurance agents on sales
of the Contract. The Company intends to recoup the commission and other sales
expense through a combination of anticipated withdrawal and/or annuitization
charges, profits from the Company's general account, including the investment
earnings on amounts allocated to accumulate on a fixed basis in excess of the
interest credited on fixed accumulations by the Company, and the profit, if
any, from the mortality and expense risk charge.
All persons selling the Contract are required to be licensed by their
respective state insurance authorities for the sale of variable annuity
policies. Registered representatives of Allmerica Investments receive
commissions equal to 5% (4% on contracts originally issued as part of a
401(k) plan) of purchase payments. Independent broker-dealers receive
commissions of 5%, of which a portion is paid to their registered
representatives.
Commissions are paid by the Company, and do not result in any charge to
Owners or to the Variable Account in addition to the charges described under
"CHARGES AND DEDUCTIONS" in the Prospectus.
The aggregate amounts of commissions paid to Allmerica Investments for sales
of all contracts funded by Separate Account VA-K (including contracts not
described in the Prospectus) for the years 1997, 1998 and 1999 were
$34,693,060, $36,853,601 and $38,326,089.
No commissions were retained by Allmerica Investments for sales of all
contracts funded by Separate Account VA-K (including contracts not described
in the Prospectus) for the years 1997, 1998 and 1999.
ANNUITY PAYMENTS
ILLUSTRATION OF VARIABLE ANNUITY PAYMENT CALCULATION USING HYPOTHETICAL
EXAMPLE. The determination of the Annuity Unit Value and the variable annuity
payment may be illustrated by the following hypothetical example: Assume an
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. 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
4
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multiplied by the Annuity Unit Value on the immediately preceding Valuation
Date (assumed here to be $1.105000). The result is an Annuity Unit Value of
$1.105120 for the current monthly payment. The current monthly payment then
is determined by multiplying the number of Annuity Units by the current
Annuity Unit Value, or 267.5818 times $1.105120, which produces a current
monthly payment of $295.71.
EXCHANGE OFFER
The Company will permit Owners of certain variable annuity contracts,
described below, to exchange their contracts at net asset value for the
variable annuity contract described in the Prospectus, which is issued on
Form No. A3029-99 or state variations thereof ("new Contract"). The Company
reserves the right to suspend this exchange offer at any time.
This offer applies to the exchange of the Company's Flexible Payment Deferred
Variable Annuity contracts issued on Forms A3025-96, 3021-93 and 3018-91.
These contracts are referred to collectively as "Exchanged Contracts". To
effect a change, the Company should receive (1) a completed application for
the new Contract, (2) the contract being exchanged, and (3) a signed Letter
of Awareness.
There are inherent differences between a Flexible Payment Deferred Variable
Annuity and an Immediate Variable Annuity. You should consult your financial
planner to discuss these differences.
No surrender charge will be applicable to the Exchanged Contract as a result
of the Exchange.
Persons who, under the terms of this exchange offer, exchange their contract
for the new Contract and subsequently cancel the new Contract within the time
permitted, will have the Contract Value of the new Contract applied to
reinstate the Exchanged Contract. The refunded amount will be allocated
initially among the Fixed Account and Sub-Accounts of the reinstated contract
in the same proportion that the values of such allocation bore on the date
the exchange of the Contract for the new Contract took place. For purposes of
calculating any surrender charge under the reinstated Contract the reinstated
contract will be deemed to have been issued as if there had been no exchange.
The Table below illustrates the differences between the new Contract and the
Exchanged Contract after the Annuity Income Date. There may be additional
differences important for a person to consider prior to making an exchange.
The Prospectuses for the new Contract and the Exchanged Contract should be
reviewed carefully before the exchange request is submitted to the Company.
5
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<TABLE>
<CAPTION>
ALLMERICA IMMEDIATE ALLMERICA ADVANTAGE EXECANNUITY PLUS '93 EXECANNUITY '91
ADVANTAGE (A3029-99) (A3025-96) (3021-93) (3018-91)
<S> <C> <C> <C> <C>
What are the Rates are currently The first payment is The first payment is The first payment is
Annuitization Rates only - no guarantee based on the greater based on the greater based on the greater
that apply to variable rates. of the rates of the rates of the rates
annuity payments? guaranteed in the guaranteed in the guaranteed in the
contract or the contract or the contract or the
current rates. current rates current rates.
What is the Assumed The owner has a The Assumed The Assumed The Assumed
Investment Return (AIR)? choice of 3%, 5% or Investment Return is Investment Return is Investment Return is
7%* 3.5% 3.5% 3.5%
If my contract has The surviving owner After the Annuity After the Annuity After the Annuity
joint owners, who is is always the Income Date, the Income Date, the Income Date, the
the primary beneficiary primary beneficiary. beneficiary is as beneficiary is as beneficiary is as
on the death of the selected by the selected by the selected by the
first owner? Annuity (who at that Annuitant (who at Annuitant (who at
point is also Owner). that point is also that point is also
the Owner). the Owner).
Can I take withdrawals? Yes No No No
Will a surrender charge No Yes, for any Yes, for any Yes, for any
be assessed when I commutable period commutable period commutable period
annuitize? certain options and certain options and certain options and
any period certain any period certain any period certain
option under 10 years. option under 10 option under 10
years. years.
Is a life with cash Yes No No No
back annuity benefit
option available?
Is a unit refund No Yes No No
annuity benefit option
available?
How many investment 20 4 4 4
choices (Sub-Accounts)
do I have?
Can I make transfers? Yes No No No
Is Automatic Account Yes No No No
Rebalancing (AAR)
available?
Are commutable annuity Yes. For the Commutable period Commutable period Commutable period
options available? Payment for a certain options are certain options are certain options are
Certain Number of available. available. available.
Years Option.
Limited Commutation
is also available
for certain other
options. (See "E.
Description of
Annuity Benefit
Options" under
DESCRIPTION OF THE
CONTRACT.)
</TABLE>
6
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<TABLE>
<CAPTION>
ALLMERICA IMMEDIATE ALLMERICA ADVANTAGE EXECANNUITY PLUS '93 EXECANNUITY '91
ADVANTAGE (A3029-99) (A3025-96) (3021-93) (3018-91)
<S> <C> <C> <C> <C>
Are liquidity options For all benefit Commutable period Commutable period Commutable period
available? options: 10 times certain options are certain options are certain options are
the previous annuity available. available. available.
payment. For Life
with Payment for A
Certain Number of
Years and Life with
Cash Back Options:
75% of the present
value of the
remaining guaranteed
annuity payments.
For Payments for
Certain Number of
Years Option, 100%
is available. For
either liquidity
option, withdrawals
during the first
five years there is
an adjustment to the
present value
calculation
Can I choose to have my Yes (see "D. No No No
variable annuity Choosing an Income
payments level for a Option" under
certain period of time? DESCRIPTION OF THE
CONTRACT.)
Can I choose when I Yes (see "D. No No No
would like the value of Choosing an Income
my variable annuity Option" under
payments to change for DESCRIPTION OF THE
the first time? CONTRACT.)
What period certain 5-30 years 1-30 years 1-30 years 1-30 years
annuity options are
available?
Can I reverse my Yes. For 90 days No No No
decision to annuitize? after you have
received your
contract you reverse
your decision to
annuitize. See "B.
Right to Cancel"
under DESCRIPTION OF
THE CONTRACT.)
Does the annuitant No Yes Yes Yes
become the owner of the
contract on the Annuity
Date?
What is the minimum $100 (see "D. $50 $50 $50
annuity payment? Choosing an Income
Option" under
DESCRIPTION OF THE
CONTRACT.)
Who will receive the The owner. The annuitant. The annuitant. The annuitant.
annuity payments?
How frequently will I Monthly Monthly, Quarterly, Monthly, Quarterly, Monthly, Quarterly,
receive annuity Semi-annually, Semi-annually, Semi-annually,
payments? Annually Annually Annually
</TABLE>
*These rates may not be available in all states.
7
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PERFORMANCE INFORMATION
In order to help people understand how investment performance can affect
money invested in the Sub-Accounts, the Company may advertise "total return"
and "average annual total return" performance information based on (1) the
periods that the Sub-Accounts have been in existence and (2) the periods that
the Underlying Funds have been in existence. Performance results in Tables 1
and 2 are calculated with all charges assumed to be those applicable to the
Contract, the Sub-Accounts and the Underlying Funds. Both the total return
and yield figures are based on historical earnings and are not intended to
indicate future performance. Because Table 1 presents performance of the
Sub-Accounts from inception through December 31, 1999 and the Sub-Accounts
were not created until after December 31, 1999, no performance numbers are
currently shown in this Table. The discussion below reflects the manner in
which performance will be calculated in the future for Table I.
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 Tables 1 and 2 are
calculated in the manner prescribed by the SEC and show the percentage rate
of return of a hypothetical initial investment of $1,000 for the most recent
one, five and ten year period or for a period covering the time the
Sub-Account has been in existence, if less than the prescribed periods. The
calculation is adjusted to reflect the deduction of the annual Sub-Account
asset charge of 1.45% and the Underlying Fund charges which would be assessed
if the investment were completely withdrawn at the end of the specified
period.
The performance shown in Table 2 is calculated in exactly the same manner as
that in Table 1; however, the period of time is based on the Underlying
Fund's lifetime, which may predate the Sub-Account's inception date. These
performance calculations are based on the assumption that the Sub-Account
corresponding to the applicable Underlying Fund was actually in existence
throughout the stated period and that the contractual charges and expenses
during that period were equal to those currently assessed under the Contract.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF
A HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH
THE CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN
LIGHT OF THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF
THE UNDERLYING FUND IN WHICH THE SUB-ACCOUNT INVESTS AND THE MARKET
CONDITIONS DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A
REPRESENTATION OF WHAT MAY BE ACHIEVED IN THE FUTURE.
8
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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 specific period
The calculation of Total Return includes the annual charges against the
assets of the Sub-Account. This charge is 1.45% on an annual basis. The
calculation of ending redeemable value assumes (1) the Contract was issued at
the beginning of the period, and (2) a complete surrender of the Contract at
the end of the period.
9
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ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
TABLE 1
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
<TABLE>
<CAPTION>
TOTAL RETURN 10 YEARS OR
SUB-ACCOUNT FOR YEAR SINCE INCEPTION
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE ENDED 12/31/99 5 YEARS IF LESS
- ---------------------------------------- -------------- -------------- ------- -----------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund N/A N/A N/A N/A
Select International Equity Fund N/A N/A N/A N/A
DGPF International Equity Series N/A N/A N/A N/A
Fidelity VIP Overseas Portfolio N/A N/A N/A N/A
T. Rowe Price International Stock Portfolio N/A N/A N/A N/A
Select Aggressive Growth Fund N/A N/A N/A N/A
Select Capital Appreciation Fund N/A N/A N/A N/A
Select Value Opportunity Fund N/A N/A N/A N/A
Select Growth Fund N/A N/A N/A N/A
Select Strategic Growth Fund N/A N/A N/A N/A
Core Equity Fund N/A N/A N/A N/A
Fidelity VIP Growth Portfolio N/A N/A N/A N/A
Equity Index Fund N/A N/A N/A N/A
Select Growth and Income Fund N/A N/A N/A N/A
Fidelity VIP Equity-Income Portfolio N/A N/A N/A N/A
Fidelity VIP II Asset Manager Portfolio N/A N/A N/A N/A
Fidelity VIP High Income Portfolio N/A N/A N/A N/A
Select Investment Grade Income Fund N/A N/A N/A N/A
Government Bond Fund N/A N/A N/A N/A
Money Market Fund N/A N/A N/A N/A
</TABLE>
10
<PAGE>
TABLE 2
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND
<TABLE>
<CAPTION>
10 YEARS OR
UNDERLYING FUND FOR YEAR SINCE INCEPTION
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE ENDED 12/31/99 5 YEARS IF LESS
- ---------------------------------------- -------------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund 2/20/98 63.68% N/A 13.80%
Select International Equity Fund 5/2/94 30.09% 17.09% 14.05%
DGPF International Equity Series 10/29/92 14.33% 11.85% 10.39%
Fidelity VIP Overseas Portfolio 1/28/87 40.87% 15.92% 10.05%
T. Rowe Price International Stock Portfolio 3/31/94 31.68% 13.80% 12.05%
Select Aggressive Growth Fund 8/21/92 36.95% 21.81% 19.20%
Select Capital Appreciation Fund 4/28/95 23.82% N/A 19.90%
Select Value Opportunity Fund 4/30/93 -5.88% 12.13% 10.20%
Select Growth Fund 8/21/92 28.20% 27.47% 19.06%
Select Strategic Growth Fund 2/20/98 14.62% N/A 5.57%
Core Equity Fund 4/29/85 27.73% 23.70% 15.87%
Fidelity VIP Growth Portfolio 10/9/86 35.74% 28.14% 18.46%
Equity Index Fund 9/28/90 18.92% 26.21% 19.17%
Select Growth and Income Fund 8/21/92 16.96% 20.19% 14.47%
Fidelity VIP Equity-Income Portfolio 10/9/86 5.02% 17.15% 13.17%
Fidelity VIP II Asset Manager Portfolio 9/6/89 9.72% 14.20% 11.75%
Fidelity VIP High Income Portfolio 9/19/85 6.82% 9.34% 10.96%
Select Investment Grade Income Fund 4/29/85 -2.30% 6.04% 6.35%
Government Bond Fund 8/26/91 -1.01% 4.91% 4.85%
Money Market Fund 4/29/85 3.89% 4.17% 3.94%
</TABLE>
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 even-day period ended December 31, 1999:
Yield N/A
Effective Yield N/A
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
11
<PAGE>
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Separate Account VA-K.
12
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<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, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States 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
Boston, Massachusetts
February 1, 2000
<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) 1999 1998 1997
------------- ---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums................................... $ 0.5 $ 0.5 $ 22.8
Universal life and investment product
policy fees.............................. 328.1 267.4 212.2
Net investment income...................... 150.2 151.3 164.2
Net realized investment (losses) gains..... (8.7) 20.0 2.9
Other income............................... 36.9 0.6 1.4
------ ------ ------
Total revenues......................... 507.0 439.8 403.5
------ ------ ------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims and losses......... 173.6 153.9 187.8
Policy acquisition expenses................ 49.8 64.6 2.8
Sales practice litigation.................. -- 21.0 --
Loss from cession of disability income
business................................. -- -- 53.9
Other operating expenses................... 151.3 104.1 101.3
------ ------ ------
Total benefits, losses and expenses.... 374.7 343.6 345.8
------ ------ ------
Income before federal income taxes............. 132.3 96.2 57.7
------ ------ ------
FEDERAL INCOME TAX EXPENSE
Current.................................... 15.5 22.1 13.9
Deferred................................... 30.5 11.8 7.1
------ ------ ------
Total federal income tax expense....... 46.0 33.9 21.0
------ ------ ------
Net income..................................... $ 86.3 $ 62.3 $ 36.7
====== ====== ======
</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, EXCEPT PER SHARE DATA) 1999 1998
------------------------------------ --------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,354.2 and $1,284.6)............................ $ 1,324.6 $ 1,330.4
Equity securities at fair value (cost of $25.2 and
$27.4)............................................ 32.6 31.8
Mortgage loans...................................... 223.7 230.0
Policy loans........................................ 166.8 151.5
Real estate and other long-term investments......... 25.1 23.6
--------- ---------
Total investments............................... 1,772.8 1,767.3
--------- ---------
Cash and cash equivalents............................. 132.9 217.9
Accrued investment income............................. 36.0 33.5
Deferred policy acquisition costs..................... 1,156.4 950.5
Reinsurance receivable on paid and unpaid losses,
benefits and unearned premiums...................... 287.2 308.0
Other assets.......................................... 64.8 46.9
Separate account assets............................... 14,527.9 11,020.4
--------- ---------
Total assets.................................... $17,978.0 $14,344.5
========= =========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,274.7 $ 2,284.8
Outstanding claims and losses....................... 13.7 17.9
Unearned premiums................................... 2.6 2.7
Contractholder deposit funds and other policy
liabilities....................................... 44.3 38.1
--------- ---------
Total policy liabilities and accruals........... 2,335.3 2,343.5
--------- ---------
Expenses and taxes payable............................ 216.8 146.2
Reinsurance premiums payable.......................... 17.9 45.7
Deferred federal income taxes......................... 94.8 78.8
Separate account liabilities.......................... 14,527.9 11,020.4
--------- ---------
Total liabilities............................... 17,192.7 13,634.6
--------- ---------
Contingencies (Note 12)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,526 and 2,524 shares, issued and
outstanding......................................... 2.5 2.5
Additional paid-in capital............................ 423.7 407.9
Accumulated other comprehensive (loss) income......... (2.6) 24.1
Retained earnings..................................... 361.7 275.4
--------- ---------
Total shareholder's equity...................... 785.3 709.9
--------- ---------
Total liabilities and shareholder's equity...... $17,978.0 $14,344.5
========= =========
</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) 1999 1998 1997
------------- ------- ------- -------
<S> <C> <C> <C>
COMMON STOCK................................... $ 2.5 $ 2.5 $ 2.5
------ ------ ------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 407.9 386.9 346.3
Issuance of common stock................... 15.8 21.0 40.6
------ ------ ------
Balance at end of period................... 423.7 407.9 386.9
------ ------ ------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Net unrealized (depreciation) appreciation
on investments:
Balance at beginning of period............. 24.1 38.5 20.5
(Depreciation) appreciation during the
period:
Net (depreciation) appreciation on
available-for-sale securities........ (41.1) (23.4) 27.0
Benefit (provision) for deferred
federal income taxes................. 14.4 9.0 (9.0)
------ ------ ------
(26.7) (14.4) 18.0
------ ------ ------
Balance at end of period................... (2.6) 24.1 38.5
------ ------ ------
RETAINED EARNINGS
Balance at beginning of period............. 275.4 213.1 176.4
Net income................................. 86.3 62.3 36.7
------ ------ ------
Balance at end of period................... 361.7 275.4 213.1
------ ------ ------
Total shareholder's equity............. $785.3 $709.9 $641.0
====== ====== ======
</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) 1999 1998 1997
------------- ------ ------ ------
<S> <C> <C> <C>
Net income.................................. $ 86.3 $ 62.3 $36.7
Other comprehensive (loss) income:
Net (depreciation) appreciation on
available-for-sale securities......... (41.1) (23.4) 27.0
Benefit (provision) for deferred federal
income taxes.......................... 14.4 9.0 (9.0)
------ ------ -----
Other comprehensive (loss) income... (26.7) (14.4) 18.0
------ ------ -----
Comprehensive income.................... $ 59.6 $ 47.9 $54.7
====== ====== =====
</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) 1999 1998 1997
------------- ------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 86.3 $ 62.3 $ 36.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized losses/(gains)......... 8.7 (20.0) (2.9)
Net amortization and depreciation... (2.3) (7.1) --
Sales practice litigation expense... -- 21.0 --
Loss from cession of disability
income business................... -- -- 53.9
Deferred federal income taxes....... 30.5 11.8 7.1
Payment related to cession of
disability income business........ -- -- (207.0)
Change in deferred acquisition
costs............................. (169.7) (177.8) (181.3)
Change in reinsurance premiums
payable........................... (31.5) 40.8 3.9
Change in accrued investment
income............................ (2.5) 0.7 3.5
Change in policy liabilities and
accruals, net..................... (8.4) 193.1 (72.4)
Change in reinsurance receivable.... 20.7 (56.9) 22.1
Change in expenses and taxes
payable........................... 64.1 55.4 0.2
Other, net.......................... (14.8) (28.5) (7.1)
------- ------- -------
Net cash (used in) provided by
operating activities.......... (18.9) 94.8 (343.3)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 330.9 187.0 909.7
Proceeds from disposals of equity
securities............................ 30.9 53.3 2.4
Proceeds from disposals of other
investments........................... 0.8 22.7 23.7
Proceeds from mortgages matured or
collected............................. 30.5 60.1 62.9
Purchase of available-for-sale fixed
maturities............................ (415.5) (136.0) (579.7)
Purchase of equity securities........... (20.2) (30.6) (3.2)
Purchase of other investments........... (44.1) (22.7) (9.0)
Purchase of mortgages................... -- (58.9) (70.4)
Other investing activities, net......... 2.0 (3.9) --
------- ------- -------
Net cash (used in) provided by
investing activities.............. (84.7) 71.0 336.4
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Contribution from subsidiaries.......... 14.6 -- --
Proceeds from issuance of stock and
capital paid in....................... 4.0 21.0 19.2
------- ------- -------
Net cash provided by financing
activities........................ 18.6 21.0 19.2
------- ------- -------
Net change in cash and cash equivalents..... (85.0) 186.8 12.3
Cash and cash equivalents, beginning of
period..................................... 217.9 31.1 18.8
------- ------- -------
Cash and cash equivalents, end of period.... $ 132.9 $ 217.9 $ 31.1
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ -- $ -- $ --
Income taxes paid....................... $ 4.4 $ 36.2 $ 5.4
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
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 First Allmerica Financial Life Insurance Company ("FAFLIC") which
is a wholly-owned subsidiary of Allmerica Financial Corporation ("AFC"). As
noted below, the consolidated accounts of AFLIAC include the accounts of certain
wholly-owned non-insurance subsidiaries (principally brokerage and investment
advisory subsidiaries).
Prior to July 1, 1999, AFLIAC was a wholly-owned subsidiary of SMA Financial
Corporation ("SMAFCO"), which was a wholly-owned subsidiary of FAFLIC. Effective
July 1, 1999 and in connection with AFC's restructuring activities, SMAFCO was
renamed Allmerica Asset Management , Inc. ("AAM") and contributed it's ownership
of AFLIAC to FAFLIC. AAM also contributed Allmerica Investments, Inc., Allmerica
Investment Management Company, Inc., Allmerica Financial Investment Management
Services, Inc., and Allmerica Financial Services Insurance Agency, Inc., to
AFLIAC in exchange for one share of AFLIAC common stock. The equity of these
four companies on July 1, 1999 was $11.8 million. For the six months ended
December 31, 1999, the subsidiaries of AFLIAC had total revenue of $35.5 million
and total benefits, losses and expenses of $24.4 million. All significant
intercompany accounts and transactions have been eliminated.
In addition, effective November 1, 1999, the Company's consolidated financial
statements include five wholly-owned insurance agencies. These agencies are
Allmerica Investments Insurance Agency Inc. of Alabama, Allmerica Investments
Insurance Agency of Florida Inc., Allmerica Investment Insurance Agency Inc. of
Georgia, Allmerica Investment Insurance Agency Inc. of Kentucky, and Allmerica
Investments Insurance Agency Inc. of Mississippi.
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 eleven 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.
F-6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Debt securities and marketable equity 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 a plan to dispose of all real estate assets. As
of December 31, 1999, there was one property remaining in the Company's real
estate portfolio, which is being actively marketed. This asset is carried at the
estimated fair value less costs of disposal. Depreciation is not recorded on
this asset while it is held for disposal.
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
F-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 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
3.0% to 6.0% 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, variable
universal life and variable annuities 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.
Liabilities for variable annuities include a reserve for benefit claims in
excess of a guaranteed minimum fund value.
Individual disability income benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future morbidity 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 and losses 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.
F-8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 insurance and individual and group 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 include annuity benefit claims in excess of a guaranteed
minimum fund value, and 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 (including certain non-insurance operations)
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 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. OTHER INCOME AND OTHER OPERATING EXPENSES
Other income and other operating expenses for the year ended December 31, 1999
include investment management and brokerage income and sub-advisory expenses
arising from the activities of the non-insurance subsidiaries that were
transferred to AFLIAC during 1999, as more fully described in Note 1A.
F-9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. 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
investments in foreign operations. This statement is effective for fiscal
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY (an indirect wholly-owned
subsidiary of Allmerica Financial Corporation) years beginning after June 15,
2000. 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 of 1998, 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 adoption of this statement had no effect on the results
of operations or financial position of the Company.
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 beginning after December 15, 1997. AFLIAC consists
of one segment, Allmerica Financial Services, which underwrites and distributes
variable annuities and variable universal life insurance via retail channels.
In June 1997, the FASB also issued Statement No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"). Statement No. 130 establishes 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
F-10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
L. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. SIGNIFICANT TRANSACTIONS
During 1999, AFLIAC's parent contributed $11.8 million of additional paid-in
capital to the Company in the form of four subsidiaries as disclosed in Note 1A
above. These subsidiaries consisted of assets of $22.0 million, of which $14.6
million was cash and cash equivalents, and liabilities of $10.2 million. During
1999, 1998 and 1997, SMAFCO contributed $4.0 million, $21.0 million, and $40.6
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.
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 did 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.
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>
1999
-------------------------------------------
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....... $ 5.2 $ 0.2 $-- $ 5.4
States and political subdivisions....... 12.4 0.1 -- 12.5
Foreign governments..................... 38.6 0.9 0.6 38.9
Corporate fixed maturities.............. 1,180.0 10.3 38.9 1,151.4
Mortgage-backed securities.............. 118.0 1.1 2.7 116.4
-------- ----- ----- --------
Total fixed maturities.................. $1,354.2 $12.6 $42.2 $1,324.6
======== ===== ===== ========
Equity securities....................... $ 25.2 $ 7.4 $-- $ 32.6
======== ===== ===== ========
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
F-11
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<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>
(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, 1999, the amortized
cost and market value of these assets on deposit in New York were
$196.4 million and $193.0 million, respectively. At December 31, 1998, the
amortized cost and market value of assets on deposit were $268.5 million and
$284.1 million, respectively. In addition, fixed maturities, excluding those
securities on deposit in New York, with an amortized cost of $4.1 million and
$4.2 million were on deposit with various state and governmental authorities at
December 31, 1999 and 1998, respectively.
There were no contractual fixed maturity investment commitments at December 31,
1999.
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>
1999
-------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------- --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 54.5 $ 54.8
Due after one year through five years....................... 349.1 347.2
Due after five years through ten years...................... 652.9 637.1
Due after ten years......................................... 297.7 285.5
-------- --------
Total....................................................... $1,354.2 $1,324.6
======== ========
</TABLE>
F-12
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
1999
Net appreciation, beginning of year......................... $ 16.2 $ 7.9 $ 24.1
------ ------ ------
Net depreciation on available-for-sale securities........... (75.3) (0.2) (75.5)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 34.4 -- 34.4
Benefit from deferred federal income taxes.................. 14.3 0.1 14.4
------ ------ ------
(26.6) (0.1) (26.7)
------ ------ ------
Net (depreciation) appreciation, end of year................ $(10.4) $ 7.8 $ (2.6)
====== ====== ======
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
====== ====== ======
</TABLE>
(1) Includes net (depreciation) appreciation on other investments of $(3.1)
million, $0.9 million, and $1.3 million in 1999, 1998, and 1997,
respectively.
B. MORTGAGE LOANS AND REAL ESTATE
AFLIAC's mortgage loans are diversified by property type and location. The real
estate investment was obtained by an affiliate 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 the real estate investment net of
applicable reserves were $234.6 million and $244.5 million at December 31, 1999
and 1998, respectively. Reserves for mortgage loans were $2.4 million and
$3.3 million at December 31, 1999 and 1998, respectively.
F-13
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1997, the Company committed to a plan to dispose of all real estate
assets. At December 31, 1999, there was one property remaining in the Company's
real estate portfolio which is being actively marketed. Depreciation is not
recorded on this asset while it is held for disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1999, 1998 and 1997.
There were no material contractual commitments to extend credit under commercial
mortgage loan agreements at December 31, 1999.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------ ------
<S> <C> <C>
Property type:
Office building........................................... $136.1 $129.2
Residential............................................... 18.5 18.9
Retail.................................................... 28.3 37.4
Industrial/warehouse...................................... 51.1 59.2
Other..................................................... 3.0 3.1
Valuation allowances...................................... (2.4) (3.3)
------ ------
Total....................................................... $234.6 $244.5
====== ======
Geographic region:
South Atlantic............................................ $ 60.7 $ 55.5
Pacific................................................... 76.2 80.0
East North Central........................................ 35.9 41.4
Middle Atlantic........................................... 20.1 22.5
New England............................................... 29.9 26.9
West South Central........................................ 1.9 6.7
Other..................................................... 12.3 14.8
Valuation allowances...................................... (2.4) (3.3)
------ ------
Total....................................................... $234.6 $244.5
====== ======
</TABLE>
At December 31, 1999, scheduled mortgage loan maturities were as follows:
2000 -- $40.8 million; 2001 -- $6.3 million; 2002 -- $11.2 million; 2003 --
$0.5 million; 2004 -- $23.7 million; and $141.2 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 1999, the Company did not refinance any mortgage loans
based on terms which differed from those granted to new borrowers.
F-14
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets 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>
1999
Mortgage loans.............................................. $ 3.3 $(0.8) $0.1 $2.4
===== ===== ==== ====
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
===== ===== ==== ====
</TABLE>
Provisions on mortgages during 1999 and 1998 reflect the release of redundant
specific 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 costs to sell pursuant to the aforementioned 1997 plan
of disposal.
The carrying value of impaired loans was $11.4 million and $15.3 million, with
related reserves of $0.7 million and $1.5 million as of December 31, 1999 and
1998, respectively. All impaired loans were reserved for as of December 31, 1999
and 1998.
The average carrying value of impaired loans was $14.3 million, $17.0 million
and $19.8 million, with related interest income while such loans were impaired
of $1.5 million, $2.0 million and $2.2 million as of December 31, 1999, 1998 and
1997, respectively.
D. OTHER
At December 31, 1999 and 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) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $107.2 $107.7 $130.0
Mortgage loans.............................................. 19.0 25.5 20.4
Equity securities........................................... 0.4 0.3 1.3
Policy loans................................................ 12.4 11.7 10.8
Real estate and other long-term investments................. 4.0 4.8 4.9
Short-term investments...................................... 9.5 4.2 1.4
------ ------ ------
Gross investment income................................. 152.5 154.2 168.8
Less investment expenses.................................... (2.3) (2.9) (4.6)
------ ------ ------
Net investment income................................... $150.2 $151.3 $164.2
====== ====== ======
</TABLE>
F-15
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999, the Company had fixed maturities with a carrying value of
$0.8 million on non-accrual status. There were no mortgage loans on non-accrual
status at December 31, 1999. 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 investments, was a reduction in net income of $1.2 million in 1999,
and had no impact in 1998 and 1997.
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 $12.2 million, $12.6 million and $21.1 million at December 31,
1999, 1998 and 1997, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $0.9 million, $1.4 million and $1.9 million in 1999,
1998, and 1997, respectively. Actual interest income on these loans included in
net investment income aggregated $1.1 million, $1.8 million and $2.1 million in
1999, 1998 and 1997, respectively.
There were no fixed maturities or mortgage loans which were non-income producing
for the year ended December 31, 1999.
Included in other long-term investments is income from limited partnerships of
$0.9 million and $0.7 million in 1999 and 1998, respectively. There was no
income from limited partnerships included in other long-term investments in
1997.
B. NET REALIZED INVESTMENT GAINS AND LOSSES
Realized (losses) gains on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ----- -----
<S> <C> <C> <C>
Fixed maturities............................................ $(18.8) $(6.1) $ 3.0
Mortgage loans.............................................. 0.8 8.0 (1.1)
Equity securities........................................... 8.5 15.7 0.5
Real estate and other....................................... 0.8 2.4 0.5
------ ----- -----
Net realized investment (losses) gains...................... $ (8.7) $20.0 $ 2.9
====== ===== =====
</TABLE>
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>
PROCEEDS FROM
FOR THE YEARS ENDED DECEMBER 31, VOLUNTARY GROSS GROSS
(IN MILLIONS) SALES GAINS LOSSES
- ------------- ------------- ----- ------
<S> <C> <C> <C>
1999
Fixed maturities............................................ $162.3 $ 2.7 $4.3
Equity securities........................................... $ 30.4 $10.1 $1.6
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 $--
</TABLE>
F-16
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. OTHER COMPREHENSIVE INCOME RECONCILIATION
The following table provides a reconciliation of gross unrealized (losses) gains
to the net balance shown in the consolidated statements of comprehensive income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ -----
<S> <C> <C> <C>
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period (net
of taxes of $(18.0) million, $(5.6) million and
$10.2 million in 1999, 1998 and 1997, respectively)........ $(33.4) $ (8.2) $20.3
Less: reclassification adjustment for (losses) gains
included in net income (net of taxes of $(3.6) million,
$3.4 million and $1.2 million in 1999, 1998 and 1997,
respectively).............................................. (6.7) 6.2 2.3
------ ------ -----
Other comprehensive (loss) income........................... $(26.7) $(14.4) $18.0
====== ====== =====
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about certain financial
instruments (insurance contracts, real estate, goodwill and taxes are excluded)
for which it is practicable to estimate such values, whether or not these
instruments are included in the balance sheet. The fair values presented for
certain financial instruments are estimates which, in many cases, may differ
significantly from the amounts which could be 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.
F-17
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 are
limited to the lesser of the present value of the cash flows or book value.
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.
FIXED ANNUITY AND OTHER CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under individual fixed annuity
contracts are estimated based on current surrender values, supplemental
contracts without life contingencies reflect current fund balances, and other
individual contract funds represent the present value of future policy benefits.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 132.9 $ 132.9 $ 217.9 $ 217.9
Fixed maturities.......................................... 1,324.6 1,324.6 1,330.4 1,330.4
Equity securities......................................... 32.6 32.6 31.8 31.8
Mortgage loans............................................ 223.7 222.8 230.0 241.9
Policy loans.............................................. 166.8 166.8 151.5 151.5
-------- -------- -------- --------
$1,880.6 $1,879.7 $1,961.6 $1,973.5
======== ======== ======== ========
FINANCIAL LIABILITIES
Individual fixed annuity contracts........................ $1,048.0 $1,014.9 $1,069.4 $1,034.6
Supplemental contracts without life contingencies......... 25.0 25.0 21.0 21.0
Other individual contract deposit funds................... 19.3 19.3 17.0 17.0
-------- -------- -------- --------
$1,092.3 $1,059.2 $1,107.4 $1,072.6
======== ======== ======== ========
</TABLE>
F-18
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 in
the consolidated statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ----- ----- -----
<S> <C> <C> <C>
Federal income tax expense
Current................................................... $15.5 $22.1 $13.9
Deferred.................................................. 30.5 11.8 7.1
----- ----- -----
Total....................................................... $46.0 $33.9 $21.0
===== ===== =====
</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.
The deferred income tax (asset) liability represents the tax effects of
temporary differences:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------- -------
<S> <C> <C>
Deferred tax (assets) liabilities
Policy reserves........................................... $(233.7) $(205.1)
Deferred acquisition costs................................ 339.7 278.8
Investments, net.......................................... (4.0) 12.5
Litigation reserves....................................... (4.3) (7.4)
Bad debt reserve.......................................... -- (0.4)
Other, net................................................ (2.9) 0.4
------- -------
Deferred tax liability, net................................. $ 94.8 $ 78.8
======= =======
</TABLE>
Gross deferred income tax liabilities totaled $360.4 million and $291.7 million
at December 31, 1999 and 1998, respectively. Gross deferred income tax assets
totaled $265.6 million and $212.9 million at December 31, 1999 and 1998,
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 Internal
Revenue Service ("IRS"), and provisions are routinely made in the financial
statements in anticipation of the results of these audits. The IRS has examined
the FAFLIC/AFLIAC consolidated group's federal income tax returns through 1994.
The Company has appealed certain adjustments proposed by the IRS with respect
federal income tax returns for 1992, 1993, and 1994 for the FAFLIC/AFLIAC
consolidated group. 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
F-19
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $173.9 million, $145.4 million and $124.1 million in
1999, 1998 and 1997 respectively. The net amounts payable to FAFLIC and
affiliates for accrued expenses and various other liabilities and receivables
were $48.6 million and $16.4 million at December 31, 1999 and 1998,
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 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 1999, 1998 or 1997. During
2000, AFLIAC could pay dividends of $34.3 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
F-20
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1999 and 1998 for the
disability income business were $241.5 million and $230.8 million, respectively,
traditional life were $9.7 million and $11.4 million, respectively, and
universal and variable universal life were $36.0 million and $65.8 million,
respectively.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Insurance premiums:
Direct.................................................... $ 41.3 $ 45.5 $ 48.8
Assumed................................................... -- -- 2.6
Ceded..................................................... (40.8) (45.0) (28.6)
------ ------ ------
Net premiums................................................ $ 0.5 $ 0.5 $ 22.8
====== ====== ======
Insurance and other individual policy benefits, claims and
losses:
Direct.................................................... $210.6 $204.0 $226.0
Assumed................................................... -- -- 4.2
Ceded..................................................... (37.0) (50.1) (42.4)
------ ------ ------
Net policy benefits, claims and losses...................... $173.6 $153.9 $187.8
====== ====== ======
</TABLE>
10. DEFERRED POLICY ACQUISITION COSTS
The following reflects the changes to the deferred policy acquisition cost
asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- -------- ------ ------
<S> <C> <C> <C>
Balance at beginning of year................................ $ 950.5 $765.3 $632.7
Acquisition expenses deferred............................. 219.5 242.4 184.2
Amortized to expense during the year...................... (49.8) (64.6) (53.1)
Adjustment to equity during the year...................... 36.2 7.4 (10.2)
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...................................... $1,156.4 $950.5 $765.3
======== ====== ======
</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 and losses as new information becomes available
and further events occur which may impact the resolution of
F-21
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 and losses
related to the Company's disability income business was $240.7 million and
$233.3 million at December 31, 1999 and 1998. 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 used in determining the
liability 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 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. The court granted preliminary approval of the settlement
on December 4, 1998. On May 19, 1999, the Court issued an order certifying the
class for settlement purposes and granting final approval of the settlement
agreement. 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, 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, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's consolidated 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 resulted from computer programs being written using two
digits rather than four to define the applicable year. 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.
F-22
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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. In 1999, 49 out of 50 states have adopted the
National Association of Insurance Commissioners proposed Codification, which
provides for uniform statutory accounting principles. These principles are
effective January 1, 2001. The Company is currently assessing the impact that
the adoption of Codification will have on its statutory results of operations
and financial position. Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Statutory net income........................................ $ 5.0 $ (8.2) $ 31.5
Statutory shareholder's surplus............................. $342.7 $312.2 $309.7
</TABLE>
F-23
<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 of Allmerica
Financial Life Insurance and Annuity Company
In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Separate Account VA-K of Allmerica Financial Life Insurance and
Annuity Company at December 31, 1999, the results of each of their operations
for the year then ended and the changes in each of their net assets for each of
the two years in the period then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of Allmerica Financial Life Insurance and Annuity Company; 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 auditing standards generally accepted in the United States, 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, 1999 by correspondence with the Funds, provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 3, 2000
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust. . . . . . . . . . . . . . $ 588,408,994 $ 169,732,101 $ 269,093,323
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. . . . . . . . . . . . . . - - -
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588,408,994 169,732,101 269,093,323
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 615,471 1,467 38,105
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 587,793,523 $ 169,730,634 $ 269,055,218
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 587,793,523 $ 169,730,634 $ 269,055,218
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 167,814,475 106,780,323 205,622,363
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 3.502639 $ 1.589531 $ 1.308492
<CAPTION>
SELECT
GOVERNMENT AGGRESSIVE
EQUITY INDEX BOND GROWTH
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust . . . . . . . . . . . . . $ 510,648,067 $ 75,019,142 $ 423,464,970
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. . . . . . . . . . . . . . - - -
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,648,067 75,019,142 423,464,970
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 603,151 827 2,368
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 510,044,916 $ 75,018,315 $ 423,462,602
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 510,044,916 $ 75,018,315 $ 423,462,602
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 131,643,587 51,710,700 123,336,801
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 3.874438 $ 1.450731 $ 3.433384
<CAPTION>
SELECT
GROWTH AND SELECT VALUE
SELECT GROWTH INCOME OPPORTUNITY
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust . . . . . . . . . . . . . $ 467,897,356 $ 351,326,204 $ 195,384,598
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. . . . . . . . . . . . . . - - -
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467,897,356 351,326,204 195,384,598
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 2,183 445,147 3,946
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 467,895,173 $ 350,881,057 $ 195,380,652
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 467,895,173 $ 350,881,057 $ 195,380,652
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 136,938,944 132,427,536 103,456,199
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 3.416816 $ 2.649608 $ 1.888535
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SELECT DGPF
INTERNATIONAL SELECT CAPITAL INTERNATIONAL
EQUITY APPRECIATION EQUITY
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust . . . . . . . . . . . . . $ 270,745,196 $ 187,912,111 $ -
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. . . . . . . . . . . . . . - - 125,520,913
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,745,196 187,912,111 125,520,913
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 1,303 523 1,185
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,743,893 $ 187,911,588 $ 125,519,728
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,743,893 $ 187,911,588 $ 125,519,728
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . 129,946,299 81,133,076 63,396,332
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 2.083506 $ 2.316091 $ 1.979921
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP
HIGH INCOME EQUITY-INCOME GROWTH
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust . . . . . . . . . . . . . $ - $ - $ -
Investments in shares of Fidelity Variable Insurance Products Funds (VIP). . . 222,647,220 613,369,225 778,451,280
Investment in shares of T. Rowe Price International Series, Inc. . . . . . . . - - -
Investment in shares of Delaware Group Premium Fund . . . . . . . . . . . . . - - -
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222,647,220 613,369,225 778,451,280
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 530 10,571 11,539
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 222,646,690 $ 613,358,654 $ 778,439,741
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 222,646,690 $ 613,358,654 $ 778,439,741
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 97,498,284 188,373,684 160,261,887
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 2.283596 $ 3.256074 $ 4.857298
<CAPTION>
FIDELITY T. ROWE PRICE
FIDELITY VIP VIP II INTERNATIONAL
OVERSEAS ASSET MANAGER STOCK
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust . . . . . . . . . . . . . $ - $ - $ -
Investments in shares of Fidelity Variable Insurance Products Funds (VIP). . . 150,015,159 148,205,042 -
Investment in shares of T. Rowe Price International Series, Inc. . . . . . . - - 124,782,121
Investment in shares of Delaware Group Premium Fund. . . . . . . . . . . . . . - - -
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,015,159 148,205,042 124,782,121
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 5,147 293 366
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 150,010,012 $ 148,204,749 $ 124,781,755
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 150,010,012 $ 148,204,749 $ 124,781,755
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 58,820,789 78,861,006 68,032,173
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 2.550289 $ 1.879316 $ 1.834158
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,215,021 $ 11,215,239 $ 11,186,884
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 6,322,001 2,224,044 2,754,778
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 1,029,163 362,053 448,452
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,351,164 2,586,097 3,203,230
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (4,136,143) 8,629,142 7,983,654
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors . . . . . . . . . . 46,156,698 144,883 -
Net realized gain (loss) from sales of investments . . . . . . . . . . . 6,450,537 (539,927) -
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 52,607,235 (395,044) -
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 76,594,230 (12,501,948) -
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . 129,201,465 (12,896,992) -
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 125,065,322 $ (4,267,850) $ 7,983,654
============== ================ ===============
<CAPTION>
SELECT
AGGRESSIVE
EQUITY INDEX GOVERNMENT BOND GROWTH
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,046,190 $ 4,781,846 $ -
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 5,350,928 1,050,246 4,221,340
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 871,082 170,971 687,195
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,222,010 1,221,217 4,908,535
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (2,175,820) 3,560,629 (4,908,535)
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . . . . . . . 648,530 - -
Net realized gain (loss) from sales of investments . . . . . . . . . . . 6,768,876 (566,090) 10,735,234
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 7,417,406 (566,090) 10,735,234
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 69,889,480 (3,996,251) 107,103,552
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . 77,306,886 (4,562,341) 117,838,786
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 75,131,066 $ (1,001,712) $ 112,930,251
============== ================ ===============
<CAPTION>
SELECT
GROWTH AND SELECT VALUE
SELECT GROWTH INCOME OPPORTUNITY
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 194,192 $ 3,378,939 $ 1,098
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 4,684,369 3,787,227 2,404,751
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 762,572 616,526 391,471
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,446,941 4,403,753 2,796,222
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (5,252,749) (1,024,814) (2,795,124)
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . . . . . . . 12,340,626 22,388,235 10,966,273
Net realized gain (loss) from sales of investments . . . . . . . . . . . 4,723,235 2,540,986 1,818,904
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 17,063,861 24,929,221 12,785,177
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 88,659,011 23,354,193 (21,271,499)
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . 105,722,872 48,283,414 (8,486,322)
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 100,470,123 $ 47,258,600 $ (11,281,446)
============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SELECT DGPF
INTERNATIONAL SELECT CAPITAL INTERNATIONAL
EQUITY APPRECIATION EQUITY
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ 2,575,294
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 2,820,506 1,951,545 1,502,291
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 459,153 317,693 244,559
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,279,659 2,269,238 1,746,850
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (3,279,659) (2,269,238) 828,444
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . . . . . . . - 236,069 188,083
Net realized gain (loss) from sales of investments . . . . . . . . . . . 3,471,561 2,476,490 3,268,843
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 3,471,561 2,712,559 3,456,926
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 61,875,342 35,111,252 11,844,338
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . 65,346,903 37,823,811 15,301,264
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 62,067,244 $ 35,554,573 $ 16,129,708
============== ================ ===============
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP
HIGH INCOME EQUITY-INCOME GROWTH
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,278,607 $ 8,724,904 $ 957,346
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 2,748,973 7,627,328 7,834,599
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 447,507 1,241,659 1,275,399
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,196,480 8,868,987 9,109,998
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . 16,082,127 (144,083) (8,152,652)
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors . . . . . . . . . . 720,696 19,286,629 60,193,116
Net realized gain (loss) from sales of investments . . . . . . . . . . . (940,790) 10,491,497 10,853,416
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . (220,094) 29,778,126 71,046,532
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . (2,152,485) (1,182,641) 136,395,117
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . (2,372,579) 28,595,485 207,441,649
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 13,709,548 $ 28,451,402 $ 199,288,997
============== ================ ===============
<CAPTION>
T. ROWE PRICE
FIDELITY VIP FIDELITY VIP II INTERNATIONAL
OVERSEAS ASSET MANAGER STOCK
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,651,575 $ 3,989,011 $ 450,610
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 1,448,508 1,641,096 1,270,009
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 235,803 267,156 206,746
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,684,311 1,908,252 1,476,755
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (32,736) 2,080,759 (1,026,145)
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors . . . . . . . . . . 2,663,830 5,052,747 1,416,204
Net realized gain (loss) from sales of investments . . . . . . . . . . . 2,688,416 734,454 1,950,488
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 5,352,246 5,787,201 3,366,692
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 36,901,156 4,342,270 27,606,832
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . 42,253,402 10,129,471 30,973,524
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 42,220,666 $ 12,210,230 $ 29,947,379
============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INVESTMENT
GROWTH GRADE INCOME
-------------------------------- -------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (4,136,143) $ (1,452,248) $ 8,629,142 $ 6,945,206
Net realized gain (loss). . . . . . . . . . . . . . . . . . 52,607,235 5,783,402 (395,044) 309,825
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 76,594,230 61,966,017 (12,501,948) 2,193,617
-------------- -------------- -------------- -------------
Net increase (decrease) in net assets from operations . . . 125,065,322 66,297,171 (4,267,850) 9,448,648
-------------- -------------- -------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 24,016,712 23,152,380 9,701,880 10,363,995
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (36,550,023) (22,500,816) (13,783,618) (9,709,421)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (3,298,297) (2,796,974) (1,023,087) (929,739)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (158,010) (147,854) (41,373) (42,918)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 23,663,744 20,863,894 14,591,086 22,142,688
Other transfers from (to) the General Account . . . . . . . 1,857,336 3,452,255 (1,721,300) 2,166,365
-------------- -------------- -------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 9,531,462 22,022,885 7,723,588 23,990,970
-------------- -------------- -------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 134,596,784 88,320,056 3,455,738 33,439,618
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 453,196,739 364,876,683 166,274,896 132,835,278
-------------- -------------- -------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 587,793,523 $ 453,196,739 $ 169,730,634 $ 166,274,896
============== ============== ============== =============
<CAPTION>
MONEY MARKET EQUITY INDEX
------------------------------- ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ 7,983,654 $ 5,079,118 $ (2,175,820) $ (693,387)
Net realized gain (loss). . . . . . . . . . . . . . . . . . - - 7,417,406 11,505,568
Net unrealized gain (loss). . . . . . . . . . . . . . . . . - - 69,889,480 55,881,208
-------------- -------------- ------------- --------------
Net increase (decrease) in net assets from operations . . . 7,983,654 5,079,118 75,131,066 66,693,389
-------------- -------------- ------------- --------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 438,987,405 388,698,585 32,887,575 25,436,203
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (34,391,134) (15,069,288) (29,625,579) (13,594,962)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (1,483,815) (1,010,367) (2,868,514) (2,098,286)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (32,718) (24,514) (119,189) (84,863)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . (330,361,387) (364,921,954) 77,092,509 47,344,643
Other transfers from (to) the General Account . . . . . . . 25,859,621 38,477,265 6,152,084 7,492,994
-------------- -------------- ------------- --------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 98,577,972 46,149,727 83,518,886 64,495,729
-------------- -------------- ------------- --------------
Net increase (decrease) in net assets . . . . . . . . . . . 106,561,626 51,228,845 158,649,952 131,189,118
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 162,493,592 111,264,747 351,394,964 220,205,846
-------------- -------------- ------------- --------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 269,055,218 $162,493,592 $510,044,916 $351,394,964
============== ============== ============= ==============
<CAPTION>
GOVERNMENT BOND
-----------------------------
YEAR ENDED DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ 3,560,629 $ 2,493,711
Net realized gain (loss). . . . . . . . . . . . . . . . . . (566,090) 79,202
Net unrealized gain (loss). . . . . . . . . . . . . . . . . (3,996,251) 920,202
------------- -------------
Net increase (decrease) in net assets from operations . . . (1,001,712) 3,493,115
------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 8,933,342 9,387,842
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (7,188,109) (4,327,463)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (468,436) (646,947)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (14,843) (14,294)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 4,441,216 13,782,410
Other transfers from (to) the General Account . . . . . . . (1,546,231) 1,396,680
------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 4,156,939 19,578,228
------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 3,155,227 23,071,343
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 71,863,088 48,791,745
------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,018,315 $ 71,863,088
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT
AGGRESSIVE GROWTH SELECT GROWTH
------------------------------ --------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (4,908,535) $ (3,991,300) $ (5,252,749) $ (3,349,010)
Net realized gain (loss). . . . . . . . . . . . . . . . . . 10,735,234 1,315,125 17,063,861 3,910,913
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 107,103,552 28,554,242 88,659,011 73,132,113
------------- ------------- -------------- -------------
Net increase (decrease) in net assets from operations . . . 112,930,251 25,878,067 100,470,123 73,694,016
------------- ------------- -------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 18,504,192 21,281,666 24,842,639 22,206,826
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (25,549,834) (15,897,301) (26,571,683) (10,783,834)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (1,081,675) (842,853) (1,371,717) (896,543)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (127,147) (115,070) (111,678) (77,520)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 1,573,493 35,552,684 42,559,914 43,402,629
Other transfers from (to) the General Account . . . . . . . 1,244,022 3,919,867 4,876,229 6,310,988
------------- ------------- -------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . (5,436,949) 43,898,993 44,223,704 60,162,546
------------- ------------- -------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 107,493,302 69,777,060 144,693,827 133,856,562
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 315,969,300 246,192,240 323,201,346 189,344,784
------------- ------------- -------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 423,462,602 $ 315,969,300 $ 467,895,173 $ 323,201,346
============= ============= ============== =============
<CAPTION>
SELECT SELECT VALUE
GROWTH AND INCOME OPPORTUNITY
----------------------------- -------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (1,024,814) $ (438,542) $ (2,795,124) $ (955,786)
Net realized gain (loss). . . . . . . . . . . . . . . . . . 24,929,221 1,952,332 12,785,177 1,076,083
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 23,354,193 30,548,177 (21,271,499) 5,479,539
------------- -------------- ------------- --------------
Net increase (decrease) in net assets from operations . . . 47,258,600 32,061,967 (11,281,446) 5,599,836
------------- -------------- ------------- --------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 17,142,639 15,264,363 9,033,922 12,662,724
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (21,533,465) (11,976,840) (14,328,750) (8,295,446)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (2,866,072) (2,094,743) (630,503) (575,288)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (74,816) (65,775) (59,148) (59,441)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 35,114,290 26,940,573 10,800,586 22,459,345
Other transfers from (to) the General Account . . . . . . . 5,443,707 5,446,574 1,268,839 3,197,294
------------- -------------- ------------- --------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 33,226,283 33,514,152 6,084,946 29,389,188
------------- -------------- ------------- --------------
Net increase (decrease) in net assets . . . . . . . . . . . 80,484,883 65,576,119 (5,196,500) 34,989,024
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 270,396,174 204,820,055 200,577,152 165,588,128
------------- -------------- ------------- --------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 350,881,057 $ 270,396,174 $ 195,380,652 $ 200,577,152
============= ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT INTERNATIONAL SELECT CAPITAL
EQUITY APPRECIATION
------------------------------ ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (3,279,659) $ (61,946) $ (2,269,238) $ (1,821,358)
Net realized gain (loss). . . . . . . . . . . . . . . . . . 3,471,561 463,309 2,712,559 23,638,698
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 61,875,342 24,779,920 35,111,252 (5,203,690)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations . . . 62,067,244 25,181,283 35,554,573 16,613,650
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 11,344,784 13,306,352 8,595,028 9,353,854
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (14,712,183) (7,314,601) (11,932,699) (5,713,842)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (759,130) (685,709) (595,054) (419,195)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (69,281) (64,103) (50,131) (46,233)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 2,775,341 14,347,051 4,910,062 9,998,422
Other transfers from (to) the General Account . . . . . . . 1,417,921 2,330,088 1,368,660 1,818,486
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . (2,548) 21,919,078 2,295,866 14,991,492
------------- ------------- ------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 62,064,696 47,100,361 37,850,439 31,605,142
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 208,679,197 161,578,836 150,061,149 118,456,007
------------- ------------- ------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,743,893 $ 208,679,197 $ 187,911,588 $ 150,061,149
============= ============= ============= =============
<CAPTION>
DGPF FIDELITY VIP
INTERNATIONAL EQUITY HIGH INCOME
----------------------------- ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ 828,444 $ 2,232,442 $ 16,082,127 $ 9,750,617
Net realized gain (loss). . . . . . . . . . . . . . . . . . 3,456,926 524,782 (220,094) 7,946,249
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 11,844,338 6,030,154 (2,152,485) (29,941,145)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations . . . 16,129,708 8,787,378 13,709,548 (12,244,279)
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 4,614,436 6,454,592 11,140,024 16,334,143
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (8,759,974) (5,616,866 (17,342,745) (10,795,966)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (477,836) (369,791 (1,180,063) (1,097,609)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (34,245) (34,104 (59,343) (58,071)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . (3,009,304) 8,564,109 7,983,019 38,988,866
Other transfers from (to) the General Account . . . . . . . (1,443,372) 1,556,191 (1,197,799) 5,027,099
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . (9,110,295) 10,554,131 (656,907) 48,398,462
------------- ------------- ------------- --------------
Net increase (decrease) in net assets . . . . . . . . . . . 7,019,413 19,341,509 13,052,641 36,154,183
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 118,500,315 99,158,806 209,594,049 173,439,866
------------- ------------- ------------- --------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 125,519,728 $ 118,500,315 $ 222,646,690 $ 209,594,049
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-7
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
EQUITY-INCOME GROWTH
----------------------------- -------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (144,083) $ (744,651) $ (8,152,652) $ (4,433,739)
Net realized gain (loss). . . . . . . . . . . . . . . . . . 29,778,126 30,422,305 71,046,532 58,013,994
Net unrealized gain (loss). . . . . . . . . . . . . . . . . (1,182,641) 21,541,366 136,395,117 92,401,524
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations . . . 28,451,402 51,219,020 199,288,997 145,981,779
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 27,773,097 31,978,182 33,765,170 24,189,477
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (46,417,375) (31,513,789) (51,125,474) (27,468,965)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (2,971,372) (2,356,266) (2,589,245) (2,039,146)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (199,771) (203,860) (215,967) (191,465)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 21,098,544 24,052,204 63,466,803 5,764,814
Other transfers from (to) the General Account . . . . . . . 1,492,354 2,652,365 1,482,283 1,580,856
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 775,477 24,608,836 44,783,570 1,835,571
------------- ------------- ------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 29,226,879 75,827,856 244,072,567 147,817,350
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 584,131,775 508,303,919 534,367,174 386,549,824
------------- ------------- ------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 613,358,654 $ 584,131,775 $ 778,439,741 $ 534,367,174
============= ============= ============= =============
<CAPTION>
FIDELITY VIP FIDELITY VIP II
OVERSEAS ASSET MANAGER
----------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (32,736) $ 351,217 $ 2,080,759 $ 1,273,208
Net realized gain (loss). . . . . . . . . . . . . . . . . . 5,352,246 6,217,656 5,787,201 8,311,168
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 36,901,156 3,731,753 4,342,270 3,240,712
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations . . . 42,220,666 10,300,626 12,210,230 12,825,088
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 5,861,684 6,122,888 7,716,542 8,512,565
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (9,499,501) (6,424,320) (10,097,109) (5,321,586)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (321,424) (413,395) (461,585) (653,162)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (45,992) (46,447) (30,076) (23,772)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 4,693,132 4,525,206 18,710,626 18,036,934
Other transfers from (to) the General Account . . . . . . . (40,730) 534,379 504,270 2,193,311
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 647,169 4,298,311 16,342,668 22,744,290
------------- ------------- ------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 42,867,835 14,598,937 28,552,898 35,569,378
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 107,142,177 92,543,240 119,651,851 84,082,473
------------- ------------- ------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 150,010,012 $ 107,142,177 $ 148,204,749 $ 119,651,851
============= ============= ============= =============
<CAPTION>
T. ROWE PRICE
INTERNATIONAL STOCK
------------------------------
YEAR ENDED DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (1,026,145) $ (128,622)
Net realized gain (loss). . . . . . . . . . . . . . . . . . 3,366,692 624,973
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 27,606,832 10,425,832
------------- ------------
Net increase (decrease) in net assets from operations. . . 29,947,379 10,922,183
------------- ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 4,736,022 5,708,803
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (6,622,362) (3,090,733)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (437,587) (234,511)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (24,690) (21,793)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . (134,325) 7,450,376
Other transfers from (to) the General Account . . . . . . . 1,879,994 1,566,892
------------- ------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . (602,948) 11,379,034
------------- ------------
Net increase (decrease) in net assets . . . . . . . . . . . 29,344,431 22,301,217
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 95,437,324 73,136,107
------------- ------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 124,781,755 $ 95,437,324
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-8
<PAGE>
SEPARATE ACCOUNT VA-K
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Separate Account VA-K, which funds the Allmerica Advantage, ExecAnnuity Plus
and Allmerica Immediate Advantage 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 and twenty Sub-Accounts under the
Allmerica Immediate Advantage 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), a wholly-owned subsidiary of the Company; 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 (DGPF) managed by Delaware
International Advisers Ltd.; or of the T. Rowe Price International Series, Inc.
(T. Rowe Price) managed by 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.
Effective May 1, 2000, AIT Investment Grade Income Fund will be renamed
Select Investment Grade Income Fund and AIT Growth Fund will be renamed Core
Equity Fund.
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. 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 Internal Revenue Code (the Code) and files a
consolidated federal income tax return with First Allmerica. The Company
anticipates no tax liability resulting from the operations of Separate
Account VA-K. Therefore, no provision for income taxes has been charged against
Separate Account VA-K.
SA-9
<PAGE>
SEPARATE ACCOUNT VA-K
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Funds at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
------------------------------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
-------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Growth. . . . . . . . . . . . . . . . . . . . . 177,713,378 $ 418,243,148 $ 3.311
Investment Grade Income . . . . . . . . . . . . 161,495,814 178,408,995 1.051
Money Market. . . . . . . . . . . . . . . . . . 269,093,323 269,093,323 1.000
Equity Index. . . . . . . . . . . . . . . . . . 125,775,386 324,403,051 4.060
Government Bond . . . . . . . . . . . . . . . . 74,202,910 78,446,559 1.011
Select Aggressive Growth. . . . . . . . . . . . 124,146,869 234,758,538 3.411
Select Growth . . . . . . . . . . . . . . . . . 153,459,284 267,182,963 3.049
Select Growth and Income. . . . . . . . . . . . 181,751,787 261,454,424 1.933
Select Value Opportunity. . . . . . . . . . . . 128,457,987 188,265,674 1.521
Select International Equity . . . . . . . . . . 133,306,350 171,706,833 2.031
Select Capital Appreciation . . . . . . . . . . 91,530,497 139,405,749 2.053
DGPF International Equity . . . . . . . . . . . 6,737,569 93,854,254 18.630
Fidelity VIP High Income. . . . . . . . . . . . 19,685,873 231,278,049 11.310
Fidelity VIP Equity-Income. . . . . . . . . . . 23,857,224 439,346,743 25.710
Fidelity VIP Growth . . . . . . . . . . . . . . 14,171,696 419,450,253 54.930
Fidelity VIP Overseas . . . . . . . . . . . . . 5,467,025 92,916,124 27.440
Fidelity VIP II Asset Manager . . . . . . . . . 7,938,138 127,437,991 18.670
T. Rowe Price International Stock . . . . . . . 6,553,683 84,324,143 19.040
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum to Allmerica Advantage,
ExecAnnuity Plus and to Allmerica Immediate Advantage based on the average daily
net assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account of Allmerica Advantage,
ExecAnnuity Plus and Allmerica Immediate Advantage 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 Form A3018-94 (ExecAnnuity Plus), 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 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 the Company, 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. Allmerica Advantage and ExecAnnuity Plus contracts
have a contingent deferred sales charge and no deduction is made for sales
charges at the time of the sale.
SA-10
<PAGE>
SEPARATE ACCOUNT VA-K
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
--------------------------------------- --------------------------------------
UNITS AMOUNT UNITS AMOUNT
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Growth
Issuance of Units . . . . . . . . . . . . . 31,322,880 $ 118,251,467 35,414,157 $ 88,002,941
Redemption of Units . . . . . . . . . . . . (28,422,600) (108,720,005) (26,666,754) (65,980,056)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 2,900,280 $ 9,531,462 8,747,403 $ 22,022,885
================== ================== ================== =================
Investment Grade Income
Issuance of Units . . . . . . . . . . . . . 38,928,138 $ 62,414,120 40,947,469 $ 67,361,561
Redemption of Units . . . . . . . . . . . . (34,236,306) (54,690,532) (25,662,004) (43,370,591)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 4,691,832 $ 7,723,588 15,285,465 $ 23,990,970
================== ================== ================== =================
Money Market
Issuance of Units . . . . . . . . . . . . . 584,789,664 $ 725,476,037 480,585,830 $ 576,517,573
Redemption of Units . . . . . . . . . . . . (507,897,119) (626,898,065) (443,526,171) (530,367,846)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 76,892,545 $ 98,577,972 37,059,659 $ 46,149,727
================== ================== ================== =================
Equity Index
Issuance of Units . . . . . . . . . . . . . 55,764,065 $ 194,646,213 43,689,479 $ 125,016,046
Redemption of Units . . . . . . . . . . . . (31,745,632) (111,127,327) (21,378,757) (60,520,317)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 24,018,433 $ 83,518,886 22,310,722 $ 64,495,729
================== ================== ================== =================
Government Bond
Issuance of Units . . . . . . . . . . . . . 39,868,338 $ 57,035,078 36,235,069 $ 51,588,649
Redemption of Units . . . . . . . . . . . . (37,088,130) (52,878,139) (22,565,149) (32,010,421)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 2,780,208 $ 4,156,939 13,669,920 $ 19,578,228
================== ================== ================== =================
Select Aggressive Growth
Issuance of Units . . . . . . . . . . . . . 36,883,059 $ 100,664,989 41,209,415 $ 96,835,317
Redemption of Units . . . . . . . . . . . . (39,304,433) (106,101,938) (22,240,992) (52,936,324)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . (2,421,374) $ (5,436,949) 18,968,423 $ 43,898,993
================== ================== ================== =================
Select Growth
Issuance of Units . . . . . . . . . . . . . 49,096,616 $ 139,643,547 50,148,994 $ 113,239,811
Redemption of Units . . . . . . . . . . . . (33,162,768) (95,419,843) (23,786,903) (53,077,265)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 15,933,848 $ 44,223,704 26,362,091 $ 60,162,546
================== ================== ================== =================
Select Growth and Income
Issuance of Units . . . . . . . . . . . . . 41,070,387 $ 101,335,880 37,081,023 $ 77,642,713
Redemption of Units . . . . . . . . . . . . (27,750,086) (68,109,597) (21,516,678) (44,128,561)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 13,320,301 $ 33,226,283 15,564,345 $ 33,514,152
================== ================== ================== =================
Select Value Opportunity
Issuance of Units . . . . . . . . . . . . . 37,813,556 $ 70,885,921 32,164,349 $ 63,580,221
Redemption of Units . . . . . . . . . . . . (34,107,084) (64,800,975) (17,540,671) (34,191,033)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 3,706,472 $ 6,084,946 14,623,678 $ 29,389,188
================== ================== ================== =================
SA-11
<PAGE>
SEPARATE ACCOUNT VA-K
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
--------------------------------------- --------------------------------------
UNITS AMOUNT UNITS AMOUNT
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Select International Equity
Issuance of Units . . . . . . . . . . . . . 34,451,914 $ 59,813,091 37,484,996 $ 56,306,351
Redemption of Units . . . . . . . . . . . . (34,516,516) (59,815,639) (23,060,019) (34,387,273)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . (64,602) $ (2,548) 14,424,977 $ 21,919,078
================== ================== ================== ==============
Select Capital Appreciation
Issuance of Units . . . . . . . . . . . . . 26,842,924 $ 53,598,764 25,808,681 $ 42,819,894
Redemption of Units . . . . . . . . . . . . (25,758,043) (51,302,898) (16,692,015) (27,828,402)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . 1,084,881 $ 2,295,866 9,116,666 $ 14,991,492
================== ================== ================== ==============
DGPF International Equity
Issuance of Units . . . . . . . . . . . . . 15,808,205 $ 28,915,615 19,548,692 $ 32,754,499
Redemption of Units . . . . . . . . . . . . (20,690,476) (38,025,910) (13,404,183) (22,200,368)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . (4,882,271) $ (9,110,295) 6,144,509 $ 10,554,131
================== ================== ================== ==============
Fidelity VIP High Income
Issuance of Units . . . . . . . . . . . . . 29,297,659 $ 65,617,874 41,047,554 $ 91,158,751
Redemption of Units . . . . . . . . . . . . (29,628,016) (66,274,781) (19,562,695) (42,760,289)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . (330,357) $ (656,907) 21,484,859 $ 48,398,462
================== ================== ================== ==============
Fidelity VIP Equity-Income
Issuance of Units . . . . . . . . . . . . . 39,554,082 $ 130,745,589 40,370,670 $ 120,358,364
Redemption of Units . . . . . . . . . . . . (39,169,623) (129,970,112) (32,382,953) (95,749,528)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . 384,459 $ 775,477 7,987,717 $ 24,608,836
================== ================== ================== ==============
Fidelity VIP Growth
Issuance of Units . . . . . . . . . . . . . 47,966,342 $ 194,692,684 27,217,433 $ 81,585,030
Redemption of Units . . . . . . . . . . . . (36,713,176) (149,909,114) (26,419,759) (79,749,459)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . 11,253,166 $ 44,783,570 797,674 $ 1,835,571
================== ================== ================== ==============
Fidelity VIP Overseas
Issuance of Units . . . . . . . . . . . . . 15,850,862 $ 33,264,942 14,517,190 $ 25,690,826
Redemption of Units . . . . . . . . . . . . (16,082,430) (32,617,773) (12,153,924) (21,392,515)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . (231,568) $ 647,169 2,363,266 $ 4,298,311
================== ================== ================== ==============
Fidelity VIP II Asset Manager
Issuance of Units . . . . . . . . . . . . . 30,018,403 $ 53,424,410 27,248,291 $ 42,989,274
Redemption of Units . . . . . . . . . . . . (20,861,754) (37,081,742) (13,095,360) (20,244,984)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . 9,156,649 $ 16,342,668 14,152,931 $ 22,744,290
================== ================== ================== ==============
T. Rowe Price International Stock
Issuance of Units . . . . . . . . . . . . . 21,856,983 $ 32,448,759 22,433,345 $ 29,223,947
Redemption of Units . . . . . . . . . . . . (22,191,417) (33,051,707) (13,899,360) (17,844,913)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . (334,434) $ (602,948) 8,533,985 $ 11,379,034
================== ================== ================== ==============
</TABLE>
SA-12
<PAGE>
SEPARATE ACCOUNT VA-K
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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, 1999 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
-------------------- --------------- ---------------
<S> <C> <C>
Growth . . . . . . . . . . . . . . . . . . . . $ 77,621,443 $ 25,587,130
Investment Grade Income . . . . . . . . . . . 34,258,333 17,739,647
Money Market . . . . . . . . . . . . . . . . . 221,634,343 115,122,901
Equity Index . . . . . . . . . . . . . . . . . 102,791,841 20,280,449
Government Bond . . . . . . . . . . . . . . . 28,987,471 21,269,182
Select Aggressive Growth . . . . . . . . . . . 25,686,132 36,030,908
Select Growth. . . . . . . . . . . . . . . . . 64,316,389 13,004,936
Select Growth and Income . . . . . . . . . . . 64,611,446 9,608,131
Select Value Opportunity . . . . . . . . . . . 31,858,315 17,600,136
Select International Equity. . . . . . . . . . 11,678,795 14,961,612
Select Capital Appreciation. . . . . . . . . . 17,377,030 17,114,816
DGPF International Equity. . . . . . . . . . . 8,273,670 16,367,324
Fidelity VIP High Income . . . . . . . . . . . 34,768,712 18,622,522
Fidelity VIP Equity-Income . . . . . . . . . . 55,051,097 35,127,319
Fidelity VIP Growth. . . . . . . . . . . . . . 125,744,797 28,914,368
Fidelity VIP Overseas. . . . . . . . . . . . . 14,934,875 11,653,977
Fidelity VIP II Asset Manager. . . . . . . . . 31,231,512 7,755,748
T. Rowe Price International Stock. . . . . . . 10,245,120 10,458,723
--------------- ---------------
Totals . . . . . . . . . . . . . . . . . . . $ 961,071,321 $ 437,219,829
=============== ===============
</TABLE>
NOTE 8 - PLAN OF SUBSTITUTION FOR PORTFOLIO OF THE TRUST
An application has been filed with the Securities and Exchange Commission
(SEC) seeking an order approving the substitution of shares of the Select
Investment Grade Income Fund (SIGIF) for all of the shares of the Select Income
Fund (SIF). To the extent required by law, approvals of such substitution will
also be obtained from the state insurance regulators in certain jurisdictions.
The effect of the substitution will be to replace SIF shares with SIGIF shares.
The substitution is planned to be effective on or about July 1, 2000.
SA-13
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
Financial Statements Included in Part A
None
Financial Statements Included in Part B
Financial Statements for Allmerica Financial Life Insurance and
Annuity Company
Financial Statements for Separate Account VA-K of Allmerica Financial
Life Insurance and Annuity Company
Financial Statements Included in Part C
None
(B) EXHIBITS
EXHIBIT 1 Vote of Board of Directors Authorizing Establishment of
Registrant dated November 1, 1990 was previously filed on
April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 14, and is
incorporated by reference herein.
EXHIBIT 2 Not Applicable. Pursuant to Rule 26a-2, the Insurance
Company may hold the assets of the Registrant NOT pursuant
to a trust indenture or other such instrument.
EXHIBIT 3 (a) Underwriting and Administrative Services Agreement was
previously filed on April 24, 1998 in Registration
Statement No. 33-39702/811-6293, Post-Effective
Amendment No. 14, and is incorporated by reference
herein.
(b) Sales Agreements were previously filed on April 24,
1998 in Registration Statement No. 33-39702/811-6293,
Post-Effective Amendment No. 14, and are incorporated
by reference herein.
(c) General Agent's Agreement was previously filed on April
24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 14, and
is incorporated by reference herein.
(d) IVA Commission Schedule was previously filed on June
29, 1999 in Registrant's initial Registration Statement
No. 333-81861/811-6293 and is incorporated by reference
herein. Career Agent Agreement with Commission Schedule
was previously filed on April 24, 1998 in Registration
Statement No. 33-39702/811-6293, Post-Effective
Amendment No. 14, and is incorporated by reference
herein.
(e) Registered Representative's Agreement was previously
filed on April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 14, and
is incorporated by reference herein.
<PAGE>
EXHIBIT 4 Contract Form A3029-99 was previously filed on October 14,
1999 in Pre-Effective Amendment No. 1 of Registration
Statement No. 333-81861/811-6293 and is incorporated by
reference herein.
EXHIBIT 5 Application Form 10999 was previously filed on June 29, 1999
in Registrant's initial Registration Statement No.
333-81861/811-6293 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 Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 9, and are
incorporated by reference herein.
EXHIBIT 7 Not Applicable.
EXHIBIT 8 (a) Fidelity Service Agreement was previously filed on
April 30, 1996 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 11,
and is incorporated by reference herein.
(b) An Amendment to the Fidelity Service Agreement,
effective as of January 1, 1997, was previously filed
on April 2, 1997 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 12, and
is incorporated by reference herein.
(c) Fidelity Service Contract, effective as of January 1,
1997, was previously filed on April 2, 1997 in
Registration Statement No. 33-39702/811-6293,
Post-Effective Amendment No. 12, and is incorporated by
reference herein.
(d) T. Rowe Price Service Agreement was previously filed on
April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 14, and
is incorporated by reference herein.
(e) BFDS Agreements for lockbox and mailroom services were
previously filed on April 24, 1998 in Registration
Statement No. 33-39702/811-6293, Post-Effective
Amendment No. 14, and are incorporated by reference
herein.
(f) Directors' Power of Attorney 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 was
previously filed on October 14, 1999 in Pre-Effective
Amendment No. 1 of Registration Statement No.
333-81861/811-6293 and is incorporated by reference herein.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 (a) Participation Agreement with Allmerica Investment
Trust dated March 22, 2000 was previously filed in
April 2000 in Post-Effective Amendment No. 17 of
Registration Statement No. 33-39702/811-6293, and is
incorporated by reference herein.
<PAGE>
(b) Amendment dated March 29, 2000 and Amendment dated
November 13, 1998 to the Variable Products Fund
Participation Agreement were previously filed in April
2000 in Post-Effective Amendment No. 17 of Registration
Statement No. 33-39702/811-6293, and are incorporated
by reference herein. Participation Agreement, as
amended, with Variable Insurance Products Fund was
previously filed on April 24, 1998 in Registration
Statement No. 33-39702/811-6293, Post-Effective
Amendment No. 14, and is incorporated by reference
herein.
(c) Amendment dated March 29, 2000 and Amendment dated
November 13, 1998 to the Variable Products Fund II
Participation Agreement were previously filed in April
2000 in Post-Effective Amendment No. 17 of Registration
Statement No. 33-39702/811-6293, and are incorporated
by reference herein. Participation Agreement, as
amended, with Variable Insurance Products Fund II was
previously filed on April 24, 1998 in Registration
Statement No. 33-39702/811-6293, Post-Effective
Amendment No. 14, and is incorporated by reference
herein.
(d) Form of Amendment was previously filed in April 2000 in
Post-Effective Amendment No. 19 of Registration
Statement No. 33-44830/811-6293, and is incorporated by
reference herein. Participation Agreement with Delaware
Group Premium Fund and Amendment was previously filed
on April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 14, and
is incorporated by reference herein.
(e) Participation Agreement with T. Rowe Price
International Series, Inc. was previously filed on
April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 14, and
is incorporated by reference herein.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The Principal business address of all the following Directors and
Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<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 Secretary
Director (since 1992) of First Allmerica
Warren E. Barnes Vice President (since 1996) and Corporate Controller (since 1998) of First
Vice President and Allmerica
Corporate Controller
Mark R. Colborn Director (since 2000) and Vice President (since 1992) of First Allmerica
Director and Vice President
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.
<PAGE>
J. Kendall Huber Director, Vice President and General Counsel of First Allmerica (since
Director, Vice President and 2000); Vice President (1999) of Promos Hotel Corporation; Vice President &
General Counsel Deputy General Counsel (1998-1999) of Legg Mason, Inc.; Vice President and
Deputy General Counsel (1995-1998) of USF&G Corporation
John P. Kavanaugh Director and Chief Investment Officer (since 1996) and Vice President
Director, Vice President and (since 1991) of First Allmerica; Vice President (since 1998) of Allmerica
Chief Investment Officer Financial Investment Management Services, Inc.; and President (since 1995)
and Director (since 1996) of Allmerica Asset Management, 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), President
Director (since 1994) and Chief Executive Officer (since 1996) of Citizens Insurance
Company of America
Mark C. McGivney Vice President (since 1997) and Treasurer (since 2000) of First Allmerica;
Vice President and Treasurer Associate, Investment Banking (1996 -1997) of Merrill Lynch & Co.;
Associate, Investment Banking (1995) of Salomon Brothers, Inc.; Treasurer
(since 2000) of Allmerica Investments, Inc., Allmerica Asset Management,
Inc. and Allmerica Financial Investment Management Services, Inc.
John F. O'Brien Director, President and Chief Executive Officer (since 1989) of First
Director and Chairman Allmerica.
of the Board
Edward J. Parry, III Director and Chief Financial Officer (since 1996), Vice President (since
Director, Vice President 1993), and Treasurer (1993-2000) of First Allmerica
Chief Financial Officer
Richard M. Reilly Director (since 1996) and Vice President (since 1990) of First Allmerica;
Director, President and President (since 1995) of Allmerica Financial Life Insurance and Annuity
Chief Executive Officer Company; Director (since 1990) of Allmerica Investments, Inc.; and Director
and President (since 1998) of Allmerica Financial Investment Management
Services, Inc.
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First Allmerica; Director
Director (since 1998) of The Hanover Insurance Company; Chief Executive Officer
(1996 to 1998) of Travelers Property & Casualty; Senior Vice President
(1993 to 1996) of Aetna Life & Casualty Company
Eric A. Simonsen Director (since 1996) and Vice President (since 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
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
<PAGE>
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
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
<PAGE>
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
Financial Profiles 5421 Avenida Encinas Computer software company
Carlsbad, CA 92008
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
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>
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 29, 2000, there were 78,562 Contract holders of qualified
Contracts and 24,094 Contract holders of non-qualified Contracts.
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, Separate Account SPL-D,
Separate Account IMO, Select Account III, Inheiritage Account, Separate
Accounts VA-A, VA-B, VA-C, VA-G, VA-H, VA-K, VA-P, Allmerica Select
Separate Account II, Group VEL Account, Separate Account KG, Separate
Account KGC, Fulcrum Separate Account, Fulcrum Variable Life Separate
Account, and Allmerica Select Separate Account of Allmerica Financial
Life Insurance and Annuity Company
X Inheiritage Account, VEL II Account, Separate Account I, Separate
Account VA-K, Separate Account VA-P, Allmerica Select Separate
Account II, Group VEL Account, Separate Account KG, Separate
Account KGC, Fulcrum Separate Account, and Allmerica Select
Separate Account of First Allmerica Financial Life Insurance
Company.
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
<PAGE>
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
Margaret L. Abbott Vice President
Emil J. Aberizk, Jr Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Michael J. Brodeur Vice President Operations
Mark R. Colborn Vice President
Claudia J. Eckels Vice President
Mary M. Eldridge Secretary/Clerk
Philip L. Heffernan Vice President
J. Kendall Huber Director
Mark C. McGivney Treasurer
William F. Monroe, Jr. President, Director and Chief Executive Officer
David J. Mueller Vice President, Chief Financial Officer,
Financial Operations Principal and Controller
Stephen Parker Vice President and Director
Richard M. Reilly Director and Chairman of the Board
Eric A. Simonsen Director
Mark G. Steinberg Senior Vice President
(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 $38,326,089 for sales of variable contracts funded by
the Registrant in 1999. No other commissions or compensation was
received by the principal underwriter, directly or indirectly, from
the Registrant during the Registrant's last fiscal year.
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 statement 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.
<PAGE>
(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).
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.
<PAGE>
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 certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment to the 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 3rd day of April, 2000.
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
Post-Effective Amendment to the 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 April 3, 2000
- ------------------------------------
Warren E. Barnes
Edward J. Parry III* Director, Vice President and Chief Financial Officer
- ------------------------------------
Richard M. Reilly* Director, President and Chief Executive Officer
- ------------------------------------
John F. O'Brien* Director and Chairman of the Board
- ------------------------------------
Bruce C. Anderson* Director
- ------------------------------------
Mark R. Colborn* Director and Vice President
- ------------------------------------
John P. Kavanaugh* Director, Vice President and Chief Investment Officer
- ------------------------------------
J. Kendall Huber* 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 April 2, 2000 duly
executed by such persons.
/s/ Sheila B. St. Hilaire
- ------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
(333-81861)
<PAGE>
EXHIBIT TABLE
Exhibit 8(f) Directors' Power of Attorney
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
<PAGE>
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint Richard M. Reilly,
J. Kendall Huber, 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 4/2/2000
- --------------------------- --------
John F. O'Brien
/s/ Bruce C. Anderson Director 4/2/2000
- --------------------------- --------
Bruce C. Anderson
/s/ Mark R. Colborn Director and Vice President 4/2/2000
- --------------------------- --------
Mark R.Colborn
/s/ John P. Kavanaugh Director, Vice President and 4/2/2000
- --------------------------- Chief Investment Officer --------
John P. Kavanaugh
/s/ J. Kendall Huber Director, Vice President and 4/2/2000
- --------------------------- General Counsel --------
J. Kendall Huber
/s/ J. Barry May Director 4/2/2000
- --------------------------- --------
J. Barry May
/s/ James R. McAuliffe Director 4/2/2000
- --------------------------- --------
James R. McAuliffe
/s/ Edward J. Parry, III Director, Vice President, and Chief Financial 4/2/2000
- --------------------------- Officer --------
Edward J. Parry, III
/s/ Richard M. Reilly Director, President and 4/2/2000
- --------------------------- Chief Executive Officer --------
Richard M. Reilly
/s/ Robert P. Restrepo, Jr. Director 4/2/2000
- --------------------------- --------
Robert P. Restrepo, Jr.
/s/ Eric A. Simonsen Director and Vice President 4/2/2000
- --------------------------- --------
Eric A. Simonsen
</TABLE>
<PAGE>
April 14, 2000
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
RE: SEPARATE ACCOUNT VA-K OF ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY
FILE NOS.: 333-81861 AND 811-6293
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 Post-Effective Amendment to the Registration
Statement for Separate Account VA-K on Form N-4 under the Securities Act of
1933 and 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 Post-Effective Amendment 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
Post-Effective Amendment 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 Post-Effective Amendment No. 1 to the Registration
Statement of Separate Account VA-K of Allmerica Financial Life Insurance and
Annuity Company on Form N-4 of our report dated February 1, 2000, relating to
the financial statements of Allmerica Financial Life Insurance and Annuity
Company, and our report dated April 3, 2000, relating to the financial
statements of Separate Account VA-K 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
April 18, 2000
