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File Number 33-44830
811-6293
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
----
Post-Effective Amendment No. 11
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 24
SEPARATE ACCOUNT VA-K OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Exact Name of Trust)
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
(Registrant's telephone number including area code)
Abigail M. Armstrong, Secretary and Counsel
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, Massachusetts 01653
(Name and complete address of agent for service)
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (1)
_X_ on July 8, 1996 pursuant to paragraph (a) (1)
___ on (date) pursuant to paragraph (a) (2) of Rule 485
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is being
registered under the Securities Act of 1933. The Rule 24f-2 Notice for the
issuer's fiscal year ended December 31, 1995 was filed on February 29, 1996.
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
1. . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . "Special Terms"
3. . . . . . . . . . . . . . "Summary"; "Annual and Transaction Expenses"
4. . . . . . . . . . . . . . "Condensed Financial Information"
5. . . . . . . . . . . . . . Prospectus A: "Description of the Company, the
Separate Account and the Fund" Prospectus B:
Description of the Company, the Variable
Account and Delaware Group Premium Fund, Inc.
6. . . . . . . . . . . . . . "Charges and Deductions:
7. . . . . . . . . . . . . . Prospectus A: "The Variable Annuity Policies"
Prospectus B: "The Variable Annuity Contracts"
8. . . . . . . . . . . . . . Prospectus A: "The Variable Annuity Policies"
Prospectus B: "The Variable Annuity Contracts"
9. . . . . . . . . . . . . . "Death Benefit"
10 . . . . . . . . . . . . . Prospectus A: "Purchase Payments"; "Computation
of Policy Values and Annuity Payments"
Prospectus B: "Purchase Payments";
"Computation of Contract Values and Annuity
Benefit Payments"
11 . . . . . . . . . . . . . "Surrender"; "Partial Redemption"
12 . . . . . . . . . . . . . "Federal Tax Considerations"
13 . . . . . . . . . . . . . "Legal Matters"
14 . . . . . . . . . . . . . "Table of Contents of the Statement of
Additional Information"
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ----------------- ----------------------------------------------
15 . . . . . . . . . . . . . "Cover Page"
16 . . . . . . . . . . . . . "Table of Contents"
17 . . . . . . . . . . . . . "General Information and History"
18 . . . . . . . . . . . . . "Services"
19 . . . . . . . . . . . . . "Underwriters"
20 . . . . . . . . . . . . . "Underwriters"
21 . . . . . . . . . . . . . "Performance Information"
22 . . . . . . . . . . . . . "Annuity Payments"
23 . . . . . . . . . . . . . "Financial Statements"
<PAGE>
PROSPECTUS A
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
INDIVIDUAL VARIABLE ANNUITY POLICIES FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-K
INVESTING IN SHARES OF DELAWARE GROUP PREMIUM FUND, INC.
This Prospectus describes individual variable annuity policies and group
variable annuity policies including certificates issued thereunder ("Policies")
offered by Allmerica Financial Life Insurance and Annuity Company ("Company") to
individuals and businesses in connection with retirement plans which may or may
not qualify for special federal income tax treatment. (For information about the
tax status when used with a particular type of plan, see "FEDERAL TAX
CONSIDERATIONS.") The following is a summary of information about these
Policies. More detailed information can be found under the referenced captions
in this Prospectus.
This Prospectus generally describes only the variable accumulation and variable
annuity aspects of the Policies, except where fixed values or fixed annuity
payments are specifically mentioned. ALLOCATIONS TO AND TRANSFERS TO AND FROM
THE GENERAL ACCOUNT OF THE COMPANY ARE NOT PERMITTED IN CERTAIN STATES. Certain
additional information about the Policies is contained in a Statement of
Additional Information, dated April 30, 1996, as may be amended from time
to time, which has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Table of Contents for the Statement of
Additional Information is listed on page 3 of this Prospectus. The Statement of
Additional Information is available upon request and without charge. To obtain
the Statement of Additional Information, fill out and return the attached
request card or contact Allmerica Financial Life Insurance and Annuity Company,
Customer Services, Allmerica Financial Life Insurance and Annuity Company, 440
Lincoln Street, Worcester, Massachusetts 01653.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
DELAWARE GROUP PREMIUM FUND, INC.
INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE POLICIES ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY AND ARE DISTRIBUTED BY, ALLMERICA INVESTMENTS, INC. THE
POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK OR CREDIT UNION. THE POLICIES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY.
INVESTMENTS IN THE CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE
FLUCTUATION OF VALUE AND POSSIBLE LOSS OF PRINCIPAL.
DATED APRIL 30, 1996
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TABLE OF CONTENTS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION. . . . . . . . . 3
SPECIAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ANNUAL AND TRANSACTION EXPENSES . . . . . . . . . . . . . . . . . . . . . . . 7
CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 8
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
WHAT IS AN ANNUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY . . . . . . . . . . . . . . . . 10
STATE RIGHT TO REVOKE OR SURRENDER . . . . . . . . . . . . . . . . . . . . . 10
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND THE FUND . . . . . . . . 11
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
A. Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . . . . 13
B. Premium Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
C. Policy Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
D. Annual Charge Against Separate Account Assets . . . . . . . . . . . . 15
THE VARIABLE ANNUITY POLICIES . . . . . . . . . . . . . . . . . . . . . . . . 16
A. Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 16
B. Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . . 17
C. Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
D. Partial Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 17
E. Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
F. The Spouse of the Policy Owner as Beneficiary . . . . . . . . . . . . 19
G. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
H. Electing the Form of Annuity and Annuity Date . . . . . . . . . . . . 19
I. Description of Variable Annuity Options . . . . . . . . . . . . . . . 19
J. Norris Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
K. Computation of Policy Values and Annuity Payments . . . . . . . . . . 20
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<PAGE>
TABLE OF CONTENTS (CONTINUED)
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 21
A. Qualified and Non-Qualified Policies . . . . . . . . . . . . . . . . . 22
B. Taxation of the Policies in General. . . . . . . . . . . . . . . . . . 22
C. Tax Withholding and Penalties . . . . . . . . . . . . . . . . . . . . 23
D. Provisions Applicable to Qualified Employee Benefit Plans. . . . . . . 23
E. Qualified Employee Pension and Profit Sharing Trusts
and Qualified Annuity Plans . . . . . . . . . . . . . . . 23
F. Self-Employed Individuals . . . . . . . . . . . . . . . . . . . . . . 23
G. Individual Retirement Account Plans . . . . . . . . . . . . . . . . . 23
H. Simplified Employee Pensions . . . . . . . . . . . . . . . . . . . . . 24
I. Public School Systems and Certain Tax-Exempt Organizations . . . . . . 24
J. Texas Optional Retirement Program . . . . . . . . . . . . . . . . . . 24
K. Section 457 Plans for State Governments and Tax-Exempt Entities . . . 24
L. Non-Individual Owners . . . . . . . . . . . . . . . . . . . . . . . . 25
REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CHANGES IN OPERATIONS OF THE SEPARATE ACCOUNT . . . . . . . . . . . . . . . . 25
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
FURTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
APPENDIX A - MORE INFORMATION ABOUT THE GENERAL ACCOUNT . . . . . . . . . . . 25
APPENDIX B - INFORMATION APPLICABLE ONLY TO POLICY NO. A3019-92
(AND STATE VARIATIONS). . . . . . . . . . . . . . . . . . . . . . . . . . 26
APPENDIX C - EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . 26
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY . . . . . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY. . . . . . . . . . . . . . . 3
SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
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<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the General Account of the
Company then credited to the Policy, on any date before the date annuity
payments are to begin.
ACCUMULATION UNIT: a measure of the Policy Owner's interest in a Subaccount
before annuity payments begin.
ANNUITANT: the person designated in the Policy to whom the Annuity is to be
paid.
ANNUITY DATE: the date on which annuity payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity payments under the
Policy.
FIXED AMOUNT ANNUITY: an Annuity providing for payments which remain fixed in
amount throughout the annuity payment period.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate investment account.
POLICY OWNER: the owner of a Policy who may exercise all rights under the
Policy, subject to the consent of any irrevocable beneficiary. After the Annuity
Date, the Annuitant will be the Policy Owner.
SEPARATE ACCOUNT: Separate Account VA-K of the Company. Separate Account VA-K
consists of assets segregated from other assets of the Company. The investment
performance of the assets of the Separate Account is determined separately from
the other assets of the Company. The assets of the Separate Account are not
chargeable with liabilities arising out of any other business which the Company
may conduct.
SUBACCOUNT: a subdivision of Separate Account VA-K. Each Subaccount available
under the Policies invests exclusively in the shares of a corresponding
investment series of Delaware Group Premium Fund, Inc.
SURRENDER VALUE: the Accumulated Value of the Policy minus any Policy fee and
contingent deferred sales charge applicable upon surrender.
UNDERLYING SERIES: the Equity/Income Series, High Yield Series, Capital
Reserves Series, Money Market Series, Growth Series, Multiple Strategy Series,
Value Series, Emerging Growth Series, the International Equity Series of
Delaware Group Premium Fund, Inc., and Global Bond Series.
VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Series is determined and Unit values of the Subaccounts are
determined. Valuation dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Policy was
received) when there is a sufficient degree of trading in an Underlying Series
portfolio securities such that the current net asset value of the Subaccounts
may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
VARIABLE ANNUITY: an Annuity providing for payments varying in amount in
accordance with the investment experience of certain Underlying Series.
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<PAGE>
SUMMARY
INVESTMENT OPTIONS. The Policies permit net purchase payments to be allocated
among Subaccounts available under the Policies, which are subdivisions of
Separate Account VA-K ("Separate Account"), a separate account of the Company,
and, where available, a fixed interest account ("General Account") of the
Company (together "accounts"). The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended, (the
"1940 Act") but such registration does not involve the supervision of the
management or investment practices or policies of the Separate Account by the
Securities and Exchange Commission (the "SEC"). For information about the
Separate Account and the Company, see "DESCRIPTION OF THE COMPANY, THE SEPARATE
ACCOUNT, AND THE FUND." For more information about the General Account see
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Each Subaccount available under the Policies invests its assets without sales
charge in a corresponding investment series of the Delaware Group Premium Fund,
Inc. (the "Fund"). The Fund is an open-end, diversified series investment
company. The Fund consists of nine different series: the Equity/Income Series,
High Yield Series, Capital Reserves Series, Money Market Series, Growth Series,
Multiple Strategy Series, Value Series, Emerging Growth Series and International
Equity Series ("Underlying Series"). Each Underlying Series operates pursuant to
different investment objectives, discussed below.
INVESTMENT IN THE SUBACCOUNTS. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Series.
There can be no assurance that the investment objectives of the Underlying
Series can be achieved or that the value of a Policy will equal or exceed the
aggregate amount of the purchase payments made under the Policy. For more
information about the investments of the Underlying Series, see "DESCRIPTION OF
THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUND." The accompanying prospectus
of the Fund describes the investment objectives and risks of each of the
Underlying Series.
Dividends or capital gains distributions received from an Underlying Series are
reinvested in additional shares of that Underlying Series, which are retained as
assets of the Subaccount.
TRANSFERS AMONG ACCOUNTS. Prior to the Annuity Date, the Policies permit amounts
to be transferred among the Subaccounts and, where available, between the
General Account and the Subaccounts, subject to certain limitations described
under "Transfer Privilege."
ANNUITY PAYMENTS. The Policy Owner may select variable annuity payments based on
certain Subaccounts, fixed-amount annuity payments, or a combination of
fixed-amount and variable annuity payments. Fixed-amount annuity payments are
guaranteed by the Company.
See "THE VARIABLE ANNUITY POLICIES" for information about annuity payment
options, selecting the Annuity Date, and how annuity payments are calculated.
REVOCATION RIGHTS. An individual purchasing a Policy intended to qualify as an
Individual Retirement Annuity ("IRA") may revoke the Policy at any time between
the date of the application and the date 10 days after receipt of the Policy. In
certain states any Policy owner may have special revocation rights. For more
information about revocation rights, see "RIGHT TO REVOKE INDIVIDUAL RETIREMENT
ANNUITY" and "STATE RIGHT TO REVOKE OR SURRENDER."
PAYMENT MINIMUMS AND MAXIMUMS. Under the Policies, purchase payments are not
limited as to frequency and number, but no payments may be submitted within one
month of the Annuity Date. Generally, the initial purchase payment must be at
least $600 and subsequent payments must be at least $50. Under a monthly
automatic payment plan or a payroll deduction plan, each purchase payment must
be at least $50. However, in cases where the contribution on behalf of an
employee under an employer-sponsored retirement plan is less than $600 but more
than $300 annually, the Company may issue a Policy on the employee, if the
plan's average annual contribution per eligible plan participant is at least
$600.
The Company reserves the right to set maximum limits on the aggregate purchase
payments made under the Policy. In addition, the Internal Revenue Code imposes
maximum limits on contributions under qualified annuity plans.
CHARGES AND DEDUCTIONS. For a complete discussion of charges, see "CHARGES AND
DEDUCTIONS."
A. CONTINGENT DEFERRED SALES CHARGE. No sales charge is deducted from purchase
payments at the time the payments are made. However, depending on the length of
time that the payments to which the withdrawal is attributed have remained
credited under the Policy a contingent deferred sales charge of up to 7% may be
assessed for a surrender, partial redemption, or election of any commutable
period certain option or a noncommutable period certain for less than 10 years.
B. ANNUAL POLICY FEE. A Policy Fee equal to $30 will be deducted from the
Accumulated Value under the Policy for administrative expense on the policy
anniversary, or upon full surrender of the Policy during the year, when the
Accumulated Value is $50,000 or less. The Policy Fee is currently waived for
policies issued to a trustee of a 401(k) plan, but the Company reserves the
right to impose the Policy Fee on such policies.
C. PREMIUM TAXES. A deduction for State and local premium taxes, if any, may be
made as described under "Premium Taxes." Premium taxes may range from 0 to
3.5%.
D. SEPARATE ACCOUNT ASSET CHARGES. A daily charge, equivalent to 1.25% per
annum, is made on the value of each Subaccount at each Valuation Date. The
charge is retained for the mortality and expense risks the Company assumes. In
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<PAGE>
addition, to cover administrative expenses, the Company deducts a daily charge
of 0.15% per annum of the value of the average net assets in the Subaccounts
available under the Policies.
E. TRANSFER CHARGE. The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Policy year will be free
of charge. For the thirteenth and each subsequent transfer, the Company reserves
the right to assess a charge, guaranteed never to exceed $25, to reimburse the
Company for the costs of processing the transfer.
F. CHARGES OF THE UNDERLYING SERIES. In addition to the charges described
above, certain fees and expenses are deducted from the assets of the Underlying
Series. These charges vary among the Underlying Series, and may range from an
annual rate of 0.80% to an annual rate of 2.00% of average daily net assets.
SURRENDER OR PARTIAL REDEMPTION. At any time before the Annuity Date, the Policy
Owner has the right either to surrender the Policy in full and receive its
current value, minus the Policy Fee and any applicable contingent deferred sales
charge, or to redeem a portion of the Policy's value subject to certain limits
and any applicable contingent deferred sales charge. There may be tax
consequences for surrender or redemptions. For further information, see
"Surrender" and "Partial Redemption," "Contingent Deferred Sales Charge," and
"FEDERAL TAX CONSIDERATIONS."
DEATH BENEFIT. If the Annuitant or Policy Owner should die before the Annuity
Date, a death benefit will be paid to the beneficiary. Upon death of the
Annuitant, the death benefit is equal to the greatest of (a) the Accumulated
Value under the Policy, or (b) the sum of the gross payment(s) made under the
Policy reduced proportionally to reflect all partial redemptions, or (c) the
death benefit that would have been payable on the most recent fifth year Policy
Anniversary, increased for subsequent purchase payments and reduced
proportionally to reflect withdrawals after that date. Upon death of the Policy
Owner, the death benefit is equal to the Accumulated Value of the Policy.
SALES OF POLICIES. The Policies are sold by agents of the Company who are
authorized by applicable law to sell variable annuity policies. These agents are
registered representatives of broker-dealers which are members of the National
Association of Securities Dealers, Inc. See "Sales Expense."
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<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Policy Owner in
understanding the various costs and expenses that a Policy Owner will bear
directly or indirectly under the Policies. The tables reflect charges under the
Policies, expenses of the Subaccounts, and expenses of the Underlying Series. In
addition to the charges and expenses described below, in some states premium
taxes may be applicable.
Policy Year
after date of
POLICY OWNER TRANSACTION EXPENSES Purchase Payment Charge
Contingent Deferred Sales Charge
The charge (as a percentage of payments, 0-3 7%
applied to the amount surrendered in 4 6%
excess of the amount, if any, which may 5 5%
be surrendered free of charge) will be 6 4%
assessed upon surrender, redemption, or 7 3%
annuitization under any commutable period
certain option or a noncommutable period
centain less than 10 years.
Transfer Charge None
The Company currently makes no charge for
transfers. The Company guarantees that the
$30 first twelve transfers in a Policy year
will be free of charge. For the thirteenth
and each subsequent transfer, the Company
reserves the right to assess a charge,
guaranteed never to exceed $25, to reimburse
the Company for the costs of processing the
transfer.
ANNUAL POLICY FEE
An annual Policy Fee, equal to $30, is $30
deducted when Accumulated Value is
$50,000 or less. The Policy Fee is
currently waived for policies issued to a
trustee of a 401(k) plan, but the Company
reserves the right to impose the Policy
Fee on such policies.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees
1.25%
Separate Account Administrative Charge
0.15%
Total Annual Expenses -----
1.40%
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<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.
<TABLE>
<CAPTION>
SERIES ANNUAL EXPENSES Equity/ High Capital Money Growth Multiple Value Emerging Int'l Global
Income Yield Reserves Market Strategy Growth equity Bond
<S> <C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.60% 0.60% 0.60% 0.50% 0.70% 0.60% 0.59% 0.59% 0.66% 0.75%
Other Series Expenses 0.09% 0.09% 0.11% 0.12% 0.15% 0.09% 0.21% 0.21% 0.14% n/a
Total Series Annual Expenses 0.69% 0.69% 0.71% 0.62% 0.85% 0.69% 0.80% 0.80% 0.80% 0.80%
(After Expense Reimbursement)
</TABLE>
The investment adviser for the Equity/Income, High Yield, Capital Reserves,
Money Market, Growth, Multiple Strategy, Value and Emerging Growth is Delaware
Management Company, Inc. The Investment Adviser for the International Equity
Series is Delaware International Advisers Ltd. The investment advisers from the
Series of the Fund have agreed voluntarily to waive their management fees and
reimburse each Series to limit certain expenses to 8/10 of 1% of the average
daily net assets. This waiver will be in effect through June 30, 1996. For the
fiscal year ended December 31, 1995, before waiver and/or reimbursement by the
investment adviser, total Series expenses as a percentage of average daily net
assets were 0.85% for the Growth Series, 0.96% for the Value Series, 0.96% for
the Emerging Growth Series and 0.89% for the International Equity Series. The
Global Bond Series will be available May 1, 1996.
The following Examples demonstrate the cumulative expenses which would be paid
by the Policy Owner at 1-year, 3-year, 5-year, and 10-year intervals under
certain contingencies. Each Example assumes a $1,000 investment in a Subaccount
and a 5% annual return on assets. Because the expenses of the Underlying Series
differ, separate Examples are used to illustrate the expenses incurred by a
Policy Owner on an investment in the various Subaccounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
(a) If you surrender your policy or annuitize* under a commutable period
certain option or an noncommutable period certain option of less than 10
years at the end of the applicable period, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 3 5 10 years
year years years
<S> <C> <C> <C> <C>
Equity/Income $87 $137 $168 $253
High Yield $87 $138 $168 $254
Capital Reserves $87 $138 $169 $256
Money Market $87 $136 $165 $248
Growth $88 $140 $173 $263
Multiple Strategy $87 $137 $167 $252
Value $88 $140 $173 $263
Emerging Growth $88 $140 $173 $263
Int'l Equity $88 $140 $173 $263
Global Bond $88 $140 $173 $263
</TABLE>
(b) If you annuitize* under a life option or any noncommutable period certain
option of 10 years or more at the end of the applicable time period or if
you do NOT surrender or annuitize your policy, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 3 5 10 years
year years years
<S> <C> <C> <C> <C>
Equity/Income $22 $69 $118 $253
High Yield $22 $69 $118 $254
Capital Reserves $23 $70 $119 $256
Money Market $22 $67 $115 $248
Growth $23 $72 $123 $263
Multiple Strategy $22 $69 $117 $252
Value $23 $72 $123 $263
Emerging Growth $23 $72 $123 $263
Int'l Equity $23 $72 $123 $263
Global Bond $23 $72 $123 $263
</TABLE>
Pursuant to requirements of the 1940 Act, the policy fee has been reflected in
the Examples by a method intended to show the "average" impact of the policy fee
on an investment in the Separate Account. The total policy fees collected under
the Policies by the Company are divided by the total average net assets
attributable to the Policies. The resulting percentage is 0.09%, and the amount
of the policy fee is assumed to be $.90 in the Examples. The Policy Fee is
deducted only when the accumulated value is $50,000 or less.
* The policy fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any policy year under
an option including a life contingency or under any noncommutable period certain
option of 10 years or more.
CONDENSED FINANCIAL INFORMATION
Allmerica Financial Life Insurance and Annuity Company
Separate Account VA-K
<TABLE>
<CAPTION>
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
SUBACCOUNT 201
Net Asset Value:
Beginning of Period 1.178 1.197 1.051 1.000
End of Period 1.582 1.178 1.197 1.051
Number of Units 48,305 38,591 25,086 4,208
Outstanding at End of
Period (in thousands)
SUBACCOUNT 202
Net Asset Value
Beginning of Period 1.164 1.214 1.058 1.000
End of Period 1.326 1.164 1.214 1.058
Number of Units 37,818 31,735 22,281 4,571
Outstanding at End of
Period (in thousands)
SUBACCOUNT 203
Net Asset Value
Beginning of Period 1.075 1.120 1.053 1.000
End of Period 1.209 1.075 1.120 1.053
Number of Units 19,818 20,476 16,752 3,828
Outstanding at End of
Period (in thousands)
SUBACCOUNT 204
Net Asset Value
Beginning of Period 1.044 1.021 1.010 1.000
End of Period 1.087 1.044 1.021 1.010
Number of Units 11,568 13,998 5,483 1,387
Outstanding at End of
Period (in thousands)
SUBACCOUNT 205
Net Asset Value:
Beginning of Period 1.121 1.178 1.070 1.000
End of Period 1.432 1.121 1.178 1.070
Number of Units 35,204 29,100 20,802 4,534
Outstanding at End of
Period (in thousands)
SUBACCOUNT 206
Net Asset
Value:
Beginning of Period 1.133 1.150 1.078 1.000
End of Period 1.414 1.133 1.150 1.078
Number of Units 37,203 33,332 22,046 3,145
Outstanding at End of
Period (in thousands)
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
SUBACCOUNT 207
Unit Value:
Beginning of Period 1.159 1.144 1.000 1.000
End of Period 1.301 1.159 1.144 1.000
Number of Units 21,612 18,761 6,139 182
Outstanding at End of
Period (in thousands)
SUBACCOUNT 208
Unit Value:
Beginning of Period 0.994 1.000 1.000 ---
End of Period 1.214 0.994 1.000 ---
Number of Units 9,467 6,040 6 ---
Outstanding at End of
Period (in thousands)
SUBACCOUNT 209
Unit Value:
Beginning of Period 0.989 1.007 1.000 ---
End of Period 1.358 0.989 1.007 ---
Number of Units 13,440 6,197 50 ---
Outstanding at End of
Period (in thousands)
SUBACCOUNT 210
Unit Value:
Beginning Period 1.000 --- --- ---
End of Period 1.000 --- --- ---
Number of Units
Outstanding at End of 0 --- ---
Period (inthousands)
</TABLE>
* The dates of inception of Subaccounts 201-206 were 4/8/92. The date of
inception of Subaccount 207 was 10/7/92. The dates of inception of
Subaccounts 208 and 209 were 12/30/93 and 12/31/93, respectively.
The date of inception for Subaccount 210 was 4/30/94.
PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1992. However, the Company
may advertise "Total Return" and "Average Total Return" performance
information based on the periods that the Underlying Funds have been in
existence. The results for any period prior to the Contracts being offered
will be calculated as if the Contracts had been offered during that period of
time, with all charges assumed to be those applicable to the Sub-Accounts and
the Underlying Funds.
The "total return" of a Subaccount refers to the total of the income generated
by an investment in the Subaccount and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Separate Account charges, and expressed as a
percentage of the investment.
The "yield" of the Subaccount investing in the Money Market Series of the Fund
refers to the income generated by an investment in the Subaccount over a seven-
day period (which period will be specified in the advertisement). This income is
then "annualized" by assuming that the income generated in the specific week is
generated over a 52-week period. This annualized yield is shown as a percentage
of the investment. The "effective yield" calculation is similar, but when
annualized , the income earned by an investment in the Subaccount is assumed to
be reinvested. Thus the "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect the
Subaccount's asset charges. The total return figures also reflect the $30 annual
Policy Fee and the contingent deferred sales load which would be assessed if the
investment were completely redeemed at the end of the specified period.
The Company may also advertise supplemental total return performance
information. Supplemental total return refers to the total income generated by
an investment in the Subaccount and the changes of value of the principal
invested (due to realized and unrealized capital gains or losses), adjusted by
the annual asset charges and expressed as a percentage of the investment.
Because it is assumed that the investment is NOT redeemed at the end of the
specified period, the contingent deferred sales load is NOT included in the
calculation.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Subaccount
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Subaccount. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of a
hypothetical investment in the Subaccount during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the portfolio of the Underlying Series in which the Subaccount invests and
the market conditions during the given time period, and should not be considered
as a representation of what may be achieved in the future.
-9-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(Assuming COMPLETE redemption of the investment)
Total Return for 10 Years
NAME year ended 3 years 5 years or since
12/31/95 Inception
<S> <C> <C> <C> <C>
International Equity 5.32% 7.16% N/A 7.06%
Value 15.15% N/A N/A 6.93%
Emerging Growth 30.32% N/A N/A 13.43%
Growth 20.77% 8.22% N/A 8.97%
Multiple Strategy 17.85% 7.49% N/A 10.47%
Equity Income 27.27% 12.78% N/A 8.35%
High Yield 6.92% 5.74% N/A 8.29%
Capital Reserves 5.51% 2.55% N/A 5.65%
Money Market -2.53% 0.24% N/A 3.66%
Global Bond N/A N/A N/A N/A
</TABLE>
The dates of inception of the Underlying Funds are: 7/28/88 for Multiple
Strategy, Equity Income, High Yield, Capital Reserves, and Money Market; 7/12/91
for Growth; 1/29/92 for International Equity; 12/27/93 for Emerging Growth and
Value; 4/30/96 for Global Bond.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(Assuming NO redemption of the investment)
Total Return for 10 Years
NAME year ended 3 years 5 years or since
12/31/95 Inception
<S> <C> <C> <C> <C>
International Equity 12.32% 9.16% N/A 8.66%
Value 22.15% N/A N/A 10.14%
Emerging Growth 37.32% N/A N/A 16.47%
Growth 27.77% 10.18% N/A 9.77%
Multiple Strategy 24.85% 9.47% N/A 10.47%
Equity Income 34.27% 14.59% N/A 8.35%
High Yield 13.92% 7.78% N/A 8.29%
Capital Reserves 12.51% 4.72% N/A 5.65%
Money Market 4.03% 2.44% N/A 3.68%
Global Bond N/A N/A N/A N/A
</TABLE>
The dates of inception of the Underlying Funds are: 7/28/88 for Multiple
Strategy, Equity Income, High Yield, Capital Reserves, and Money Market; 7/12/91
for Growth; 1/29/92 for International Equity; 12/27/93 for Emerging Growth and
Value; 4/30/96 for Global Bond.
WHAT IS AN ANNUITY?
In general, an annuity is a policy designed to provide a retirement income in
the form of monthly payments for the lifetime of the purchaser or an
individual chosen by the purchaser. The retirement income payments are
called "annuity payments," and the individual receiving the payments is
called the "Annuitant." Annuity payments may begin immediately after a lump
sum purchase is made or may begin after an investment period during which the
amount necessary to provide the desired amount of retirement income is
accumulated.
Under an annuity policy, the insurance company assumes a mortality risk and
an expense risk. The mortality risk arises from the insurance company's
guarantee that annuity payments will continue for the life of the Annuitant,
regardless of how long the Annuitant lives or how long all Annuitants as a
group live. The expense risk arises from the insurance company's guarantee
that charges will not be increased beyond the limits specified in the policy,
regardless of actual costs of operations.
The Policy Owner's purchase payments, less any applicable deductions, are
invested by the insurance company. After retirement, annuity payments are
paid to the Annuitant for life or for such other period chosen by the Policy
Owner. In the case of a "fixed" annuity, the value of these annuity payments
is guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more
information about fixed annuities see APPENDIX A, "MORE INFORMATION ABOUT THE
GENERAL ACCOUNT."
With a variable annuity, the value of the Policy and the annuity payments
are not guaranteed but will vary depending on the investment performance of a
portfolio of securities. Any investment gains or losses are reflected in the
value of the Policy and in the annuity payments. If the portfolio increases
in value, the value of the Policy increases. If the portfolio decreases in
value, the value of the Policy decreases.
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Policy intended to qualify as an Individual
Retirement Annuity ("IRA") may revoke the Policy at any time between the date
of the application and the date 10 days after receipt of the Policy and
receive a refund of the entire purchase payment. In order to revoke the
Policy, the Policy Owner must mail or deliver the Policy (if it has already
been received), to the agent through whom the Policy was purchased, to the
principal office of the Company at 440 Lincoln Street, Worcester,
Massachusetts 01653, or to any local agency of the Company. Mailing or
delivery must occur on or before 10 days after receipt of the Policy for
revocation to be effective.
Within seven days the Company will return the greater of (1) the entire
purchase payment, or (2) the Accumulated Value plus any amounts deducted
under the Policy or by the Fund for taxes, charges or fees.
The liability of the Separate Accounts under this provision is limited to the
Policy Owner's Accumulated value in each Separate Account on the date of
cancellation. Any additional amounts refunded to the Policy Owner will be
paid by the Company.
STATE RIGHT TO REVOKE OR SURRENDER
In Georgia, Indiana, Michigan, Missouri, North Carolina, Oklahoma, South
Carolina, Texas, Utah, Washington and West Virginia any Policy Owner may
revoke the Policy at any time within 10 days (20 days in Idaho) after receipt
of the Policy (20 in Idaho) and receive a refund, as described under "RIGHT
TO REVOKE INDIVIDUAL RETIREMENT ANNUITY," above.
If the Policy was purchased as an IRA, the IRA revocation right described
above may be utilized in lieu of the special surrender right. In all other
states, a Policy Owner may surrender the Policy at any time between the date
of application and the date 10 days after receipt of the Policy. The Company
will pay to the Policy Owner an amount equal to the sum of (i) the difference
between the premium paid, including fees, and any amount allocated to a
Separate Account and (ii) the Accumulated Value of the Policy (on the date
the surrender request is received by the Company) attributable to any amount
allocated to a Subaccount.
10
<PAGE>
DESCRIPTION OF THE COMPANY, THE
SEPARATE ACCOUNT, AND THE FUND
THE COMPANY - The Company is a life insurance company organized under the
laws of Delaware in July, 1974. Its Principal Office is located at 440
Lincoln Street, Worcester, Massachusetts 01653, Telephone 508-855-1000. The
Company is subject to the laws of the state of Delaware governing insurance
companies and to regulation by the Commissioner of Insurance of Delaware. In
addition, the Company is subject to the insurance laws and regulations of
other states and jurisdictions in which it is licensed to operate. As of
December 31, 1995, the Company had over $5 billion in assets and over $18
billion of life insurance in force.
Effective October 1, 1995, the Company changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
The Company is an indirect wholly-owned subsidiary of First Allmerica
Financial Life Insurance Company ("First Allmerica"), which in turn is a
wholly-owned subsidiary of Allmerica Financial Corporation ("AFC"). First
Allmerica, originally organized under the laws of Massachusetts in 1844 as a
mutual life insurance company and known as State Mutual Life Assurance
Company of America, converted to a stock life insurance company on October
16, 1995 and adopted its present name. First Allmerica is the fifth oldest
life insurance company in America. As of December 31, 1995 First Allmerica
and its subsidiaries (including the Company) had over $11 billion in
combined assets and over $35.2 billion in life insurance in force.
THE SEPARATE ACCOUNT - Separate Account VA-K (the "Separate Account") is a
separate investment account of the Company. The assets used to fund the
variable portions of the Policies are set aside in the Subaccounts of the
Separate Account, and are kept separate from the general assets of the
Company. There are nine Subaccounts available under the Policies. Each
Subaccount is administered and accounted for as part of the general business
of the Company, but the income, capital gains, or capital losses of each
Subaccount are allocated to such Subaccount, without regard to other income,
capital gains, or capital losses of the Company. Under Delaware law, the
assets of the Separate Account may not be charged with any liabilities
arising out of any other business of the Company.
The Separate Account was authorized by vote of the Board of Directors of the
Company on November 1, 1990. The Separate Account meets the definition of
"separate account" under federal securities laws and is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). Such registration does
not involve the supervision of management or investment practices or policies
of the Separate Account or the Company by the Commission.
The Company offers other variable annuity contracts investing in the Separate
Account which are not discussed in this prospectus. The Separate Account also
invests in other underlying funds which are not available to the Policies
described in this prospectus.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account and the Subaccounts.
DELAWARE GROUP PREMIUM FUND, INC. - Delaware Group Premium Fund, Inc. (the
"Fund"), is an open-end, diversified management investment company registered
with the Commission under the 1940 Act. Such registration does not involve
supervision by the Commission of the investments or investment policy of the
Fund or its separate investment series.
The Fund was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. The Fund
currently has ten investment portfolios ("Series"), each issuing a series of
shares: Equity/Income Series, High Yield Series, Capital Reserves Series,
Money Market Series, Growth Series, Multiple Strategy Series, Value Series,
Emerging Growth Series, Global Bond and International Equity Series. Certain
of the Series may not be available in all states. The assets of each Series
are held separate from the assets of the other Series. Each Series operates
as a separate investment vehicle, and the income or losses of one Series have
no effect on the investment performance of another Series. Shares of the Fund
are not offered to the general public but solely to separate accounts of life
insurance companies.
The investment adviser for the Equity/Income Series, High Yield Series,
Capital Reserves Series, Money Market Series, Growth Series, Multiple
Strategy Series, Value Series and Emerging Growth Series is Delaware
Management Company, Inc. (the "Delaware Management"). The investment adviser
for the International Equity Series and the Global Bond Series is Delaware
International Advisers Ltd. ("Delaware International").
INVESTMENT OBJECTIVES AND POLICIES - A summary of investment objectives of
each of the Underlying Series is set forth below. More detailed information
regarding the investment objectives, restrictions and risks, expenses paid by
the Underlying Series, and other relevant information regarding the
Underlying Series may be found in the Prospectus of the Fund, which
accompanies this Prospectus and should be read carefully before investing.
Also, the Statement of Additional Information of the Fund is available upon
request.
SUBACCOUNT 201 - invests solely in shares of the Equity/Income Series. This
Series seeks the highest possible total rate of return by selecting issues
that exhibit the potential for capital appreciation while providing higher
than average dividend income.
-11-
<PAGE>
SUBACCOUNT 202 - invests solely in shares of the High Yield Series. This
Series seeks as high a current income as possible by investing in rated and
unrated corporate bonds (including high-yield bonds commonly known as junk
bonds), U.S. Government securities and commercial paper. Please read the
Fund's prospectus disclosure regarding the risk factors before investing in
this Series.
SUBACCOUNT 203 - invests solely in shares of the Capital Reserves Series.
This Series seeks a high stable level of current income while minimizing
fluctuations in principal by investing in a diversified portfolio of short
and intermediate-term securities.
SUBACCOUNT 204 - invests solely in shares of the Money Market Series. This
Series seeks the highest level of income consistent with the preservation of
capital and liquidity through investments in short-term money market
instruments.
SUBACCOUNT 205 - invests solely in shares of the Growth Series. This Series
seeks long-term capital appreciation by investing its assets in a diversified
portfolio of securities exhibiting the potential for significant growth.
SUBACCOUNT 206 - invests solely in shares of the Multiple Strategy Series.
This Series seeks a balance of capital appreciation, income and preservation
of capital. It uses a dividend-oriented valuation strategy to select
securities issued by established companies that are believed to demonstrate
potential for income and capital growth.
SUBACCOUNT 207 - invests solely in shares of the International Equity Series.
This Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers providing the
potential for capital appreciation and income.
SUBACCOUNT 208 - invests solely in shares of the Value Series. This Series
seeks capital appreciation by investing in small to mid-cap common stocks
whose market value appears low relative to their underlying value or future
earnings and growth potential. Emphasis will also be placed on securities of
companies that may be temporarily out of favor or whose value is not yet
recognized by the market.
SUBACCOUNT 209 - invests solely in shares of the Emerging Growth Series. This
Series seeks long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of emerging and other
growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective.
SUBACCOUNT 210 invests solely in shares of the Global Bond Series. The Global
Series seeks current income consistent with preservation of principal by
investing primarily in fixed income securities that may also provide the
potential for capital appreciation. At least 65% of the Series's assets will
be invested in fixed income securities of issuers organized or having a
majority of their assets in or deriving a majority of their operating income
in at least three different countries, one of which may be the United States.
There is no assurance that the investment objectives of the Series will be met.
IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE AVAILABILITY OF
PARTICULAR SUBACCOUNTS.
In the event of a material change in the investment policy of a Subaccount or
the Underlying Series in which it invests, you will be notified of the
change. If you have Policy Value in that Subaccount, the Company will
transfer it without charge on written request by you to another Subaccount or
to the General Account, where available. The Company must receive your
written request within sixty (60) days of the later of (1) the effective date
of such change in the investment policy or (2) the receipt of the notice of
your right to transfer.
INVESTMENT ADVISORY SERVICES TO THE FUND - For managing the portfolios of the
Underlying Series and making the investment decisions, each investment
adviser is paid an annual fee by their respective Underlying Series. For
Delaware Management, this fee is equal to 5/10 of 1% of the average daily net
assets of the Money Market Series, 3/4 of 1% of the average daily net assets
of the Growth Series, Value Series and Emerging Growth Series, and 6/10 of 1%
of the average daily net assets of the Equity/Income Series, High Yield
Series, Capital Reserve Series, Multiple Strategy Series, and for the Global
Bond Series. For Delaware International, this fee is equal to 3/4 of 1% of
the average daily net assets of the International Equity Series.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The Company reserves the
right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Series are no
longer available for investment or if in the Company's judgment further
investment in any Underlying Series should become inappropriate in view of
the purposes of the Separate Account or the affected Subaccount, the Company
may redeem the shares of that Underlying Series and substitute shares of
another registered open-end management company. The Company will not
substitute any shares attributable to a Policy interest in a Subaccount
without notice to the Policy Owner and prior approval of the Commission and
state insurance authorities, to the extent required by the 1940 Act or other
applicable law. The Separate Account may, to the extent permitted by law,
purchase other securities for other policies or permit a conversion between
policies upon request by a Policy Owner.
The Company also reserves the right to establish additional Subaccounts of
the Separate Account, each of which would invest in shares corresponding to a
new Underlying Series or in shares of another investment company having a
specified investment objective. Subject to applicable law and any required
Commission approval, the Company may, in its sole discretion, establish new
Subaccounts or eliminate one or more Subaccounts if marketing needs, tax
considerations or investment conditions warrant. Any new Subaccounts may be
made available to existing Policy Owners on a basis to be determined by the
Company.
Shares of the Underlying Series are sold to separate accounts of unaffiliated
insurance companies ("shared funding") which issue variable annuity and
variable life policies ("mixed funding"). It is conceivable that in the
future such shared funding or mixed funding may be disadvantageous for
variable life Policy Owners or variable annuity Policy Owners. Although the
Company and the Fund do not currently foresee any such disadvantages to
either variable life insurance Policy Owners or variable annuity Policy
Owners, the Company and the Trustees of the Fund intend to monitor events in
order to identify any material conflicts and to determine what action, if
any, should be taken in response
-12-
<PAGE>
thereto.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Policy to reflect the substitution or
change and will notify Policy Owners of all such changes. If the Company
deems it to be in the best interest of Policy Owners, and subject to any
approvals that may be required under applicable law, the Separate Account or
any Subaccount(s) may be operated as a management company under the 1940 Act,
may be deregistered under the 1940 Act if registration is no longer required,
or may be combined with other Subaccounts or other separate accounts of the
Company.
VOTING RIGHTS
The Company will vote Underlying Series shares held by each Subaccount in
accordance with instructions received from Policy Owners and, after Annuity
Date, from the Annuitants. Each person having a voting interest in a
Subaccount will be provided with proxy materials of the Underlying Series
together with a form with which to give voting instructions to the Company.
Shares for which no timely instructions are received will be voted in
proportion to the instructions which are received. The Company will also vote
shares in a Subaccount that it owns and which are not attributable to
Policies in the same proportion. If the 1940 Act or any rules thereunder
should be amended or if the present interpretation of the 1940 Act or such
rules should change, and as a result the Company determines that it is
permitted to vote shares in its own right, whether or not such shares are
attributable to the Policies, the Company reserves the right to do so.
The number of votes which a Policy Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Series.
During the accumulation period, the number of Underlying Series shares
attributable to each Policy Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Policy by
the net asset value of one Underlying Series share.
During the annuity period, the number of Underlying Series shares
attributable to each Annuitant will be determined by dividing the reserve
held in each Subaccount for the Annuitant's variable annuity by the net asset
value of one Underlying Series share. Ordinarily, the Annuitant's voting
interest in the Underlying Series will decrease as the reserve for the
variable annuity is depleted.
CHARGES AND DEDUCTIONS
Deductions under the Policies and charges against the assets of the
Subaccounts are described below. Other deductions and expenses paid out of
the assets of the Underlying Series are described in the Prospectus and
Statement of Additional Information of the Fund.
A. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from purchase payments at the time
the payments are made. However, a contingent deferred sales charge is
deducted from the Accumulated Value of the Policy in the case of surrender
and/or partial redemption of the Policy or at the time annuity payments
begin, within certain time limits described below.
For purposes of determining the contingent deferred sales charge, the Policy
Value is divided into three categories: (1) New Payments - purchase payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments - purchase payments not defined as New Payments;
and (3) Earnings - the amount of Policy Value in excess of all purchase
payments that have not been previously surrendered. For purposes of
determining the amount of any contingent deferred sales charge, surrenders
will be deemed to be taken first from Old Payments, then from New Payments.
Old Payments may be withdrawn from the Policy at any time without the
imposition of a contingent deferred sales charge. If a withdrawal is
attributable all or in part to New Payments, a contingent deferred sales
charge may apply.
No contingent deferred sales charge is imposed, and no commissions are paid,
on Policies issued after December 20, 1993 where the Policy Owner and
Annuitant as of the date of application are both within the following class
of individuals:
All employees and registered representatives of any broker-dealer that has
entered into a sales agreement with the Company to sell the Policies; all
officers, directors, trustees and bona fide full-time employees (including
former officers and directors and former employees who had been employed
for at least ten years) of Delaware Management, its affiliates and
subsidiaries, and of any Underlying Series; and any spouses of the above
persons or any children or other legal dependents of the above persons who
are under the age of 21.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the
contingent deferred sales charge is modified to effect an exchange of one
Policy for another Policy as provided in APPENDIX C, "EXCHANGE OFFER."
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Policy is surrendered, or
if New Payments are redeemed, while the Policy is in force and before the
Annuity Date, a contingent deferred sales charge may be imposed. The amount
of the charge will depend upon the number of years that the New Payments, if
any, to which the withdrawal is attributed have remained credited under the
Policy. Any Free Withdrawal Amount is deducted first as described below.
Additional amounts withdrawn are deducted first from Old Payments. Then, for
the purpose of calculating surrender charges for New Payments, all amounts
withdrawn are assumed to be deducted first from the earliest New Payment and
then from the next earliest New Payment and so on, until all New Payments
have been exhausted pursuant to the FIFO method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for
income tax purposes.)
The Contingent Deferred Sales Charges are as follows:
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<TABLE>
<CAPTION>
Years from date Charge as
of Payment to Percentage
date of of New Payments
Withdrawal Withdrawn
--------------- ---------------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
</TABLE>
The amount redeemed equals the amount requested by the Policy Owner plus the
charge, if any, which is applied against the amount requested. For example,
if the applicable charge is 7% and the Policy Owner has requested $200, the
Policy Owner will receive $200 and the charge will be $14 (assuming no Free
Withdrawal Amount, discussed below) for a total withdrawal of $214. The
charge is applied as a percentage of the New Payments redeemed, but in no
event will the total contingent deferred sales charge exceed a maximum limit
of 8% of total gross New Payments. Such total charge equals the aggregate of
all applicable contingent deferred sales charges for surrender, partial
redemptions, and annuitization.
In Maryland, a different contingent deferred sales charge applies to monies
in the General Account. See "APPENDIX A- MORE INFORMATION ABOUT THE GENERAL
ACCOUNT."
FREE WITHDRAWAL AMOUNTS. In each calendar year, the Company will waive the
contingent deferred sales charge, if any, on an amount ("Free Withdrawal
Amount") equal to the greatest of (1), (2) or (3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by
total gross payments not previously redeemed ("Cumulative Earnings").
Where (2) is:
10% of the Accumulated Value as of the Valuation Date coincident with or
next following the date of receipt of the request for withdrawal, reduced
by the total amount of any prior partial redemptions made in the same
calendar year to which no contingent deferred sales charge was applied.
Where (3) is:
The amount calculated under the Company's life expectancy distribution
(see "LED Distributions," below), whether or not the withdrawal was part of
such distribution (applies only if the Policy Owner and Annuitant are the
same individual).
For example, an 81-year-old Policy Owner/Annuitant with an Accumulated Value
of $15,000, of which $1,000 is Cumulative Earnings, would have a Free
Withdrawal Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
The Free Withdrawal Amount will first be deducted from Cumulative Earnings.
If the Free Withdrawal Amount exceeds Cumulative Earnings, the excess amount
will be deemed withdrawn from payments not previously redeemed on a
last-in-first-out ("LIFO") basis. If more than one partial withdrawal is made
during the year, on each subsequent withdrawal the Company will waive the
contingent deferred sales load, if any, until the entire Free Withdrawal
Amount has been redeemed.
LED DISTRIBUTIONS. A Policy Owner who is also the Annuitant may elect to make
a series of systematic withdrawals from the Policy according to a life
expectancy distribution ("LED"), by returning a properly signed LED request
form to the Company's Principal Office. The LED permits the Policy Owner to
make systematic withdrawals from the Policy over his or her lifetime. The
amount withdrawn from the Policy changes each year, because life expectancy
changes each year that a person lives. For example, actuarial tables indicate
that a person age 70 has a life expectancy of 16 years, but a person who
attains age 86 has a life expectancy of another 6.5 years.
If a Policy Owner elects the LED, in each policy year a fraction of the
Accumulated Value is withdrawn from the Policy based on the Policy Owner's
then life expectancy. The numerator of the fraction is 1 (one) and the
denominator of the fraction is the remaining life expectancy of the Policy
Owner, as determined annually by the Company. The resulting fraction,
expressed as a percentage, is applied to the Accumulated Value of the Policy
at the beginning of the year to determine the amount to be distributed during
the year. The Policy Owner may elect monthly, bimonthly, quarterly,
semiannual, or annual distributions, and may terminate the LED at any time.
The Policy Owner may also elect to receive distributions under an LED which
is determined on the joint life expectancy of the Policy Owner and a
beneficiary. The Company may also offer other systematic withdrawal options.
If a Policy Owner makes withdrawals under the LED distribution prior to age
59 1/2, the withdrawals may be treated by the IRS as premature distributions
from the Policy. The payments would then be taxed on an "income first" basis,
and be subject to a 10% federal tax penalty. For more information, see
"FEDERAL TAX CONSIDERATIONS, B. Taxation of the Policies in General."
SURRENDERS. In the case of a complete surrender, the amount received by the
Policy Owner is equal to the entire Accumulated Value under the Policy, net
of the applicable contingent deferred sales charge on New Payments, the
Policy Fee, and any tax withholding, if applicable. Subject to the same rules
that are applicable to partial redemptions, the Company will not assess a
contingent deferred sales charge on a Free Withdrawal Amount. Because Old
Payments count in the calculation of the Free Withdrawal Amount, if Old
Payments equal or exceed the Free Withdrawal Amount, the
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<PAGE>
Company may assess the full applicable contingent deferred sales charge on
New Payments.
Where a Policy Owner who is trustee under a pension plan surrenders, in whole
or in part, a Policy on a terminating employee, the trustee will be permitted
to reallocate all or a part of the total Accumulated Value under the Policy
to other policies issued by the Company and owned by the trustee, with no
deduction for any otherwise applicable contingent deferred sales charge. Any
such reallocation will be at the unit values for the Subaccounts as of the
valuation date on which a written, signed request is received at the
Company's Principal Office.
For further information on surrender and partial redemption, including
minimum limits on amount redeemed and amount remaining under the Policy in
the case of partial redemption, and important tax considerations, see
"Surrender" and "Partial Redemption" under "THE VARIABLE ANNUITY POLICIES,"
and see "FEDERAL TAX CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY PAYMENTS BEGIN. If a period certain option is
chosen (Option V or the comparable fixed annuity option), a contingent
deferred sales charge will be deducted from the Accumulated Value of the
Policy if the Annuity Date occurs at any time during the surrender charge
period. Such charge is the same as that which would apply had the policy been
surrendered on the Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization
in any policy year under an option involving a life contingency (Options I,
II, III, IV-A, IV-B or the comparable fixed annuity options) or involving a
non-commutable period certain of a duration of ten years or more.
SALES EXPENSE. The Company pays sales commissions not to exceed 6% of
purchase payments to entities which sell the Policies. To the extent
permitted by NASD rules, expense reimbursement allowances and additional
payments for other services not directly related to the sale of the Policies,
including the recruitment and training of personnel, production of
promotional literature, and similar services may also be made.
The Company intends to recoup the commissions and other sales expenses
through a combination of anticipated contingent deferred sales charges,
described above, and the investment earnings on amounts allocated to
accumulate on a fixed basis in excess of the interest credited on fixed
accumulations by the Company. There is no additional charge to Policy Owners
or to the Separate Account. Any contingent deferred sales charges assessed on
a Policy will be retained by the Company. Alternative commission schedules
are available with lower initial commission amounts based on purchase
payments, plus ongoing annual compensation of up to 1% of contract value.
B. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
policies. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two
ways:
(1) if the premium tax was paid by the Company when purchase payments were
received, to the extent permitted in your Policy the premium tax charge is
deducted on a pro rata basis when partial withdrawals are made, upon
surrender of the Policy, or when annuity payments begin (the Company
reserves the right instead to deduct the premium tax charge for these
Policies at the time the purchase payments are received); or
(2) the premium tax charge is deducted when annuity payments begin.
If no amount for premium tax was deducted at the time the purchase payment
was received, but subsequently tax is determined to be due prior to the
Annuity Date, the Company reserves the right to deduct the premium tax from
the Policy value at the time such determination is made.
C. POLICY FEE.
A $30 Policy Fee currently is deducted on the policy anniversary date and
upon full surrender of the Policy when the Accumulated Value is $50,000 or
less. The Policy Fee is not deducted after annuitization. The Policy Fee is
currently waived for policies issued to a trustee of a 401(k) plan, but the
Company reserves the right to impose the Policy Fee on such policies.
Where policy value has been allocated to more than one account (General
Account and/or one or more of the Subaccounts), a percentage of the total
Policy Fee will be deducted from the Policy Value in each account. The
portion of the charge deducted from each account will be equal to the
percentage which the Policy Value in that account represents of the total
Accumulated Value under the Policy. The deduction of the Policy Fee will
result in cancellation of a number of Accumulation Units equal in value to
the percentage of the charge deducted from that account.
D. ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS.
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a charge of 1.25% on an
annual basis of the daily value of each Subaccount's assets to cover the
mortality and expense risk which the Company assumes in relation to the
variable portion of the Policies. The charge is imposed during both the
accumulation period and the annuity period. The mortality risk arises from
the Company's special death benefit guarantee and its guarantee that it will
make annuity payments in accordance with annuity rate provisions established
at the time the Policy is issued for the life of the Annuitant (or in
accordance with the annuity option selected), no matter how long the
Annuitant (or other payee) lives and no matter how long all Annuitants as a
class live. Therefore, the mortality charge is deducted during the annuity
phase on all contracts, including those that do not involve a life
contingency, even though the Company does not bear direct mortality risk with
respect to variable annuity settlement options that do not involve life
contingencies. The expense risk arises from the Company's guarantee that the
charges it makes will not exceed the limits described in the Policies and in
this Prospectus.
If the charge for mortality and expense risks is not sufficient
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<PAGE>
to cover actual mortality experience and expenses, the Company will absorb
the losses. If expenses are less than the amounts provided to the Company by
the charge, the difference will be a profit to the Company. To the extent
this charge results in a profit to the Company, such profit will be available
for use by the Company for, among other things, the payment of distribution,
sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The
Company estimates that a reasonable allocation might be .80% for mortality
risk and .45% for expense risk.
ADMINISTRATIVE EXPENSE CHARGE - The Company assesses each Subaccount
available under the Policies with a daily charge at an annual rate of 0.15%
of the average daily net assets of the Subaccount. The charge is imposed
during both the accumulation period and the annuity period. The daily
Administrative Expense Charge is assessed to help defray administrative
expenses actually incurred in the administration of the Subaccount, without
profits. However, there is no direct relationship between the amount of
administrative expenses imposed on a given policy and the amount of expenses
actually attributable to that policy.
Deductions for the Policy Fee (described under C. POLICY FEE) and for the
Administrative Expense Charge are designed to reimburse the Company for the
cost of administration and related expenses and are not expected to be a
source of profit. The administrative functions and expense assumed by the
Company in connection with the Separate Account and the Policies include, but
are not limited to, clerical, accounting, actuarial and legal services, rent,
postage, telephone, office equipment and supplies, expenses of preparing and
printing registration statements, expense of preparing and typesetting
prospectuses and the cost of printing prospectuses not allocable to sales
expense, filing and other fees.
TRANSFER CHARGE - The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Policy Year will be
free of charge, but reserves the right to assess a charge, guaranteed never
to exceed $25, for the thirteenth and each subsequent transfer in a Policy
Year.
The Policy Owner may have automatic transfers of at least $100 a month made
on a periodic basis (a) from Subaccount 203 (which invests in the Capital
Reserve Series) or Subaccount 204 (which invests in the Money Market Series)
to one or more of the other Subaccounts, or (b) in order to reallocate Policy
Value among the Subaccounts. The first automatic transfer counts as one
transfer towards the twelve transfers which are guaranteed to be free in each
policy year. For more information, see "The Policy Transfer Privilege."
OTHER CHARGES - Because the Subaccounts purchase shares of the Fund, the
value of the net assets of the Subaccounts will reflect the investment
advisory fee and other expenses incurred by the Underlying Series. The
Prospectus and Statement of Additional Information of the Fund contain
additional information concerning expenses of the Underlying Series.
THE VARIABLE ANNUITY POLICIES
The Policies are designed for use in connection with several types of
retirement plans as well as for sale to individuals. Participants under such
plans, as well as Policy Owners, and beneficiaries, are cautioned that the
rights of any person to any benefits under such Policies may be subject to
the terms and conditions of the plans themselves, regardless of the terms and
conditions of the Policies.
The Policies offered by the Prospectus may be purchased from representatives
of Allmerica Investments, Inc. and certain independent broker-dealers that
are registered under the Securities Exchange Act of 1934 and are members of
the National Association of Securities Dealers, Inc. (NASD). The principal
underwriter of the Policies is Allmerica Investments, Inc., 440 Lincoln
Street, Worcester, Massachusetts, 01653, an indirect wholly-owned subsidiary
of First Allmerica. Policy Owners may direct any inquiries to Customer
Services, Allmerica Financial Life Insurance and Annuity Company, 440 Lincoln
Street, Worcester, Massachusetts 01653.
A. PURCHASE PAYMENTS.
Purchase payments are payable to the Company. The initial payment will be
credited to the Policy as of the date that the properly completed application
which accompanies the payment is received by the Company at its principal
office. If an application is incomplete, or does not specify how payments are
to be allocated among the Accounts, the initial purchase payment will be
returned within five business days. After a policy is issued, Accumulation
Units will be credited to the Policy at the unit value computed as of the
Valuation Date that a purchase payment is received at the Company's principal
office.
Purchase payments are not limited as to frequency and number, but there are
certain limitations as to amount. Generally, the initial payment must be at
least $600. Under a salary deduction or a monthly automatic payment plan, the
minimum initial payment is $50. In all cases, each subsequent payment must be
at least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's
average annual contribution per eligible plan participant is at least $600.
Total payments may not exceed the maximum limit specified in the Policy. If
the payments are divided among two or more accounts, a net amount of at least
$10 of each payment must be allocated to each account.
Generally, payments will be allocated among the Subaccounts according to the
Policy Owner's instructions when the Policy is issued. However, if the Policy
is issued in Georgia, Indiana, Michigan, Missouri, New York, North Carolina,
Oklahoma, South Carolina, Texas, Utah, Washington, West Virginia or in
connection with an IRA, for the first 14 days following the date of issue,
all Separate Account allocations will be held in Subaccount 204 (the Money
Market Series). For California senior citizens age 60 and older, all Separate
Account allocations will be held in Subaccount 204 for 34 days following the
date of issue because of the extended California
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<PAGE>
free-look right for these individuals. Thereafter, all amounts will be
allocated according to the Policy Owner's instructions. The Policy Owner may
change allocation instructions for new payments pursuant to written or
telephone request. If telephone requests are elected by the Policy Owner, a
properly completed authorization form must be on file before telephone
requests will be honored. The policy of the Company and its agents and
affiliates is that they will not be responsible for losses resulting from
acting upon telephone requests reasonably believed to be genuine. The Company
will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine; otherwise, the Company may be liable for any losses
due to unauthorized or fraudulent instructions. The procedures the Company
follows for transactions initiated by telephone include requirements that
callers on behalf of a Policy Owner identify themselves by name and identify
the Annuitant by name, date of birth and social security number. All transfer
instructions by telephone are tape recorded.
B. TRANSFER PRIVILEGE.
At any time prior to the Annuity Date, subject to the Company's then current
rules, a Policy Owner may have amounts transferred among the Subaccounts or
between a Subaccount and the General Account, where available. Transfer
values will be effected at the Accumulation Value next computed after receipt
of the transfer order. The Company will make transfers pursuant to written
or telephone request. As discussed in "A. Purchase Payments," a properly
completed authorization form must be on file before telephone requests will
be honored.
The Policy Owner may have automatic transfers of at least $100 made on a
periodic basis from Subaccount 203 (which invests in the Capital Reserve
Series) or Subaccount 204 (which invests in the Money Market Series) to one
or more of the other Subaccounts or reallocate policy value among the
Subaccounts. Automatic transfers may be made on a monthly, bimonthly,
quarterly, semiannual or annual schedule. The first automatic transfer
counts as one transfer towards the twelve transfers which are guaranteed to
be free in each Policy year.
Automatic transfers may also be made from policy value allocated to the
Company's General Account (a) to one or more of the Subaccounts or (b) in
order to reallocate policy value among the Subaccounts. Automatic transfers
from the General Account may be made on a monthly, bimonthly or quarterly
basis, provided that; (i) the amount of each monthly transfer cannot exceed
10% of policy value in the General Account as of the date of the first
transfer, (ii) each bimonthly transfer cannot exceed 20% of policy value in
the General Account as of the date of the first transfer, (iii) each
quarterly transfer cannot exceed 25% of policy value in the General Account
as of the date of the first transfer.
Except in Texas and New York, no other transfers are permitted from the
General Account except during the 30-day period, beginning on each policy
anniversary. During that 30 day annual "window" period, any amount (up to
100%) of policy value in the General Account may be transferred. In Texas
and New York, transfers from the General Account are also permitted if (a)
there has been at least a ninety (90) day period since the last transfer from
the General Account; and (b) the amount transferred from the General Account
in each transfer does not exceed the lesser of $100,000 or $25 of the
Accumulated Value under the Policy. These rules are subject to change by the
Company.
The transfer privilege is subject to the consent of the Company. The Company
reserves the right to impose limitations on transfers including, but not
limited to: (1) the minimum amount that may be transferred, (2) the minimum
amount that may remain in a Subaccount following a transfer from that
Subaccount, (3) the minimum period of time between transfers involving the
General Account, and (4) the maximum amount that may be transferred each time
from the General Account.
Currently, the Company makes no charge for transfers. The first twelve
transfers in a Policy year are guaranteed to be free of any charge. For each
subsequent transfer in a Policy year the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
C. SURRENDER.
At any time prior to the Annuity Date, a Policy Owner may surrender the
Policy and receive its Accumulated Value, less applicable charges ("Surrender
Amount"). The Policy Owner must return the Policy and a signed, written
request for surrender, satisfactory to the Company, to the Company's
Principal Office. The amount payable to the Policy Owner upon surrender will
be based on the Accumulated Value of the Policy as of the Valuation Date on
which the request and the Policy are received at the Company's Principal
Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted
when a Policy is surrendered if payments have been credited to the policy
during the last seven full policy years. See "CHARGES AND DEDUCTIONS." The
Policy Fee will be deducted upon surrender of the Policy.
After the Annuity Date, only Policies under which future annuity payments are
limited to a specified period (as specified in Annuity Option V) may be
surrendered. The Surrender Amount is the commuted value of any unpaid
installments, computed on the basis of the assumed interest rate incorporated
in such annuity payments. No contingent deferred sales charge is imposed
after the Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Subaccount during
any period which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each Separate Account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial
redemptions of amounts allocated to the Company's General Account for a
period not to exceed six months.
The surrender rights of Policy Owners who are participants under Section
403(b) plans or who are participants in the Texas Optional Retirement Program
(Texas ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public
School Systems and Certain Tax Exempt Organizations" and "J. Texas Optional
Retirement Program."
For important tax consequences which may result from surrender, see "FEDERAL
TAX CONSIDERATIONS."
D. PARTIAL REDEMPTION. At any time prior to the Annuity Date, a Policy Owner
may redeem a portion of the Accumulated Value of his or her Policy, subject
to the limits stated below. The Policy Owner must file a signed, written
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request for redemption, satisfactory to the Company, at the Company's
Principal Office. The written request must indicate the dollar amount the
Policy Owner wishes to receive and the account from which such amount is to
be redeemed. The amount redeemed equals the amount requested by the Policy
Owner plus any applicable contingent deferred sales charge, as described
under "CHARGES AND DEDUCTIONS."
Where allocations have been made to more than one account, a percentage of
the partial redemption may be allocated to each such account. A partial
redemption from a Subaccount will result in cancellation of a number of units
equivalent in value to the amount redeemed, computed as of the Valuation Date
that the request is received at the Company's principal office.
Each partial redemption must be in a minimum amount of $100. No partial
redemption will be permitted if the Accumulated Value remaining under the
Policy would be reduced to less than $1,000. Partial redemptions will be paid
in accordance with the time limitations described under "Surrender."
After the Annuity Date, only Policies under which future variable annuity
payments are limited to a specified period may be partially redeemed. A
partial redemption after the Annuity Date will result in cancellation of a
number of Annuity Units equivalent in value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Policy
Owners who are participants under Section 403(b) plans or under the Texas
ORP, see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems and Certain
Tax Exempt Organizations" and "J. Texas Optional Retirement Program."
For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
E. DEATH BENEFIT.
If the Annuitant dies (or a Policy Owner predeceases the Annuitant) prior to
the Annuity Date while the Policy is in force, a death benefit will be paid
to the beneficiary, except where the Policy continues as provided in "F. The
Spouse of the Policy Owner as Beneficiary" on page 29. Upon death of the
Annuitant (including a Policy Owner who is also the Annuitant), the death
benefit is equal to the greatest of (a) the Accumulated Value under the
Policy next determined following receipt of due proof of death at the
Principal Office, or (b) the total amount of gross payment(s) made under the
Policy reduced proportionally to reflect the amount of all prior partial
withdrawals, or (c) the death benefit that would have been payable on the
most recent fifth year policy anniversary, increased for subsequent purchase
payments and reduced proportionally to reflect withdrawals after that date. A
partial withdrawal will reduce the gross payments available as a death
benefit under (b) in the same proportion that the Accumulated Value was
reduced on the date of withdrawal. For each withdrawal, the reduction is
calculated by multiplying the total amount of gross payments by a fraction,
the numerator of which is the amount of the partial withdrawal and the
denominator of which is the Accumulated Value immediately prior to the
withdrawal. For example, if gross payments total $8,000 and a $3,000
withdrawal is made when the Accumulated Value is $12,000, the proportional
reduction of gross payments available as a death benefit is calculated as
follows: The Accumulated Value is reduced by 1/4 (3,000 divided by 12,000);
therefore, the gross amount available as a death benefit under (b) will also
be reduced by 1/4 (8,000 times 1/4 equals $2,000), so that the $8,000 gross
payments are reduced to $6,000. Payments made after a withdrawal will
increase the death benefit available under (b) by the amount of the payment.
A partial withdrawal after the most recent fifth year Policy anniversary will
decrease the death benefit available under (c) in the same proportion that
the Accumulated Value was reduced on the date of the withdrawal. For example,
if the death benefit that would have been payable on the most recent fifth
year Policy anniversary is $12,000 and partial withdrawals totalling $5,000
are made thereafter when the Accumulated Value is $15,000, the proportional
reduction of death benefit available under (c) is calculated as follows: The
Accumulated Value is reduced by 1/3 (5,000 divided by 15,000); therefore, the
death benefit that would have been payable on the most recent fifth year
Policy anniversary will also be reduced by 1/3 (12,000 times 1/3 or $4,000),
so that the death benefit available under (c) will be $8,000 ($12,000 minus
$4,000). Payments made after the most recent fifth year Policy anniversary
will increase the death benefit available under (c) by the amount of the
payment. Upon death of a Policy Owner who is not the Annuitant, the death
benefit is equal to the Accumulated Value of the Policy next determined
following receipt of due proof of death received at the Principal Office.
The death benefit generally will be paid to the beneficiary in one sum.
However, the beneficiary may, by written request, elect one of the following
options:
(1) The payment of the one sum may be delayed for a period not to
exceed five years from the date of death.
(2) The death benefit may be paid in installments. Payments must
begin within one year from the date of death, and are
payable over a period certain not extended beyond the life
expectancy of the beneficiary.
(3) All or a portion of the death benefit may be used to provide a life
annuity for the beneficiary. Benefits must begin within one year from
the date of death and are payable over a period not extended beyond
the life expectancy of the beneficiary. Any annuity benefits will
be provided in accordance with the annuity options of the Policy.
If there is more than one beneficiary, the death benefit will be paid to such
beneficiaries in one sum unless the Company consents to pay an annuity option
chosen by the beneficiaries.
With respect to any death benefit, the Accumulated Value under the Policy
shall be based on the unit values next computed after due proof of death has
been received at the Company's principal office. If the beneficiary elects to
receive the death benefit in one sum, the death benefit will be paid within
seven business days. If the beneficiary (other than a
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spousal beneficiary of an IRA, See "F. The Spouse of the Policy Owner as
Beneficiary," below) has not elected an annuity option within one year from
the date notice of death is received by the Company, the Company will pay the
death benefit in one sum. The death benefit will reflect any earnings or
losses experienced during the period and any withdrawals.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed monthly annuity payments, any unpaid amounts or
installments will be paid to the beneficiary. The Company must pay the
remaining payments at least as rapidly as under the payment option in effect
on the date of the Annuitant's death. If there is more than one beneficiary,
the commuted value of the payments, computed on the basis of the assumed
interest rate incorporated in the annuity option table on which such payments
are based, shall be paid to the beneficiaries in one sum.
F. THE SPOUSE OF THE POLICY OWNER AS BENEFICIARY.
If the Policy Owner's spouse is named as beneficiary ("spousal beneficiary")
and if the Policy Owner dies (and predeceases the Annuitant if such Policy
Owner is not the Annuitant) prior to the Annuity Date while the Policy is in
force, at the written request of the spousal beneficiary the death benefit
will not be paid and the spousal beneficiary will become the new Policy Owner
(and, if the deceased Owner was also the Annuitant, the new Annuitant). All
other rights and benefits provided in the Policy will continue, except that
any subsequent spouse of such new Policy Owner will not be entitled to
continue the Policy upon such new Policy Owner's death.
G. ASSIGNMENT.
The Policy may be assigned by the Policy Owner at any time prior to the
Annuity Date and while the Annuitant is alive. However, Policies sold in
connection with IRA plans and certain other qualified plans are not
assignable. Assignability of a Policy issued in connection with an HR-10 Plan
may be restricted. For more information about these plans, see "FEDERAL TAX
CONSIDERATIONS."
The Company will not be deemed to have knowledge of an assignment unless it
is made in writing and filed at the Company's principal office. The Company
will not assume responsibility for determining the validity of any
assignment. If an assignment of the Policy is in effect on the Annuity Date,
the Company reserves the right to pay to the assignee, in one sum, that
portion of the Surrender Value of the Policy to which the assignee appears to
be entitled. The Company will pay the balance, if any, in one sum to the
Policy Owner in full settlement of all liability under the Policy. The
interest of the Policy Owner and of any beneficiary will be subject to any
assignment.
H. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
Subject to certain restrictions described below, the Policy Owner has the
right (1) to select the annuity option under which annuity payments are to be
made, and (2) to determine whether payments are to be made on a fixed basis,
a variable basis, or a combination fixed and variable basis. Annuity payments
are determined according to the annuity tables in the Policy, by the annuity
option selected, and by the investment performance of the Account(s) selected.
To the extent a fixed annuity is selected, Accumulated Value will be
transferred to the General Account of the Company, and the annuity payments
will be fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL
ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Subaccount(s) is made each month. Since the value of an
Annuity Unit in a Subaccount will reflect the investment performance of the
Subaccount, the amount of each monthly payment will vary.
The annuity option selected must produce an initial payment of at least $50.
If a combination of fixed and variable payments is selected, the initial
payment on each basis must be at least $50. The Company reserves the right to
increase these minimum amounts. If the annuity option(s) selected does not
produce initial payments which meet these minimums, the Company will pay the
Accumulated Value in one sum. Once the Company begins making annuity
payments, the Annuitant cannot make partial redemptions or surrender the
annuity benefit, except in the case where future annuity payments are limited
to a "period certain" (only under Option V or a comparable fixed option).
Only beneficiaries entitled to receive remaining payments for a "period
certain" may elect to instead receive a lump sum settlement.
The Annuity Date is selected by the Policy Owner. To the extent permitted in
your state, the Annuity Date may be the first day of any month (a) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Policy is 75 or under, or (b) within 10 years from the date of issue of the
Policy and before the Annuitant's 90th birthday, if the Annuitant's age at
the date of issue is between 76 and 90. The Policy Owner may elect to change
the Annuity Date by sending a request to the Company's Principal Office at
least one month before the new Annuity Date. The new Annuity Date must be the
first day of any month occurring before the Annuitant's 90th birthday. The
new Annuity Date must be within the life expectancy of the Annuitant. The
Company shall determine such life expectancy at the time a change in Annuity
Date is requested. The Internal Revenue Code and the terms of qualified plans
impose limitations on the age at which annuity payments may commence and the
type of annuity option selected. See "FEDERAL TAX CONSIDERATIONS" for further
information.
If the Policy Owner does not elect otherwise, annuity payments will be made
in accordance with Option I, a variable life annuity with 120 monthly
payments guaranteed. Changes in either the Annuity Date or annuity option can
be made up to one month prior to the Annuity Date.
I. DESCRIPTION OF VARIABLE ANNUITY OPTIONS.
The Company currently provides the variable annuity options described below.
Variable annuity options may be funded through the Equity/Income Series, the
Capital Reserves Series and the Multiple Strategy Series.
The Company also provides fixed-amount annuity options which are comparable
to the variable annuity options. Regardless of how payments were allocated
during the accumulation period, any one of the variable annuity options
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or the fixed-amount options may be selected, or any one of the variable
annuity options may be selected in combination with any one of the
fixed-amount annuity options. Other annuity options may be offered by the
Company.
OPTION I--Variable Life Annuity with 120 Monthly Payments Guaranteed
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if the payee should die before 120 monthly payments have been
paid, the monthly annuity payments will continue to the beneficiary until a
total of 120 monthly payments have been paid.
OPTION II--Variable Life Annuity
A variable annuity payable monthly only during the lifetime of the payee. It
would be possible under this option for the Annuitant to receive only one
annuity payment if the Annuitant dies prior to the due date of the second
annuity payment, two annuity payments if the Annuitant dies before the due
date of the third annuity payment, and so on. However, payments will continue
during the lifetime of the payee, no matter how long the payee lives.
OPTION III--Unit Refund Variable Life Annuity
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if (1) exceeds (2) then monthly variable annuity payments will
continue to the beneficiary until the number of such payments equals the
number determined in (1).
Where: (1) is the dollar amount of the Accumulated Value divided by the dollar
amount of the first monthly payment (which determines the greatest
number of payments payable to the beneficiary), and
(2) is the number of monthly payments paid prior to the death of
the payee,
OPTION IV-A--Joint and Survivor Variable Life Annuity
A monthly variable annuity payable jointly to two payees during their joint
lifetime, and then continuing during the lifetime of the survivor. The amount
of each payment to the survivor is based on the same number of Annuity Units
which applied during the joint lifetime of the two payees. One of the payees
must be either the person designated as the Annuitant in the Policy or the
beneficiary. There is no minimum number of payments under this option. See
Option IV-B, below.
OPTION IV-B--Joint and Two-thirds Survivor Variable Life Annuity
A monthly variable annuity payable jointly to two payees during their joint
lifetime, and then continuing thereafter during the lifetime of the survivor.
However, the amount of each monthly payment to the survivor is based upon
two-thirds of the number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be the person designated
as the Annuitant in the Policy or the beneficiary. There is no minimum number
of payments under this option. See Option IV-A, above.
OPTION V--Period Certain Variable Annuity
A monthly variable annuity payable for a stipulated number of from one to
thirty years.
It should be noted that Option V does not involve a life contingency. In the
computation of the payments under this option, the charge for annuity rate
guarantees, which includes a factor for mortality risks, is made. Although
not contractually required to do so, the Company currently follows a practice
of permitting persons receiving payments under Option V to elect to convert
to a variable annuity involving a life contingency. The Company may
discontinue or change this practice at any time, but not with respect to
Policy Owners who have elected Option V prior to the date of any change in
this practice. See "FEDERAL TAX CONSIDERATIONS" for a discussion of the
possible adverse tax consequences of selecting Option V.
J. NORRIS DECISION.
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States
Supreme Court ruled that, in connection with retirement benefit options
offered under certain employer-sponsored employee benefit plans, annuity
options based on sex-distinct actuarial tables are not permissible under
Title VII of the Civil Rights Act of 1964. The ruling requires that benefits
derived from contributions paid into a plan after August 1, 1983 be
calculated without regard to the sex of the employee. Annuity benefits
attributable to payments received by the Company under a policy issued in
connection with an employer-sponsored benefit plan affected by the Norris
decision will be based on the greater of (1) the Company's unisex
Non-Guaranteed Current Annuity Option Rates or (2) the guaranteed male rates
described in such Policy, regardless of whether the Annuitant is male or
female.
Although the Company believes that the Supreme Court ruling does not affect
Policies funding IRA plans that are not employer-sponsored, the Company will
apply certain aspects of the ruling to annuity benefits under such Policies,
except in those states in which it is prohibited. Such benefits will be based
on (1) the greater of the guaranteed unisex annuity rates described in the
Policies or (2) the Company's sex-distinct Non-Guaranteed Current Annuity
Option Rates.
K. COMPUTATION OF POLICY VALUES AND ANNUITY PAYMENTS. THE ACCUMULATION UNIT.
Each net purchase payment is allocated to the account(s) selected by the
Policy Owner. Allocations to the Subaccounts are credited to the Policy in
the form of Accumulation Units. Accumulation Units are credited separately
for each Subaccount. The number of Accumulation Units of each Subaccount
credited to the Policy is equal to the portion of the net purchase payment
allocated to the Subaccount, divided by the dollar value of the applicable
Accumulation Unit as of the Valuation Date the payment is received at the
Company's Principal Office. The number of Accumulation Units resulting from
each payment will remain fixed unless changed by a subsequent split of
Accumulation Unit value, a transfer, a partial redemption, or surrender. The
dollar value of an Accumulation Unit of each Subaccount varies from Valuation
Date to Valuation Date based on the investment experience of that Subaccount
and will reflect the investment performance, expenses and charges of its
Underlying Series. The value of an Accumulation Unit was set at $1.00 on the
first Valuation Date for each Subaccount.
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Allocations to the General Account are not converted into Accumulation Units,
but are credited interest at a rate periodically set by the Company. See
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
The Accumulated Value under the Policy is determined by (1) multiplying the
number of Accumulation Units in each Subaccount by the value of an Accumulation
Unit of that Subaccount on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the General Account, if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Subaccount for the Valuation Period then ended is
determined from the investment performance of that Subaccount. Such rate is (1)
the investment income of that Subaccount for the Valuation Period, plus capital
gains and minus capital losses of that Subaccount for the Valuation Period,
whether realized or unrealized, adjusted for provisions made for taxes, if any,
divided by (2) the amount of that Subaccount's assets at the beginning of the
Valuation Period. The adjusted gross investment rate may be either positive or
negative.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR. The net investment rate for a
Subaccount's variable accumulations for any Valuation Period is equal to the
adjusted gross investment rate of the Subaccount for such Valuation Period
decreased by the equivalent for such period of a charge equal to 1.40% per
annum. This charge cannot be increased.
The net investment factor is 1.000000 plus the applicable net investment rate.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY PAYMENTS" in the Statement of Additional Information.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a measure
of the value of the Annuitant's monthly annuity payments under a variable
annuity option. The value of an Annuity Unit in each Subaccount initially was
set at $1.00. The value of an Annuity Unit under a Subaccount on any
Valuation Date thereafter is equal to the value of such unit on the
immediately preceding Valuation Date, multiplied by the product of (1) the
net investment factor of the Subaccount for the current Valuation Period and
(2) a factor to adjust benefits to neutralize the assumed interest rate. The
assumed interest rate, discussed below, is incorporated in the variable
annuity options offered in the Policy.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY PAYMENTS. The first monthly
annuity payment is based upon the Accumulated Value as of a date not more
than four weeks preceding the date the first annuity payment is due.
Currently, variable annuity payments are made on the first of the month based
on unit values as of the 15th day of the preceding month.
The Policy provides annuity rates which determine the dollar amount of the
first monthly payment under each form of annuity for each $1,000 of applied
value (Accumulated Value applied under a specific annuity option to provide
annuity income payments, minus any applicable premium tax). The annuity rates
in the Policy are based on a modification of the 1983 Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. Norris Decision") and age of the
Annuitant and the value of the amount applied under the annuity option. The
variable annuity options offered by the Company are based on a 3 1/2% assumed
interest rate. Variable payments are affected by the assumed interest rate
used in calculating the annuity option rates. Variable annuity payments will
increase over periods when the actual net investment result of the
Subaccount(s) funding the annuity exceeds the equivalent of the assumed
interest rate for the period. Variable Annuity Payments will decrease over
periods when the actual net investment result of the respective Subaccount is
less than the equivalent of the assumed interest rate for the period.
The dollar amount of the first monthly annuity payment under a life
contingency or a noncommutable period certain option of at least a 10 year
option is determined by multiplying (1) the Accumulated Value applied under
that option (after deduction for premium tax, if any) divided by $1,000, by
(2) the applicable amount of the first monthly payment per $1,000 of value.
For any commutable period certain options and for noncommutable period
certain options the Surrender Value less any premium tax is applied. The
dollar amount of the first monthly variable annuity payment is then divided
by the value of an Annuity Unit of the selected Subaccount(s) to determine
the number of Annuity Units represented by the first payment. This number of
Annuity Units remains fixed under all annuity options except the joint and
two-thirds survivor annuity option. In each subsequent month, the dollar
amount of the variable annuity payment is determined by multiplying this
fixed number of Annuity Units by the value of an Annuity Unit on the
applicable Valuation Date.
After the first payment, the dollar amount of each monthly variable annuity
payment will vary with subsequent variations in the value of the Annuity Unit
of the selected Subaccount(s). The dollar amount of each fixed amount monthly
annuity payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Policy Owners both fixed and
variable annuity rates more favorable than those contained in the Policy. Any
such rates will be applied uniformly to all Policy Owners of the same class.
For an illustration of variable annuity payment calculation using a
hypothetical example, see "ANNUITY PAYMENTS" in the Statement of Additional
Information.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Policy, on redemptions
or surrenders, on annuity payments, and on the economic benefit to the
Annuitant, or beneficiary depends
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upon a variety of factors. The following discussion is based upon the
Company's understanding of current federal income tax laws as they are
interpreted as of the date of this Prospectus. No representation is made
regarding the likelihood of continuation of current federal income tax laws
or of current interpretations by the Internal Revenue Service (IRS).
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY POLICIES IS NOT
EXHAUSTIVE, DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS
TAX ADVICE. A QUALIFIED TAX ADVISER SHOULD ALWAYS BE CONSULTED WITH REGARD TO
THE APPLICATION OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets,
or existence of the Policies, the Separate Account or the Subaccounts may
have upon its tax. The Separate Account presently is not subject to tax, but
the Company reserves the right to assess a charge for taxes should the
Separate Account at any time become subject to tax. Any charge for taxes will
be assessed on a fair and equitable basis in order to preserve equity among
classes of Policy Owners and with respect to each Separate Account as though
that Separate Account were a separate taxable entity.
The Separate Account is considered to be a part of and taxed with the
operations of the Company. The Company is taxed as a life insurance company
under subchapter L of the Internal Revenue Code ("Code"). The Company files a
consolidated tax return with its parent, First Allmerica Financial Life
Insurance Company, and other affiliates.
The Internal Revenue Service has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
contracts under Section 817(h) of the Code. The regulations provide that the
investments of a segregated asset account underlying a variable annuity contract
are adequately diversified if no more than 55% of the value of its assets is
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. If the investments are not adequately diversified, the income on a
contract, for any taxable year of the Policy Owner, would be treated as ordinary
income received or accrued by the Policy Owner. It is anticipated that the
Underlying Series will comply with the diversification requirements.
A. QUALIFIED AND NON-QUALIFIED POLICIES.
From a federal tax viewpoint there are two types of variable annuity Policies,
"qualified" Policies and "non-qualified" Policies. A qualified Policy is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Policy is one that is not purchased in connection with one of the
indicated retirement plans. The tax treatment for certain partial redemptions or
surrenders will vary according to whether they are made from a qualified Policy
or a non-qualified Policy. For more information on the tax provisions applicable
to qualified Policies, see Sections D through J, below.
B. TAXATION OF THE POLICIES IN GENERAL.
The Company believes that the Policies described in this Prospectus will, with
certain exceptions (see K below), be considered annuity policies under Section
72 of the Internal Revenue Code (the "Code"). This section provides for the
taxation of annuities. The following discussion concerns annuities subject to
Section 72. Section 72(e)(11)(A)(ii) requires that all non-qualified deferred
annuity policies issued by the same insurance company to the same Policy Owner
during the same calendar year be treated as a single Policy in determining
taxable distributions under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the Policy is
not taxable to the Policy Owner until it is withdrawn from the Policy. If the
Policy is surrendered or amounts are withdrawn prior to the Annuity Date, to the
extent of the amount withdrawn any investment gain in value over the cost basis
of the Policy would be taxed as ordinary income. Under the current provisions of
the Code, amounts received under a non-qualified Policy prior to the Annuity
Date (including payments made upon the death of the Annuitant or Policy Owner),
or as non-periodic payments after the Annuity Date, are generally first
attributable to any investment gains credited to the Policy over the taxpayer's
basis (if any) in the Policy. Such amounts will be treated as income subject to
federal income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59-1/2. The penalty tax will not be imposed
after age 59-1/2, or if the withdrawal follows the death of the Policy Owner
(or, if the Policy Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability"
(as defined in the Code) of the Policy Owner. Furthermore, under Section 72
of the Code, this penalty tax will not be imposed, irrespective of age, if
the amount received is one of a series of "substantially equal" periodic
payments made at least annually for the life or life expectancy of the payee.
This requirement is met when the Policy Owner elects to have distributions
made over the Policy Owner's life expectancy, or over the joint life
expectancy of the Policy Owner and beneficiary. The requirement that the
amount be paid out as one of a series of "substantially equal" periodic
payments is met when the number of units withdrawn to make each distribution
is substantially the same.
In a recent private letter ruling, the IRS took the position that where
distributions from a variable annuity policy were determined by amortizing
the accumulated value of the policy over the taxpayer's remaining life
expectancy (such as under the Policy's life expectancy distribution ("LED")
option), and the option could be changed or terminated at any time, the
distributions failed to qualify as part of a "series of substantially equal
payments" within the meaning of Section 72 of the Code. The distributions
were therefore subject to the 10% federal penalty tax. This private letter
ruling may be applicable to a Policy Owner who receives distributions under
the LED option prior to age 59 1/2. Subsequent private letter rulings,
however, have treated LED-type withdrawal programs as effectively avoiding
the 10% penalty tax. The position of the IRS on this issue is unclear.
If the Policy Owner transfers (assigns) the Policy to another individual as a
gift prior to the Annuity Date, the Code provides that the Policy Owner will
incur taxable income at the time of the transfer. An exception is provided
for certain
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transfers between spouses. The amount of taxable income upon such taxable
transfer is equal to the excess, if any, of the cash surrender value of the
Policy over the Policy Owner's cost basis at the time of the transfer. The
transfer will also subject the Owner to a gift tax. Where the Policy Owner
and Annuitant are different persons, the change of ownership of the Policy to
the Annuitant on the Annuity Date, as required under the Policy, is a gift
and will be taxable to the Owner as such. However, the Owner will not incur
taxable income. Rather the Annuitant will incur taxable income upon receipt
of annuity payments as discussed below.
When annuity payments are commenced under the Policy, generally a portion of
each payment may be excluded from gross income. The excludable portion is
generally determined by a formula that establishes the ratio that the cost
basis of the Policy bears to the expected return under the Policy. The
portion of the payment in excess of this excludable amount is taxable as
ordinary income. Once all cost basis in the Policy is recovered, the entire
payment is taxable. If the last Annuitant dies before cost basis is
recovered, a deduction for the difference is allowed on the Annuitant's final
tax return.
C. TAX WITHHOLDING AND PENALTIES.
The Code requires withholding with respect to payments or distributions from
employee benefit plans, annuities, and IRAs, unless a taxpayer elects not to
have withholding. In addition, the Code requires reporting to the IRS of the
amount of income received with respect to payment or distributions from
annuities.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Policies offered by this Prospectus will vary according to
whether the amount redeemed or surrendered is allocable to an investment in
the Policy made before or after certain dates.
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified employer plans, as defined by the Code,
vary according to the type of plan and the terms and conditions of the plan
itself. Therefore, the following is general information about the use of the
Policies with various types of qualified plans. The rights of any person to
any benefits under such qualified plans will be subject to the terms and
conditions of the qualified plans themselves regardless of the terms and
conditions of the Policy.
A loan to a participant or beneficiary from plans qualified under Sections
401 and 403 or an assignment or pledge of an interest in such a plan is
generally treated as a distribution. This general rule does not apply to
loans which contain certain repayment terms and do not exceed a specified
maximum amount, as required under Section 72(p).
E. QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS AND QUALIFIED ANNUITY
PLANS.
When an employee (including a self-employed individual) or one or more of
the employee's beneficiaries receives a "lump sum" distribution (a
distribution from a qualified plan described in Code Section 401(a) within
one taxable year equal to the total amount payable with respect to such an
employee) the taxable portion of such distribution may qualify for special
treatment under a special five-year income averaging provision of the Code.
The employee must have had at least 5 years of participation under the plan,
and the lump sum distribution must be made after the employee has attained
age 59 1/2 or on account of his or her death, separation from the employer's
service (in the case of a common-law employee) or disability (in the case of
a self-employed individual). Such treatment can be elected for only one
taxable year once the individual has reached age 59 1/2. An employee who
attained age 50 before January 1, 1986 may elect to treat part of the taxable
portion of a lump-sum distribution as long-term capital gain and may also
elect 10-year averaging instead of five-year averaging.
The Company can provide prototype plans for certain of the pension or profit
sharing plans for review by your legal counsel. For information, ask your
agent.
F. SELF-EMPLOYED INDIVIDUALS.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended,
frequently referred to as "H.R. 10," allows self-employed individuals and
partners to establish qualified pension and profit sharing trusts and annuity
plans to provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements applicable
to corporate qualified plans, with some special restrictions imposed on
"owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
G. INDIVIDUAL RETIREMENT ACCOUNT PLANS. Any individual who earns
"compensation" (as defined in the Code and including alimony payable under a
court decree) from employment or self-employment, whether or not he or she is
covered by another qualified plan, may establish an Individual Retirement
Account or Annuity plan ("IRA") for the accumulation of retirement savings on
a tax-deferred basis. Income from investments is not included in
"compensation." The assets of an IRA may be invested in, among other things,
annuity policies including the Policies offered by this Prospectus.
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the
lesser of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000
(between $25,000 and $35,000 for unmarried taxpayers and between $0 and
$10,000 for a married taxpayer filing separately) if the taxpayer and his or
her spouse file a joint return and either is an active participant in an
employer sponsored retirement plan.
An individual and a working spouse each may have an IRA with the
above-described limit on each. An individual with an IRA may establish an
additional IRA for a non-working spouse if they file a joint return.
Contributions to the two IRAs together are deductible up to the lesser of
$2,250 or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result
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in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be
deducted, taxes on their earnings are deferred until the earnings are
distributed. The maximum permissible non-deductible contribution is $2,000
for an individual taxpayer and $2,250 for a taxpayer and non-working spouse.
These limits are reduced by the amount of any deductible contributions made
by the taxpayer.
Contributions may be made with respect to a particular year until the due
date of the individual's federal income tax return for that year, not
including extensions. However, for reporting purposes, the Company will
regard contributions as being applicable to the year made unless it receives
notice to the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2, and failure to
make adequate distributions at this time may result in certain adverse tax
consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year
are treated as if they were one distribution. An individual who makes a
non-deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's
tax return to enable the IRS to determine the proportion of the IRA balance
which represents non-deductible contributions. If the required information is
provided, that part of the amount withdrawn which is proportionate to the
individual's aggregate non-deductible contributions over the aggregate
balance of all of the individual's IRAs, is excludable from income.
Distributions which are a return of a non-deductible contribution are
non-taxable, as they represent a return of basis. If the required information
is not provided to the IRS, distributions from an IRA to which both
deductible and non-deductible contributions have been made are presumed to be
fully taxable.
H. SIMPLIFIED EMPLOYEE PENSIONS.
Employees may establish simplified employee pensions ("SEPs") under Code
Section 408(k) if certain requirements are met. A SEP is an IRA to which the
employer contributes under a written formula. Currently, a SEP may accept
employer contributions each year up to $30,000 or 15% of compensation (as
defined), whichever is less. To establish SEPs the employer must make a
contribution for every employee age 21 and over who has performed services
for the employer for at least three of the five immediately preceding
calendar years and who has earned at least $300 for the year.
The employer's contribution is excluded from the employee's gross income for
the taxable year for which it was made up to the $30,000/15% limit. In
addition to the employer's contribution, the employee may contribute 100% of
the employee's earned income, up to $2,000, to the SEP, but such
contributions will be subject to the rules described above in "F. Individual
Retirement Account Plans." These plans are subject to the general employer's
deduction limitations applicable to all corporate qualified plans.
I. PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS.
Under the provisions of Section 403(b) of the Code, payments made for annuity
policies purchased for employees under annuity plans adopted by public school
systems and certain organizations which are tax exempt under Section
501(c)(3) of the Code are excludable from the gross income of such employees
to the extent that the aggregate purchase payments for such annuity policies
in any year do not exceed the maximum contribution permitted under the Code.
A Policy qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Policy Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax. Also, there is a mandatory 20% income
tax withholding on any eligible rollover distribution, unless it is a direct
rollover to another qualified plan in accordance with IRS rules.
The distribution restrictions are effective for years beginning after
December 31, 1988, but only with respect to amounts that were not held under
the Policy as of that date.
J. TEXAS OPTIONAL RETIREMENT PROGRAM.
Under a Code Section 403(b) annuity policy issued as a result of participation
in the Texas Optional Retirement Program, distributions may not be received
except in the case of the participant's death, retirement or termination of
employment in the Texas public institutions of higher education. These
restrictions are imposed by reason of an opinion of the Texas Attorney General
interpreting the Texas laws governing the Optional Retirement Program.
K. SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES.
Code Section 457 allows employees of a state, one of its political
subdivisions, or certain tax-exempt entities to participate in eligible
government deferred compensation plans. An eligible plan, by its terms, must
not allow deferral of more than $7,500 or 33 1/3% of a participant's
includible compensation for the taxable year, whichever is less. Includible
compensation does not include amounts excludable under the eligible deferred
compensation plan or amounts paid into a Code Section 403(b) annuity. The
amount a participant may defer must be reduced dollar-for-dollar by elective
deferrals under a SEP, 401(k) plan or a deductible employee contribution to a
501(c)(18) plan. Under eligible deferred compensation plans the state,
political subdivision, or tax-exempt entity will be owner of the Policy.
If an employee also participates in another eligible plan or contributes to a
Code Section 403(b) annuity, a single limit of
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<PAGE>
$7,500 will be applied for all plans. Additionally, the employee must
designate how much of the $7,500 or 33 1/3% limitation will be allocated
among the various plans. Contributions to an eligible plan will serve to
reduce the maximum exclusion allowance for a Code Section 403(b) annuity.
Amounts received by employees under such plans generally are includible in
gross income in the year of receipt.
L. NON-INDIVIDUAL OWNERS.
Non-individual Owners (e.g., a corporation) of deferred annuity contracts
generally will be currently taxed on any increase in the cash surrender value
of the deferred annuity attributable to contributions made after February 28,
1986. This rule does not apply to immediate annuities or to deferred
annuities held by a qualified pension plan, an IRA, a 403(b) plan, estates,
employers with respect to terminated pension plans, or a nominee or agent
holding a contract for the benefit of an individual. Corporate-owned
annuities may result in exposure to the alternative minimum tax, to the
extent that income on the annuities increases the corporation's adjusted
current earnings.
LOANS (QUALIFIED POLICIES ONLY)
Loans will be permitted only for TSAs and Policies issued to a plan qualified
under Section 401(a) and 401(k) of the Code. Loans are made from the Policy's
value on a pro-rata basis from all accounts. The maximum loan amount is the
amount determined under the Company's maximum loan formula for qualified plans.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Policy. Loans are subject to applicable retirement legislation and their
taxation is determined under the Federal income tax laws. The amount borrowed
will be transferred to a fixed, minimum guarantee loan assets account in the
Company's General Account, where it will accrue interest at a specified rate
below the then current loan interest rate. Generally, loans must be repaid
within five (5) years. When repayments are received, they will be allocated in
accordance with the contract owner's most recent allocation instructions.
The amount of the death benefit, the amount payable on a full surrender and
the amount applied to provide an annuity on the Annuity Date will be reduced
to reflect any outstanding loan balance (plus accrued interest thereon).
Partial withdrawals may be restricted by the maximum loan limitation.
REPORTS
A Policy Owner is sent a report semi-annually which states certain financial
information about the Underlying Series. The Company will also furnish an
annual report to the Policy Owner containing a statement of his or her
account, including unit values and other information required by applicable
law, rules and regulations.
CHANGES IN OPERATION OF THE
SEPARATE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from any Separate Account or Subaccount to another of the
Company's separate accounts or Subaccounts having assets of the same class,
(2) to operate the Separate Account or any Subaccount as a management
investment company under the 1940 Act or in any other form permitted by law,
(3) to deregister the Separate Account under the 1940 Act in accordance with
the requirements of the 1940 Act and (4) to substitute the shares of any
other registered investment company for the Underlying Series shares held by
a Subaccount, in the event that Underlying Series shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Series shares is inappropriate in view of the purpose of the
Subaccount. In no event will the changes described above be made without
notice to Policy Owners in accordance with the 1940 Act. The Company reserves
the right, subject to compliance with applicable law, to change the names of
the Separate Account or of the Subaccounts.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted from
this Prospectus pursuant to the rules and regulations of the Commission. The
omitted information may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the Commission's prescribed fees.
APPENDIX A
MORE INFORMATION ABOUT THE
GENERAL ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account are not generally subject to regulation
under the provisions of the Securities Act of 1933 or the Investment Company
Act of 1940. Disclosures regarding the fixed portion of the annuity contract
and the General Account may be subject to the provisions of the Securities
Act of 1933 concerning the accuracy and completeness of statements made in
the Prospectus. The disclosures in this APPENDIX A have not been reviewed by
the Securities and Exchange Commission. ALLOCATIONS TO AND TRANSFERS TO AND
FROM THE GENERAL ACCOUNT OF THE COMPANY ARE NOT PERMITTED IN CERTAIN STATES.
The General Account of the Company is made up of all of the general assets of
the Company other than those allocated to any Separate Account. Allocations
to the General Account, where available, become part of the assets of the
Company and are used to support insurance and annuity obligations.
A portion or all of net purchase payments may be allocated to accumulate at a
fixed rate of interest in the General Account, where available. Such net
amounts are guaranteed by the Company as to principal and a minimum rate of
interest.
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Under the Policies, the minimum interest which may be credited on
amounts allocated to the General Account is 3% compounded annually.
Additional "Excess Interest" may or may not be credited at the sole
discretion of the Company.
If a Policy is surrendered, or if an Excess Amount is redeemed, while the
Policy is in force and before the Annuity Date, a contingent deferred sales
charge is imposed if such event occurs before the payments attributable to
the surrender or withdrawal have been credited to the Policy less than seven
full policy years.
If your Policy was issued in Maryland on Form No. A3022-93, the following
surrender charge table applies to monies in the General Account, rather than
the surrender charge table shown in "CHARGES AND DEDUCTION - A. CONTINGENT
DEFERRED SALES CHARGE" (which applies to monies in the Separate Account):
<TABLE>
<CAPTION>
Years Measured from Date
of Premium Payment Charge as a Percentage of
to Date of Withdrawal the Payments Withdrawn
- --------------------- -------------------------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
More Than 9 No Charge
</TABLE>
APPENDIX B
INFORMATION APPLICABLE ONLY TO POLICY NO. A3019-92 (AND STATE VARIATIONS)
If your Policy is issued on Form No. A3019-92, or a state variation thereof
("original Policy"), your Policy is substantially similar to the Policies
described in this prospectus ("new Policies"), except as follows:
1. The minimum interest rate credited to amounts allocated to the General
Account respecting the new Policies is 3% compounded annually. For original
Policies, the minimum interest rate guarantees are 5% for the first five Policy
years, 4% for the next five Policy years, and 3.5% thereafter.
2. The guaranteed death benefit under the new Policies is reduced
proportionally to reflect partial withdrawals (in the same proportion that the
Accumulated Value was reduced by the withdrawals). Under the original Policies,
partial withdrawals are subtracted from the guaranteed death benefit.
Additionally, the stepped-up death benefit applies to the most recent fifth year
Policy anniversary for new Policies and applies to the most recent seventh year
Policy anniversary for the original Policies.
3. Under the new Policies, the Free Withdrawal Amount is the greater of (1)
cumulative earnings (Accumulated Value as of the most recent Valuation Date
reduced by total gross payments not previously redeemed), (2) 10% of the
Accumulated Value as of the most recent Valuation Date, reduced by the total
amount of any prior partial redemptions made in the same calendar year to which
no contingent deferred sales charge was applied, or (3) the life expectancy
distribution, if applicable. The Free Withdrawal Amount for new Policies is
first deducted from cumulative earnings, and any excess will be deemed withdrawn
on a LIFO basis.
Under the original Policies, the Free Withdrawal Amount is the greater of (1)
10% of the Accumulated Value as of December 31 of the previous calendar year, or
(2) the life expectancy distribution, if applicable. The Free Withdrawal Amount
for original Policies is deducted first from Old Payments, then from the
earliest New Payments and so on until all New Payments have been exhausted
pursuant to the FIFO (first-in-first-out) method of accounting (LIFO or last-in-
first-out method in New Jersey).
4. If you surrender your Policy or annuitize under a period certain option at
the end of one, three or fives years, the expenses you would pay on a $1,000
investment, assuming 5% annual return on assets, would be less than shown in the
expense examples under "ANNUAL AND TRANSACTION EXPENSES."
APPENDIX C
EXCHANGE OFFER
A. VARIABLE CONTRACT EXCHANGE OFFER.
The Company reserves the right to suspend this exchange offer at any time.
This exchange offer applies to all variable annuity contracts issued by the
Company, except for (1) variable annuity contract A3018-91 (and state
variation forms) known as ExecAnnuity Plus, and (2) new Policies issued on
Form Number A3022-93 (and state variations thereof) with respect to an
exchange for an original Policy issued on Form Number A3019-92 (and state
variations thereof). A variable annuity contract to which this exchange
offer applies may be exchanged at net asset value for the new or original
Policies described in this prospectus, which are issued on Form Numbers
A3022-93 or A3019-92, respectively, and state variations thereof. To effect
an exchange, the Company should receive (1) a completed application for the
Policy, (2) written request for the exchange, (3) the contract to be
exchanged for the Policy, and (4) a signed Letter of Awareness.
CONTINGENT DEFERRED SALES CHARGE COMPUTATION. No surrender charge applicable
to the contracts to be exchanged will apply to the surrender effecting the
exchange. Where a contract, other than a Policy or variable annuity contract
A3020-92 and state variations thereof ("contract A3020-92"), is exchanged for
a Policy, the contingent deferred sales charge under the acquired Policy will
be computed as if prior purchase payments for the exchanged contract had been
made for the acquired Policy on the date of issue of the exchanged contract.
Where another Policy or contract A3020-92 is exchanged for a Policy, the
contingent deferred sales charge under the acquired Policy will be computed
as if prior purchase payments for the exchanged Policy or contract A3020-92
had been made for the acquired Policy at least as early as the date on which
they were made for the exchanged Policy or contract A3020-92. For those
exchanged contracts for which a front-end sales charge was deducted from each
purchase payment, the transferred accumulated values will be treated as "Old
Payments" under the Policy, so that no
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deferred sales charge will be assessed on aggregate subsequent withdrawals
from the Policy of up to the amount of the transferred accumulated values.
For additional purchase payments made under the Policy after the transfer of
accumulated value from the exchanged contract, the contingent deferred sales
charge will be computed based on the number of years that the additional
purchase payments to which the withdrawal is attributed have been credited
under the Policy, as provided in this Prospectus.
SUMMARY OF DIFFERENCES BETWEEN THE POLICY AND EXCHANGED CONTRACTS. The Policy
and the variable contracts to which this exchange offer applies, if other than
another Policy or contract A3020-92, differ substantially as summarized below.
There may be additional differences important to a person considering an
exchange, and the prospectuses of the Policy and the variable contract to be
exchanged should be reviewed carefully before the exchange is made. The
differences between the new Policies and the original Policies are described in
Appendix B. ANY POLICY OWNER OF AN ORIGINAL POLICY CONTEMPLATING AN EXCHANGE
FOR A NEW POLICY SHOULD CAREFULLY CONSIDER ANY POTENTIAL ADVERSE EFFECT.
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under the
Policy, as described in this Prospectus, imposes higher charge percentages
against the excess amount redeemed and generally applies such percentages for a
greater number of years than the exchanged contracts. For certain classes of
exchanged contracts, new purchase payments, subject to the contingent deferred
sales charge under the Policy, would not have been subject to the charge under
the exchanged contract.
POLICY FEE AND ADMINISTRATIVE EXPENSE CHARGE. Under the Policy, the Company
deducts a Policy Fee, at a maximum of $30, on each policy anniversary date and
upon full surrender, when the Accumulated Value is $50,000 or less, and assesses
each Subaccount with a daily administrative expense charge at an annual rate of
0.15% of the average daily net assets of the Subaccount. Depending on the class
of contracts to which this exchange offer is made, either no policy fee is
deducted or a policy fee of $9 is deducted twice a year. For certain classes of
contracts, a combined sales and administrative expense is deducted from purchase
payments. No administrative expense charge based on a percentage of Subaccount
assets is imposed under the contracts to which this exchange offer is made.
TRANSFER CHARGE. No charges for transfers among the Subaccounts and the General
Account are imposed for contracts to which this exchange offer is made.
Currently, no such charge is imposed under the Policy and the first twelve
transfers in a Policy year are guaranteed to be free of any charge. However, the
Company reserves the right to assess a charge, guaranteed never to exceed $25,
for the seventh and each subsequent transfer in a Policy year.
DEATH BENEFIT. The Policy offers a "stepped-up death benefit" which is not
offered under the exchanged contract; namely, the minimum death benefit that
would have been payable on the most recent fifth year Policy Anniversary for new
Policies or seventh Policy Anniversary for original Policies, adjusted for
subsequent purchase payments and withdrawals after that date. Upon exchange for
the Policy, the accumulated value of the exchanged contract becomes the
"purchase payment" for the Policy. Therefore, the prior purchase payments made
for the exchanged contract would not become a basis for determining the gross
payment (less redemptions) guarantee under the Policy. Consequently, whether the
initial minimum death benefit under the Policy acquired in an exchange is
greater than, equal to, or less than the death benefit of the exchanged contract
depends upon whether the accumulated value transferred to the Policy is greater
than, equal to, or less than the gross payments (less redemptions) under the
exchanged contract.
ANNUITY TABLES. The contracts to which this exchange offer is made contain more
favorable annuity tables than the Policy for use in determining the amount of
the first variable annuity payment under the annuity options offered. The
contracts and the Policy each provide minimum guarantees.
INVESTMENTS. Accumulated Value and purchase payments under the Policy may be
allocated to several underlying funds in addition to those permitted under the
exchanged contracts.
SUMMARY OF DIFFERENCES BETWEEN THE POLICY AND CONTRACT A3020-92. The Policy and
contract A3020-92 differ in the following material ways (the prospectuses of the
Policy and contract A3020-92 should be reviewed carefully before any exchange):
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under the
Policy, as described in this Prospectus, imposes higher charge percentages
against the excess amount redeemed.
DEATH BENEFIT. The Policy offers a "stepped-up death benefit," which is the
minimum death benefit that would have been payable on the most recent fifth year
Policy Anniversary for new Policies or seventh year Policy Anniversary for
original Policies, adjusted for subsequent purchase payments and withdrawals
after that date. Under contract A3020-92, the stepped-up death benefit applies
to the most recent fifth year. Upon exchange for the Policy, the accumulated
value of exchanged contract A3020-92 becomes the "purchase payment" for the
Policy. Therefore, the prior purchase payments made for exchanged contract
A3020-92 would not become a basis for determining the gross payment (less
redemptions) guarantee under the Policy. Consequently, whether the initial
minimum death benefit under the Policy acquired in an exchange is greater than,
equal to, or less than the death benefit of exchanged contract A3020-92 depends
upon whether the accumulated value transferred to the Policy is greater than,
equal to, or less than the gross payments (less redemptions) under exchanged
contract A3020-92.
INVESTMENTS. Accumulated Value and purchase payments under the Policy and
contract A3020-92 are allocable to different underlying funds and underlying
investment companies.
FIXED ACCOUNT. The new Policies have a Fixed Account minimum guaranteed interest
rate of 3% compounded annually, and the original Policies have minimum
guaranteed interest rates of 5% compounded annually for the first five Policy
years, 4% compounded annually for the next five
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Policy years, and 3.5% compounded annually thereafter. Contract A3020-92 has
a fixed account minimum guaranteed interest rate of 3.5% compounded annually.
Under contract A3020-92, amounts may not be transferred from the fixed
account to a Sub-Account prior to the end of the applicable one-year
guaranteed period.
B. FIXED ANNUITY EXCHANGE OFFER.
This exchange offer also applies to all fixed annuity contracts issued by the
Company. A fixed annuity contract to which this exchange offer applies may be
exchanged at net asset value for the Policies described in this Prospectus,
subject to the same provisions for effecting the exchange and for applying
the Policy's contingent deferred sales charge as described above for variable
annuity contracts. This Prospectus should be read carefully before making
such exchange. Unlike a fixed annuity, the Policy's value is not guaranteed
and will vary depending on the investment performance of the underlying funds
to which it is allocated. The Policy has a different charge structure than a
fixed annuity contract, which includes not only a contingent deferred sales
charge that may vary from that of the class of contracts to which the
exchanged fixed contract belongs, but also Policy fees, mortality and expense
risk charges (for the Company's assumption of certain mortality and expense
risks), administrative expense charges, transfer charges (for transfers
permitted among Subaccounts and the General Account), and expenses incurred
by the underlying funds. Additionally, the interest rates offered under the
General Account of the Policy and the Annuity Tables for determining minimum
annuity payments may be different from those offered under the exchanged
fixed contract.
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE.
Persons who, under the terms of this exchange offer, exchange their contract
for the Policy and subsequently revoke the Policy within the time permitted,
as described in the sections of this Prospectus captioned "RIGHT TO REVOKE
INDIVIDUAL RETIREMENT ANNUITY" and "RIGHT TO REVOKE OR SURRENDER IN SOME
STATES," will have their exchanged contract automatically reinstated as of
the date of revocation. The refunded amount will be applied as the new
current accumulated value under the reinstated contract, which may be more or
less than it would have been had no exchange and reinstatement occurred. The
refunded amount will be allocated initially among the general account and
subaccounts of the reinstated contract in the same proportion that the value
in the general account and the value in each subaccount bore to the
transferred accumulated value on the date of the exchange of the contract for
the Policy. For purposes of calculating any contingent deferred sales charge
under the reinstated contract, the reinstated contract will be deemed to have
been issued and to have received past purchase payments as if there had been
no exchange.
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<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-K INVESTING IN SHARES OF
DELAWARE GROUP PREMIUM FUND, INC.
This prospectus describes interests under flexible premium deferred
combination variable and fixed annuity contracts issued either on a group basis
or as individual contracts by Allmerica Financial Life Insurance and Annuity
Company ("Company") to individuals and businesses in connection with retirement
plans which may or may not qualify for special federal income tax treatment.
(For information about the tax status when used with a particular type of plan,
see "FEDERAL TAX CONSIDERATIONS.") Participation in a group contract will be
accounted for by the issuance of a certificate describing the individual's
interest under the group contract. Participation in an individual contract will
be evidenced by the issuance of an individual contract. Certificates and
individual contracts are collectively referred to herein as the "Contracts." The
following is a summary of information about these Contracts. More detailed
information can be found under the referenced captions in this Prospectus.
Contract values may accumulate on a variable basis in the contract's
Variable Account, known as Separate Account VA-K. The Assets of the Variable
Account are divided into Subaccounts, each investing exclusively in shares of an
underlying mutual fund.
In most jurisdictions, values may also be allocated on a fixed basis to the
Fixed Account, which is part of the Company's General Account and during the
accumulation period to one or more of the Guarantee Period Accounts. Amounts
allocated to the Fixed Account earn interest at a guaranteed rate for one year
from the date allocated. Amounts allocated to a Guarantee Period Account earn a
fixed rate of interest for the duration of the applicable Guarantee Period. The
interest earned in a Guarantee Period Account is guaranteed if held for the
entire guarantee period. If removed prior to the end of the Guarantee Period the
value may be increased or decreased by a market value adjustment. Assets
supporting allocation to the Guarantee Period Accounts in the accumulation phase
are held in the Company's Separate Account GPA.
Certain additional information about the Contracts is contained in a
Statement of Additional Information, dated April 30, 1996 as may be amended from
time to time, which has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The Table of Contents for the Statement
of Additional Information is listed on page 3 of this Prospectus. The Statement
of Additional Information is available upon request and without charge. To
obtain the Statement of Additional Information, fill out and return the attached
request card or contact Annuity Customer Services, Allmerica Financial Life
Insurance and Annuity Company, 440 Lincoln Street, Worcester, Massachusetts
01653.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
DELAWARE GROUP PREMIUM FUND, INC. INVESTORS SHOULD RETAIN A COPY OF THIS
PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CONTRACTS ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE CONTRACTS ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK
OR CREDIT UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER
FEDERAL AGENCY. INVESTMENT IN THE CONTRACTS ARE SUBJECT TO
VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
DATED JULY 8, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.............. 2
SPECIAL TERMS............................................................. 4
SUMMARY................................................................... 5
ANNUAL AND TRANSACTION EXPENSES........................................... 7
CONDENSED FINANCIAL INFORMATION........................................... 10
PERFORMANCE INFORMATION................................................... 11
WHAT IS AN ANNUITY........................................................ 13
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY............................. 13
RIGHT TO REVOKE OR SURRENDER IN SOME STATES............................... 14
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT AND DELAWARE GROUP
PREMIUM FUND, INC........................................................ 14
VOTING RIGHTS............................................................. 17
CHARGES AND DEDUCTIONS.................................................... 18
A. Annual Charge Against Variable Account Assets..................... 18
B. Contract Fee...................................................... 18
C. Premium Taxes..................................................... 19
D. Contingent Deferred Sales Charge.................................. 19
E. Transfer Charge................................................... 22
DESCRIPTION OF THE CONTRACT............................................... 23
A. Payments.......................................................... 23
B. Transfer Privilege................................................ 24
C. Surrender......................................................... 24
D. Partial Redemption................................................ 25
E. Death Benefit..................................................... 26
F. The Spouse of the Contract Owner as Beneficiary................... 27
G. Assignment........................................................ 27
H. Electing the Form of Annuity and Annuity Date..................... 27
I. Description of Variable Annuity Options........................... 28
J. Norris Decision................................................... 29
K. Computation of Contract Values and Annuity Benefit Payments....... 29
GUARANTEE PERIOD ACCOUNTS................................................. 31
FEDERAL TAX CONSIDERATIONS................................................ 33
A. Qualified and Non-Qualified Contracts............................. 33
B. Taxation of the Contracts in General.............................. 33
C. Tax Withholding and Penalties..................................... 35
D. Provisions Applicable to Qualified Employer Plans................. 35
E. Qualified Employee Pension and Profit Sharing Trusts.............. 35
F. Self-Employed Individuals......................................... 35
G. Individual Retirement Account Plans............................... 36
H. Simplified Employee Pensions...................................... 37
I. Public School Systems and Certain Tax-Exempt Organizations........ 37
J. Texas Optional Retirement Program................................. 37
K. Section 457 Plans for State Governments and Tax-Exempt Entities... 37
L. Non-Individual Owners............................................. 38
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
REPORTS................................................................... 38
LOANS (QUALIFIED CONTRACTS ONLY).......................................... 38
CHANGES IN OPERATIONS OF THE VARIABLE ACCOUNT............................. 38
LEGAL MATTERS............................................................. 39
FURTHER INFORMATION....................................................... 39
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.................... 40
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT........... 41
APPENDIX C -- THE DEATH BENEFIT........................................... 44
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY...........................................
TAXATION OF THE VARIABLE ACCOUNT AND THE COMPANY..........................
SERVICES..................................................................
UNDERWRITERS..............................................................
ANNUITY PAYMENTS..........................................................
PERFORMANCE INFORMATION...................................................
FINANCIAL STATEMENTS......................................................
</TABLE>
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE OR SOLICIT AN OFFER IN THAT STATE.
3
<PAGE>
SPECIAL TERMS
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the Fixed Account and
Guarantee Period Accounts then credited to the Contract, on any date before the
Annuity Date..
ACCUMULATION UNIT: a measure of the Contract Owner's interest in a
Subaccount before annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity
benefit payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity benefit
payments under the Contract.
FIXED ACCOUNT: the part of the Company's General Account that guarantees
principal and a fixed interest rate and to which all or a portion of a payment
or transfer under this Contract may be allocated.
FIXED AMOUNT ANNUITY: an Annuity providing for annuity benefit payments
which remain fixed in an amount throughout the annuity benefit payment period
selected.
GUARANTEED INTEREST RATE: the annual effective rate of interest after daily
compounding credited to a Guarantee Period Account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed
Interest Rate for a specified Guarantee Period and is supported by assets in a
non-unitized separate account.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
Separate Account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
SUBACCOUNT: a subdivision of the Variable Account. Each Subaccount
available under the Contracts invests exclusively in the shares of a
corresponding series of Delaware Group Premium Fund, Inc.
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender
after application of any Contract fee, contingent deferred sales charge, and
Market Value Adjustment Contract.
UNDERLYING FUNDS: the Equity/Income Series, High Yield Series, Capital
Reserves Series, Money Market Series, Growth Series, Multiple Strategy Series,
Value Series, Emerging Growth Series, the International Equity Series, and the
Global Bond Series of Delaware Group Premium Fund, Inc.
UNDERLYING INVESTMENT COMPANY: Delaware Group Premium Fund, Inc.
VALUATION DATE: a day on which the net asset value of the shares of any of
the Underlying Funds is determined and unit values of the Subaccounts are
determined. Valuation dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Contract was
received) when there is a sufficient degree of trading in an Underlying Fund's
portfolio securities such that the current net asset value of the Subaccounts
may be materially affected.
VARIABLE ACCOUNT: Separate Account VA-K, one of the Company's Separate
Accounts, consisting of assets segregated from other assets of the Company. The
investment performance of the assets of the Variable Account is determined
separately from the other assets of the Company and are not chargeable with
liabilities arising out of any other business which the Company may conduct.
VARIABLE ANNUITY: an Annuity providing for payments varying in amount in
accordance with the investment experience of certain Underlying Funds.
4
<PAGE>
SUMMARY
INVESTMENT OPTIONS. The Contract permits net payments to be allocated among
the Subaccounts, the Guarantee Period Account and the Fixed Account. THE FIXED
ACCOUNT AND/OR THE GUARANTEE PERIOD ACCOUNTS MAY NOT BE AVAILABLE IN ALL STATES.
SIMILARLY, NOT ALL SUBACCOUNTS MAY BE AVAILABLE IN ALL STATES.
SUBACCOUNTS -- The Subaccounts are subdivisions of the Variable Account,
established as the Company's Separate Account, VA-K. The Variable Account is
registered as a unit investment trust under the Investment Company Act of 1940,
as amended, (the "1940 Act") but such registration does not involve the
supervision of the management or investment practices or contracts of Variable
Account by the Securities and Exchange Commission (the "SEC").
Each Subaccount available under the Contract invests its assets without
sales charge in a corresponding investment series of the Delaware Group Premium
Fund, Inc. ("DGPF"). DGPF is an open-end, diversified series investment company.
The Fund consists of ten different series: the Equity/ Income Series, High Yield
Series, Capital Reserves Series, Money Market Series, Growth Series, Multiple
Strategy Series, Value Series, Emerging Growth Series, International Equity
Series, and Global Bond Series ("Underlying Funds"). Each Underlying Fund
operates pursuant to different investment objectives, discussed below.
INVESTMENT IN THE SUBACCOUNT. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Funds. There can be no assurance that the investment objectives of
the Underlying Funds can be achieved or that the value of a Contract will equal
or exceed the aggregate amount of the purchase payments made under the Contract.
For more information about the Variable Account, the Company and the investments
of the Underlying Funds, see "DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT
AND DELAWARE GROUP PREMIUM FUND, INC." The accompanying prospectuses of DGPF
describe the investment objectives and risks of each of the Underlying Funds.
Dividends or capital gains distributions received from an Underlying Fund
are reinvested in additional shares of that Underlying Fund, which are retained
as assets of the Subaccount.
GUARANTEE PERIOD ACCOUNTS -- Assets supporting the guarantees under the
Guarantee Period Accounts are held in the Company's Separate Account GPA, a
non-unitized insulated separate account. However, values and benefits calculated
on the basis of Guarantee Period Account allocations are obligations of the
Company's General Account. Amounts allocated to a Guarantee Period Account earn
a Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company currently makes available seven Guarantee Periods ranging from three
to ten years in duration (excluding a four year Guarantee Period). Once
declared, the Guaranteed Interest Rate will not change during the duration of
the Guarantee Period. If amounts allocated to a Guarantee Period Account are
transferred, surrendered or applied to an annuity option at any time other than
the last day of the applicable Guarantee Period, a Market Value Adjustment will
apply that may increase or decrease the account's value. For more information
about the Guarantee Period Accounts and the Market Value Adjustment, see
"GUARANTEE PERIOD ACCOUNTS."
FIXED ACCOUNT -- The Fixed Account is part of the General Account which
consists of all the Company's assets other than those allocated to the Variable
Account and any other separate account. Allocations to the Fixed Account are
guaranteed as to principal and minimum rate of interest. Additional excess
interest may be declared periodically at the Company's discretion. Furthermore,
the initial rate in effect on the date an amount is allocated to the Fixed
Account will be guaranteed for one year from that date. For more information
about the Fixed Account see Appendix A, "MORE INFORMATION ABOUT THE FIXED
ACCOUNT."
5
<PAGE>
TRANSFERS AMONG ACCOUNTS. Prior to the Annuity Date, the Contracts permit
amounts to be transferred among and between the Subaccounts, the Guarantee
Period Accounts and the Fixed Account, subject to certain limitations described
under "Transfer Privilege."
ANNUITY BENEFIT PAYMENTS. The owner of a Contract ("Contract Owner") may
select variable annuity benefit payments based on one or more of certain
Subaccounts, fixed-amount annuity benefit payments, or a combination of
fixed-amount and variable annuity benefit payments. Fixed-amount annuity benefit
payments are guaranteed by the Company.
See "DESCRIPTION OF CONTRACT" for information about annuity benefit payment
options, selecting the Annuity Date, and how annuity benefit payments are
calculated.
REVOCATION RIGHTS. An individual purchasing a Contract intended to qualify
as an Individual Retirement Annuity ("IRA") may revoke the Contract within 10
days after receipt of the Contract. In certain states Contract Owners may have
special revocation rights. For more information about revocation rights, see
"RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY" and "RIGHT TO REVOKE OR
SURRENDER IN SOME STATES."
PAYMENT MINIMUMS AND MAXIMUMS. Under the Contracts, payments are not
limited as to frequency and number, but no payments may be submitted within one
month of the Annuity Date. Generally, the initial payment must be at least $600
($1,000 in Washington) and subsequent payments must be at least $50. Under a
monthly automatic payment plan or a payroll deduction plan, each payment must be
at least $50. However, in cases where the contribution on behalf of an employee
under an employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Contract on the employee, if the plan's
average annual contribution per eligible plan participant is at least $600.
The Company reserves the right to set maximum limits on the aggregate
purchase payments made under the Contract. In addition, the Internal Revenue
Code imposes maximum limits on contributions under qualified annuity plans.
CHARGES AND DEDUCTIONS. For a complete discussion of charges, see "CHARGES
AND DEDUCTIONS."
A. CONTINGENT DEFERRED SALES CHARGE. No sales charge is deducted from
payments at the time they are made. However, depending on the length of time
that the payments to which the withdrawal is attributed have remained credited
under the Contract a contingent deferred sales charge of up to 7% may be
assessed for a surrender, partial redemption, or election of an annuity for a
commutable period certain option or any period certain option for less than 10
years.
B. ANNUAL CONTRACT FEE. A Contract Fee equal of $30 will be deducted from
the Accumulated Value under the Contract for administrative expense on the
Contract anniversary, or upon full surrender of the Contract during the year,
when the Accumulated Value is $50,000 or less. The Contract Fee is waived for
Contracts issued to and maintained by the trustee of a 401(k) plan.
C. PREMIUM TAXES. A deduction for State and local premium taxes, if any,
may be made as described under "Premium Taxes."
D. VARIABLE ACCOUNT ASSET CHARGES. A daily charge, equivalent to 1.25% per
annum, is made on the value of each Subaccount at each Valuation Date. The
charge is retained for the mortality and expense risks the Company assumes. In
addition, to cover administrative expenses, the Company deducts a daily charge
of 0.15% per annum of the value of the average net assets in the Subaccounts.
E. TRANSFER CHARGE. The Company currently makes no charge to process
transfers. The Company guarantees that the first twelve transfers in a Contract
year will be free of any transfer charge. For each subsequent transfer the
Company reserves the right to assess a charge, guaranteed never to exceed $25,
to reimburse the Company for the cost of processing the transfer.
6
<PAGE>
F. CHARGES OF THE UNDERLYING FUNDS. In addition to the charges described
above, certain fees and expenses are deducted from the assets of the Underlying
Funds. These charges vary among the Underlying Funds.
SURRENDER OR PARTIAL REDEMPTION. At any time before the Annuity Date, the
Contract Owner has the right either to surrender the Contract in full and
receive its current value, minus the Contract Fee and any applicable contingent
deferred sales charge, and adjusted for any positive or negative Market Value
Adjustment or to redeem a portion of the Contract's value subject to certain
limits and any applicable contingent deferred sales charge and/or Market Value
Adjustment. There may be tax consequences for surrender or redemptions. For
further information, see "Surrender" and "Partial Redemption," "Contingent
Deferred Sales Charge," and "FEDERAL TAX CONSIDERATIONS."
DEATH BENEFIT. If the Annuitant, Contract Owner or Joint Owner should die
before the Annuity Date, a death benefit will be paid to the beneficiary. Upon
death of the Annuitant (or an Owner if that Owner is also the Annuitant), the
death benefit is equal to the greatest of (a)the Accumulated Value increased by
any positive Market Value Adjustment; (b) gross payments accumulated daily at 5%
starting on the date each payment was applied, reduced proportionately to
reflect withdrawals (for each withdrawal the proportionate reduction is
calculated as the death benefit under this option immediately prior to the
withdrawal multiplied by the withdrawal amount and divided by the Accumulated
Value immediately prior to the withdrawal); or (c) the death benefit that would
have been payable on the most recent Contract Anniversary, increased for
subsequent purchase payments and reduced proportionally to reflect withdrawals
after that date. If an Owner who is not also the Annuitant dies prior to
annuitization, the death benefit will equal the Accumulated Value of the
Contract determined following receipt of due proof of death at the Principal
Office. If the Annuitant dies after the Annuity Date but before all guaranteed
annuity benefit payments have been made, the remaining payments will be paid to
the beneficiary at least as rapidly as under the annuity option in effect. See
"Death Benefit."
SALES OF CONTRACTS. The Contracts are sold by agents of the Company who are
authorized by applicable state law to sell variable annuity Contracts. These
agents are registered representatives of registered broker-dealers which are
members of the National Association of Securities Dealers, Inc., and whose
representatives are authorized by applicable law to sell variable annuity
Contracts. See "Sales Expense."
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly under the Contracts. The tables reflect charges under the
Contracts, expenses of the Subaccounts, and expenses of the Underlying Series.
In addition to the charges and expenses described below, in some states premium
taxes may be applicable.
7
<PAGE>
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CONTRACT YEAR
AFTER DATE OF
PURCHASE PAYMENT CHARGE
----------------- -------------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE 0-1 7%
The charge (as a percentage of payments, applied to the amount surrendered in excess 2 6%
of the amount, if any, which may be surrendered free of charge) will be assessed 3 5%
upon surrender, redemption, or annuitization under any commutable period certain 4 4%
option or a noncommutable period certain less than 10 years. 5 3%
6 2%
7 1%
more than 7 0%
TRANSFER CHARGE None
The Company currently makes no charge for processing transfers. The Company
guarantees that the first twelve transfers in a Contract year will be free of a
transfer charge. For the thirteenth and each subsequent transfer, the Company
reserves the right to assess a charge, guaranteed never to exceed $25, to reimburse
the Company for the costs of processing the transfer.
ANNUAL CONTRACT FEE $30
An annual Contract Fee, equal to $30, is deducted when Accumulated Value is $50,000
or less. The Contract Fee is currently waived for Contracts issued to a trustee of a
401(k) plan, but the Company reserves the right to impose the Contract Fee on such
Contracts.
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Variable Account Administrative Expense Charge 0.15%
-----------------
Total Annual Expenses 1.40%
</TABLE>
DELAWARE GROUP PREMIUM FUND, INC.
<TABLE>
<CAPTION>
EQUITY/ CAPITAL MULTIPLE
SERIES ANNUAL EXPENSES INCOME HIGH YIELD RESERVES MONEY MARKET GROWTH STRATEGY VALUE
- ----------------------------- ------------ ---------- ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees.............. 0.60% 0.60% 0.60% 0.50% 0.70% 0.60% 0.59%
Other Series Expenses........ 0.09% 0.09% 0.11% 0.12% 0.15% 0.09% 0.21%
Total Series Annual Expenses
(After Expense
Reimbursement).............. 0.69% 0.69% 0.71% 0.62% 0.85% 0.69% 0.80%
<CAPTION>
EMERGING INT'L. GLOBAL
SERIES ANNUAL EXPENSES GROWTH EQUITY BOND
- ----------------------------- ------------- ----------- ----------
<S> <C> <C> <C>
Management Fees.............. 0.59% 0.66% 0.75%
Other Series Expenses........ 0.21% 0.14% 0.05%
Total Series Annual Expenses
(After Expense
Reimbursement).............. 0.80% 0.80% 0.80%
</TABLE>
- ------------------------
* Estimated after expense reimbursement
The investment adviser for the Equity/Income, High Yield, Capital Reserves,
Money Market, Growth, Multiple Strategy, Value and Emerging Growth is Delaware
Management Company, Inc. The Investment Adviser for the International Equity
Series and the Global Bond Series is Delaware International Advisers Ltd. The
investment advisers from the Series of the Fund have agreed voluntarily to waive
their management fees and reimburse each Series to limit certain expenses to
8/10 of 1% of the average daily net assets. This waiver will be in effect
through June 30, 1996. For the fiscal year ended December 31, 1995, before
waiver and/or reimbursement by the investment adviser, total Series expenses as
a percentage of average daily net assets were 0.88% for the Growth Series, 1.41%
for the Value Series, 1.47% for the Emerging Growth Series and 1.01% for the
International Equity Series.
8
<PAGE>
The following examples demonstrate the cumulative expenses which would be
paid by the Contract Owner at 1-year, 3-year, 5-year, and 10-year intervals
under certain contingencies. Each example assumes a $1,000 investment in a
Subaccount and a 5% annual return on assets. Because the expenses of the
Underlying Series differ, separate Examples are used to illustrate the expenses
incurred by a Contract Owner on an investment in the various Subaccounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
(a)If you surrender your Contract or annuitize* under a commutable period
certain option or a noncommutable period certain option of less than 10
years at the end of the applicable period, you would pay the following expenses
on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Equity/Income................................................. $ 83 $ 115 $ 147 $ 253
High Yield.................................................... $ 84 $ 115 $ 148 $ 254
Capital Reserves.............................................. $ 84 $ 116 $ 149 $ 256
Money Market.................................................. $ 83 $ 114 $ 145 $ 248
Growth........................................................ $ 84 $ 118 $ 152 $ 263
Multiple Strategy............................................. $ 83 $ 115 $ 147 $ 252
Value......................................................... $ 84 $ 118 $ 152 $ 263
Emerging Growth............................................... $ 84 $ 118 $ 152 $ 263
International Equity.......................................... $ 84 $ 118 $ 152 $ 263
Global Bond................................................... $ 83 $ 118 $ 152 $ 263
</TABLE>
(b)If you annuitize* under a life option or any noncommutable period certain
option of 10 years or more at the end of the applicable time period or if
you do NOT surrender or annuitize your Contract, you would pay the following
expenses on a $1,000 investment, assuming an annual 5% return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ----- --------- ---------
<S> <C> <C> <C> <C>
Equity/Income.................................................. $ 22 $ 69 $ 118 $ 253
High Yield..................................................... $ 22 $ 69 $ 118 $ 254
Capital Reserves............................................... $ 23 $ 70 $ 119 $ 256
Money Market................................................... $ 22 $ 67 $ 115 $ 248
Growth......................................................... $ 23 $ 72 $ 123 $ 263
Multiple Strategy.............................................. $ 22 $ 69 $ 117 $ 252
Value.......................................................... $ 23 $ 72 $ 123 $ 263
Emerging Growth................................................ $ 23 $ 72 $ 123 $ 263
International Equity........................................... $ 23 $ 72 $ 123 $ 263
Global Bond.................................................... $ 23 $ 72 $ 123 $ 263
</TABLE>
- ------------------------
* The Contract fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any Contract year
under an option including a life contingency or under any noncommutable
period certain option of 10 years or more.
Pursuant to requirements of the 1940 Act, the Contract Fee has been
reflected in the examples by a method intended to show the "average" impact of
the Contract Fee on an investment in the Variable Account. The total Contract
Fees collected under the Policies by the Company are divided by the total
average net assets attributable to the Policies. The resulting percentage is
0.09%, and the amount of the Contract fee is assumed to be $.90 in the Examples.
The Contract Fee is deducted only when the accumulated value is $50,000 or less.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT VA-K
<TABLE>
<CAPTION>
1995 1994 1993 1992
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SUBACCOUNT 201
Unit Value:
Beginning of Period................................................... 1.178 1.197 1.051 1.000
End of Period......................................................... 1.582 1.178 1.197 1.051
Number of Units Outstanding at End of Period (in thousands)............. 48,305 38,591 25,086 4,208
SUBACCOUNT 202
Unit Value:
Beginning of Period................................................... 1.164 1.214 1.058 1.000
End of Period......................................................... 1.326 1.164 1.214 1.058
Number of Units Outstanding at End of Period (in thousands)............. 37,818 31,735 22,281 4,571
SUBACCOUNT 203
Unit Value:
Beginning of Period................................................... 1.075 1.120 1.053 1.000
End of Period......................................................... 1.209 1.075 1.120 1.053
Number of Units Outstanding at End of Period (in thousands)............. 19,818 20,476 16,752 3,828
SUBACCOUNT 204
Unit Value:
Beginning of Period................................................... 1.044 1.021 1.010 1.000
End of Period......................................................... 1.087 1.044 1.021 1.010
Number of Units Outstanding at End of Period (in thousands)............. 11,568 13,998 5,483 1,387
SUBACCOUNT 205
Unit Value:
Beginning of Period................................................... 1.121 1.178 1.070 1.000
End of Period......................................................... 1.432 1.121 1.178 1.070
Number of Units Outstanding at End of Period (in thousands)............. 35,204 29,100 20,802 4,534
SUBACCOUNT 206
Unit Value:
Beginning of Period................................................... 1.133 1.150 1.078 1.000
End of Period......................................................... 1.414 1.133 1.150 1.078
Number of Units Outstanding at End of Period (in thousands)............. 37,203 33,332 22,046 3,145
SUBACCOUNT 207
Unit Value:
Beginning of Period................................................... 1.159 1.144 1.000 1.000
End of Period......................................................... 1.301 1.159 1.144 1.000
Number of Units Outstanding at End of Period (in thousands)............. 21,612 18,761 6,139 182
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992
--------- --------- --------- ---------
SUBACCOUNT 208
<S> <C> <C> <C> <C>
Unit Value:
Beginning of Period................................................... 1.159 1.000 1.000 --
End of Period......................................................... 1.301 0.994 1.000 --
Number of Units Outstanding at End of Period (in thousands)............. 21,602 6,040 6 --
SUBACCOUNT 209
Unit Value:
Beginning of Period................................................... 0.989 1.007 1.000 --
End of Period......................................................... 1.358 0.989 1.007 --
Number of Units Outstanding at End of Period (in thousands)............. 13,410 6,197 50 --
SUBACCOUNT 210
Unit Value:
Beginning of Period................................................... 1.000 -- -- --
End of Period......................................................... -- -- -- --
Number of Units Outstanding at End of Period (in thousands)............. -- -- -- --
</TABLE>
- ------------------------
* The dates of inception of Subaccounts 201-206 were 4/8/92. The date of
inception of Subaccount 207 was 10/7/92. The dates of inception of
Subaccounts 208 and 209 were 12/30/93 and 12/31/93, respectively. The date
of inception for Subaccount 210 was 5/1/96.
PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1996. However, the Company
may advertise "Total Return" and "Average Total Return" performance information
based on the periods that the Underlying Funds have been in existence. The
results for any period prior to the Contracts being offered will be calculated
as if the Contracts had been offered during that period of time, with all
charges assumed to be those applicable to the Subaccounts and the Underlying
Funds. Both the total return and yield figures are based on historical earnings
and are not intended to indicate future performance.
The "total return" of a Subaccount refers to the total of the income
generated by an investment in the Subaccount and of the changes in the value of
the principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by certain charges, and expressed as a percentage of
the investment.
The "yield" of the Subaccount investing in the Money Market Series refers to
the income generated by an investment in the Subaccount over a seven-day period
(which period will be specified in the advertisement). This income is then
"annualized" by assuming that the income generated in the specific week is
generated over a 52-week period. This annualized yield is shown as a percentage
of the investment. The "effective yield" calculation is similar, but when
annualized , the income earned by an investment in the Subaccount is assumed to
be reinvested. Thus the "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect
the Subaccount's asset charges. The total return figures also reflect the $30
annual Contract Fee and the contingent deferred sales load which would be
assessed if the investment were completely redeemed at the end of the specified
period.
The Company may also advertise supplemental total return performance
information. Supplemental total return refers to the total of the income
generated by an investment in the Subaccount
11
<PAGE>
and of the changes of value of the principal invested (due to realized and
unrealized capital gains or losses), adjusted by the Subaccounts annual asset
charges, and expressed as a percentage of the investment. Because it is assumed
that the investment is NOT redeemed at the end of the specified period, the
contingent deferred sales load is NOT included in the calculation of
supplemental total return.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Subaccount
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Subaccount. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of
a hypothetical investment in the Subaccount during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the portfolio of the Underlying Series in which the Subaccount invests and
the market conditions during the given time period, and should not be considered
as a representation of what may be achieved in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(ASSUMING COMPLETE REDEMPTION OF THE INVESTMENT)
<TABLE>
<CAPTION>
TOTAL RETURN
FOR YEAR 10 YEARS
ENDED OR SINCE
NAME 12/31/95 3 YEARS 5 YEARS INCEPTION
- ----------------------------------------------------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
International Equity....................................... 5.32% 7.16% N/A 7.06%
Value...................................................... 15.15% N/A N/A 6.93%
Emerging Growth............................................ 30.32% N/A N/A 13.43%
Growth..................................................... 20.77% 8.22% N/A 8.97%
Multiple Strategy.......................................... 17.85% 7.49% N/A 10.47%
Equity Income.............................................. 27.27% 12.78% N/A 8.35%
High Yield................................................. 6.92% 5.74% N/A 8.29%
Capital Reserves........................................... 5.51% 2.55% N/A 5.65%
Money Market............................................... (2.53)% 0.24% N/A 3.68%
Global Bond................................................ N/A N/A N/A N/A
</TABLE>
12
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(ASSUMING NO REDEMPTION OF THE INVESTMENT)
<TABLE>
<CAPTION>
TOTAL RETURN
FOR YEAR 10 YEARS
ENDED OR SINCE
NAME 12/31/95 3 YEARS 5 YEARS INCEPTION
- ----------------------------------------------------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
International Equity....................................... 12.32% 9.16% N/A 8.66%
Value...................................................... 22.15% N/A N/A 10.14%
Emerging Growth............................................ 37.32% N/A N/A 16.47%
Growth..................................................... 27.77% 10.18% N/A 9.77%
Multiple Strategy.......................................... 24.85% 9.47% N/A 10.47%
Equity Income.............................................. 34.27% 14.59% N/A 8.35%
High Yield................................................. 13.92% 7.78% N/A 8.29%
Capital Reserves........................................... 12.51% 4.72% N/A 5.65%
Money Market............................................... 4.03% 2.44% N/A 3.68%
Global Bond................................................ N/A N/A N/A N/A
</TABLE>
The Dates of Inception of the Underlying Funds are: 7/28/88 for Multiple
Strategy, Equity Income, High Yield, Capital Reserves, and Money Market; 7/12/91
for Growth; 1/29/92 for International Equity; 12/27/93 for Emerging Growth and
Value; 4/30/96 for Global Bond.
WHAT IS AN ANNUITY?
In general, an annuity is a contract designed to provide a retirement income
in the form of periodic payments for the lifetime of the Contract Owner or an
individual chosen by the Contract Owner. The retirement income payments are
called "annuity benefit payments" and the individual receiving the payments is
called the "Annuitant." Annuity benefit payments begin on the annuity date.
Under an annuity contract, the insurance company assumes a mortality risk
and an expense risk. The mortality risk arises from the insurance company's
guarantee that annuity benefit payments will continue for the life of the
Annuitant, regardless of how long the Annuitant lives or how long all Annuitants
as a group live. The expense risk arises from the insurance company's guarantee
that charges will not be increased beyond the limits specified in the Contract,
regardless of actual costs of operations.
The Contract Owner's payments, less any applicable deductions, are invested
by the insurance company. After retirement, annuity benefit payments are paid to
the Annuitant for life or for such other period chosen by the Contract Owner. In
the case of a "fixed" annuity, the value of these annuity benefit payments is
guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more information
about fixed annuities see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED
ACCOUNT." With a variable annuity, the value of the Contract and the annuity
benefit payments are not guaranteed but will vary depending on the investment
performance of a portfolio of securities. Any investment gains or losses are
reflected in the value of the Contract and in the annuity benefit payments. If
the portfolio increases in value, the value of the Contract increases. If the
portfolio decreases in value, the value of the Contract decreases.
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Contract intended to qualify as an Individual
Retirement Annuity ("IRA") may revoke the Contract at any time within 10 days
after receipt of the contract and receive a refund. In order to revoke the
Contract, the Contract Owner must mail or deliver the Contract to the agent
through whom the Contract was purchased, to the principal office of the Company
at 440 Lincoln Street, Worcester, Massachusetts 01653, or to any local agency of
the Company. Mailing or delivery must occur on or before 10 days after receipt
of the Contract for revocation to be effective.
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Within seven days the Company will provide a refund equal to the greater of
(1) gross payments, or (2) the Accumulated Value plus any amounts deducted under
the Contract or by the Underlying Investment Companies for taxes, charges or
fees.
The liability of the Variable Account under this provision is limited to the
Contract Owner's Accumulated Value in the Subaccounts on the date of
cancellation. Any additional amounts refunded to the Contract Owner will be paid
by the Company.
RIGHT TO REVOKE OR SURRENDER IN SOME STATES
In Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina, Oklahoma,
South Carolina, Texas, Utah, Washington and West Virginia, any Contract Owner
may revoke the Contract at any time within ten days (20 in Idaho) after receipt
of the Contract and receive a refund as described under "RIGHT TO REVOKE
INDIVIDUAL RETIREMENT ANNUITY", above.
In all other states, a Contract Owner may return the Contract at any time
within 10 days (or the number of days required by state law if more than 10)
after receipt of the Contract. The Company will pay to the Contract Owner an
amount equal to the sum of (i) the difference between the payment(s) received,
including fees, and any amount allocated to the Variable Account and (ii) the
Accumulated Value of amounts allocated to the Variable Account as of the date
the request is received. If the Contract was purchased as an IRA, the IRA
revocation right described above may be utilized in lieu of the special
surrender right.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, AND
DELAWARE GROUP PREMIUM FUND, INC.
THE COMPANY -- The Company is a life insurance company organized under the
laws of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, Telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1995, the
Company had over $5 billion in assets and over $18 billion of life insurance in
force.
Effective October 1, 1995, the Company changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company. The
Company is an indirect wholly-owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995 and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1995 First Allmerica and its subsidiaries (including
the Company) had over $11 billion in combined assets and over $35.2 billion in
life insurance in force.
THE VARIABLE ACCOUNT -- The Variable Account is a separate investment
account of the Company referred to as Separate Account VA-K. The assets used to
fund the variable portions of the Contracts are set aside in the Subaccounts of
the Variable Account, and are kept separate and apart from the general assets of
the Company. There are 18 Subaccounts available under the Contracts. Each
Subaccount is administered and accounted for as part of the general business of
the Company, but the income, capital gains, or capital losses of each Subaccount
are allocated to such Subaccount, without regard to other income, capital gains,
or capital losses of the Company. Under Delaware law, the assets of the Variable
Account may not be charged with any liabilities arising out of any other
business of the Company.
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The Variable Account was authorized by vote of the Board of Directors of the
Company on November 1, 1990. The Variable Account meets the definition of
"separate account" under federal securities law and is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). The registration of the
Variable Account and the Underlying Investment Companies does not involve the
supervision by the Commission of management or investment practices or Contracts
of the Variable Account, the Company, the DGPF or the Underlying Funds.
THE COMPANY OFFERS OTHER VARIABLE ANNUITY CONTRACTS INVESTING IN THE
VARIABLE ACCOUNT WHICH ARE NOT DISCUSSED IN THIS PROSPECTUS. THE VARIABLE
ACCOUNT ALSO INVESTS IN OTHER UNDERLYING FUNDS WHICH ARE NOT AVAILABLE TO THE
CONTRACTS DESCRIBED IN THIS PROSPECTUS.
DELAWARE GROUP PREMIUM FUND, INC. -- Delaware Group Premium Fund, Inc.
("DGPF"), is an open-end, diversified management investment company registered
with the Commission under the 1940 Act. Such registration does not involve
supervision by the Commission of the investments or investment policy of DGPF or
its separate investment series.
DGPF was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. DGPF currently
has ten investment portfolios, each issuing a series of shares: Equity/Income
Series, High Yield Series, Capital Reserves Series, Money Market Series, Growth
Series, Multiple Strategy Series, Value Series, Emerging Growth Series,
International Equity Series, and Global Bond Series (collectively, "Underlying
Funds"). The assets of each Underlying Fund are held separate from the assets of
the other Underlying Funds. Each Underlying Fund operates as a separate
investment vehicle, and the income or losses of one underlying Fund have no
effect on the investment performance of another Underlying Fund. Shares of the
Underlying Funds are not offered to the general public but solely to separate
accounts of life insurance companies.
The investment adviser for the Equity/Income Series, High Yield Series,
Capital Reserves Series, Money Market Series, Growth Series, Multiple Strategy
Series, Value Series, and Emerging Growth Series is Delaware Management Company,
Inc. ("Delaware Management"). The investment adviser for the International
Equity Series and the Global Bond 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. More detailed information
regarding the investment objectives, restrictions and risks, expenses paid by
the Underlying Funds, and other relevant information regarding the Underlying
Funds may be found in the Prospectus of the Funds, which accompanies this
Prospectus and should be read carefully before investing. The Statement of
Additional Information of DGPF is available upon request.
SUBACCOUNT 201 -- invests solely in shares of the Equity/Income Series. The
Equity/Income Series seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income.
SUBACCOUNT 202 -- invests solely in shares of the High Yield Series. The
High Yield Series seeks as high a current income as possible by investing in
rated and unrated corporate bonds (including high-yield bonds commonly known as
junk bonds), U.S. Government securities and commercial paper. Please read the
Fund's prospectus disclosure regarding the risk factors before investing in this
Series.
SUBACCOUNT 203 -- invests solely in shares of the Capital Reserves Series.
The Capital Reserves Series seeks a high stable level of current income while
minimizing fluctuations in principal by investing in a diversified portfolio of
short and intermediate-term securities.
SUBACCOUNT 204 -- invests solely in shares of the Money Market Series. The
Money Market Series seeks the highest level of income consistent with the
preservation of capital and liquidity through investments in short-term money
market instruments.
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SUBACCOUNT 205 -- invests solely in shares of the Growth Series. The Growth
Series seeks long-term capital appreciation by investing its assets in a
diversified portfolio of securities exhibiting the potential for significant
growth.
SUBACCOUNT 206 -- invests solely in shares of the Multiple Strategy Series.
The Multiple Strategy Series seeks a balance of capital appreciation, income and
preservation of capital. It uses a dividend-oriented valuation strategy to
select securities issued by established companies that are believed to
demonstrate potential for income and capital growth.
SUBACCOUNT 207 -- invests solely in shares of the International Equity
Series. The International Series seeks long-term growth without undue risk to
principal by investing primarily in equity securities of foreign issuers
providing the potential for capital appreciation and income.
SUBACCOUNT 208 -- invests solely in shares of the Value Series. The Value
Series seeks capital appreciation by investing in small to mid-cap common stocks
whose market value appears low relative to their underlying value or future
earnings and growth potential. Emphasis will also be placed on securities of
companies that may be temporarily out of favor or whose value is not yet
recognized by the market.
SUBACCOUNT 209 -- invests solely in shares of the Emerging Growth Series.
The Emerging Growth Series seeks long-term capital appreciation by investing
primarily in small-cap common stocks and convertible securities of emerging and
other growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective.
SUBACCOUNT 210 -- invests solely in shares of the Global Bond Series. The
Global Bond Series seeks current income consistent with preservation of
principal by investing primarily in fixed income securities that may also
provide the potential for capital appreciation. At least 65% of the series'
assets will be invested in fixed income securities of issuers organized or
having a majority of their assets in or deriving a majority of the operating
income in at least three different countries, one of which may be the United
States.
There is no assurance that the investment objectives of the Underlying Funds
will be met.
In the event of a material change in the investment policy of a Subaccount
or the Underlying Series in which it invests, you will be notified of the
change. No material changes in the investment policy of the Variable Account or
any Subaccounts will be made without approval pursuant to the applicable state
insurance laws. If you have Contract Value in that Subaccount, the Company will
transfer it without charge on written request by you to another Subaccount or to
the General Account. The Company must receive your written request within sixty
(60) days of the later of (1) the effective date of such change in the
investment policy or (2) the receipt of the notice of your right to transfer.
INVESTMENT ADVISORY SERVICES TO DGPF. -- For managing the portfolios of the
Underlying Funds and making the investment decisions, each investment adviser is
paid an annual fee by their respective Underlying Funds. For Delaware
Management, this fee is equal to 5/10 of 1% of the average daily net assets of
the Money Market Series, 3/4 of 1% of the average daily net assets of the Growth
Series, Value Series and Emerging Growth Series, and 6/10 of 1% of the average
daily net assets of the Equity/Income Series, High Yield Series, Capital Reserve
Series, Multiple Strategy Series. For Delaware International, this fee is equal
to 3/4 of 1% of the average daily net assets of the International Equity Series
and of the Global Bond Series.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS -- The Company reserves
the right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Fund are no longer
available for investment or if in the Company's judgment further investment in
any Underlying Fund should become inappropriate in view of the purposes of the
Variable Account or the affected Subaccount, the Company may redeem the shares
of that Underlying Fund and
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substitute shares of another registered open-end management company. The Company
will not substitute any shares attributable to a Contract interest in a
Subaccount without notice to the Contract Owner and prior approval of the
Commission and state insurance authorities, to the extent required by the 1940
Act or other applicable law. The Variable Account may, to the extent permitted
by law, purchase other securities for other contracts or permit a conversion
between contracts upon request by a Contract Owner.
The Company also reserves the right to establish additional Subaccounts of
the Variable Account, each of which would invest in shares corresponding to a
new Underlying Fund or in shares of another investment company having a
specified investment objective. Subject to applicable law and any required
Commission approval, the Company may, in its sole discretion, establish new
Subaccounts or eliminate one or more Subaccounts if marketing needs, tax
considerations or investment conditions warrant. Any new Subaccounts may be made
available to existing Contract Owners on a basis to be determined by the
Company.
Shares of the Underlying Funds are also issued to other unaffiliated
insurance companies ("shared funding") which issue variable annuities and
variable life Contracts ("mixed funding"). It is conceivable that in the future
such mixed funding or shared funding may be disadvantageous for variable life
Contract Owners or variable annuity Contract Owners. Although the Company and
the DGPF do not currently foresee any such disadvantages to either variable life
insurance Contract Owners or variable annuity Contract Owners, the Company and
DGPF intend to monitor events in order to identify any material conflicts
between such Contract Owners and to determine what action, if any, should be
taken in response thereto. If it were concluded that separate funds should be
established for variable life and variable annuity separate accounts, the
Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Contract to reflect the substitution or
change and will notify Contract Owners of all such changes. If the Company deems
it to be in the best interest of Contract Owners, and subject to any approvals
that may be required under applicable law, the Variable Account or any
Subaccount(s) may be operated as a management company under the 1940 Act, may be
deregistered under the 1940 Act if registration is no longer required, or may be
combined with other Subaccounts or other separate accounts of the Company.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Subaccount in
accordance with instructions received from Contract Owners and, after the
Annuity Date, from the Annuitants. Each person having a voting interest in a
Subaccount will be provided with proxy materials of the Underlying Fund together
with a form with which to give voting instructions to the Company. Shares for
which no timely instructions are received will be voted in proportion to the
instructions which are received. The Company will also vote shares in a
Subaccount that it owns and which are not attributable to Contracts in the same
proportion. If the 1940 Act or any rules thereunder should be amended or if the
present interpretation of the 1940 Act or such rules should change, and as a
result the Company determines that it is permitted to vote shares in its own
right, whether or not such shares are attributable to the Contract, the Company
reserves the right to do so.
The number of votes which a Contract Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Fund. During the accumulation period, the number of Underlying Fund shares
attributable to each Contract Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Contract by
the net asset value of one Underlying Fund share.
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During the annuity period, the number of Underlying Fund shares attributable
to each Annuitant will be determined by dividing the reserve held in each
Subaccount for the Annuitant's variable annuity by the net asset value of one
Underlying Fund share. Ordinarily, the Annuitant's voting interest in the
Underlying Fund will decrease as the reserve for the variable annuity is
depleted.
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the
Subaccounts are described below. Other deductions and expenses paid out of the
assets of the Underlying Funds are described in the Prospectus and Statement of
Additional Information of DGPF.
A. ANNUAL CHARGES AGAINST VARIABLE ACCOUNT ASSETS.
MORTALITY AND EXPENSE RISK CHARGE -- The Company makes a charge of 1.25% on
an annual basis of the daily value of each Subaccount's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Contracts. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
guarantee that it will make annuity benefit payments in accordance with annuity
rate provisions established at the time the Contract is issued for the life of
the Annuitant (or in accordance with the annuity option selected), no matter how
long the Annuitant (or other payee) lives and no matter how long all Annuitants
as a class live. Therefore, the mortality charge is deducted during the annuity
phase on all contracts, including those that do not involve a life contingency,
even though the Company does not bear direct mortality risk with respect to
variable annuity settlement options that do not involve life contingencies. The
expense risk arises from the Company's guarantee that the charges it makes will
not exceed the limits described in the Contracts and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover
actual mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE -- The Company assesses each Subaccount with a
daily charge at an annual rate of 0.15% of the average daily net assets of the
Subaccount. The charge is imposed during both the accumulation period and the
annuity period. The daily Administrative Expense Charge is assessed to help
defray administrative expenses actually incurred in the administration of the
Subaccount, without profits. However, there is no direct relationship between
the amount of administrative expenses imposed on a given contract and the amount
of expenses actually attributable to that contract.
Deductions for the Contract Fee (described under B. CONTRACT FEE) and for
the Administrative Expense Charge are designed to reimburse the Company for the
cost of administration and related expenses and are not expected to be a source
of profit. The administrative functions and expense assumed by the Company in
connection with the Variable Account and the Contracts include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
B. CONTRACT FEE.
A $30 Contract Fee currently is deducted on the Contract anniversary date
and upon full surrender of the Contract when the Accumulated Value is $50,000 or
less. The Contract Fee is waived for
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Contracts issued to and maintained by the Trustee of a 401(k) plan. Where
Contract value has been allocated to more than one account, a percentage of the
total Contract Fee will be deducted from the Value in each account. The portion
of the charge deducted from each account will be equal to the percentage which
the Value in that account bears to the Accumulated Value under the Contract. The
deduction of the Contract Fee from a Subaccount will result in cancellation of a
number of Accumulation Units equal in value to the percentage of the charge
deducted from that account.
C. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
Contracts. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when purchase payments
were received, the premium tax charge is deducted on a pro rata basis
when partial withdrawals are made, upon surrender of the Contract, or when
annuity benefit payments begin (the Company reserves the right instead to
deduct the premium tax charge for these Contracts at the time the purchase
payments are received); or
(2) the premium tax charge is deducted when annuity benefit payments
begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law.
If no amount for premium tax was deducted at the time the purchase payment
was received, but subsequently tax is determined to be due prior to the Annuity
Date, the Company reserves the right to deduct the premium tax from the Contract
value at the time such determination is made.
D. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from payments at the time the
payments are made. However, a contingent deferred sales charge is deducted from
the Accumulated Value of the Contract in the case of surrender and/or partial
redemption of the Contract or at the time annuity benefit payments begin, within
certain time limits described below.
For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments - payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments - Accumulated payments not defined as New Payments;
and (3) Earnings - the amount of Accumulated Value in excess of all payments
that have not been previously surrendered. For purposes of determining the
amount of any contingent deferred sales charge, surrenders will be deemed to be
taken first from Old Payments, then from New Payments. Old Payments may be
withdrawn from the Contract at any time without the imposition of a contingent
deferred sales charge. If a withdrawal is attributable all or in part to New
Payments, a contingent deferred sales charge may apply.
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Contract is surrendered,
or if New Payments are redeemed, while the Contract is in force and before the
Annuity Date, a contingent deferred sales charge may be imposed. The amount of
the charge will depend upon the number of years that the New Payments, if any,
to which the withdrawal is attributed have remained credited under the Contract.
Amounts withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for income
tax purposes.)
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The Contingent Deferred Sales Charges are as follows:
<TABLE>
<CAPTION>
YEARS FROM
DATE OF CHARGE AS PERCENTAGE OF
PAYMENT NEW PAYMENTS WITHDRAWN
- --------------- -------------------------
<S> <C>
less than 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
More than 7 0%
</TABLE>
The amount redeemed equals the amount requested by the Contract Owner plus
the charge, if any. The charge is applied as a percentage of the New Payments
redeemed, but in no event will the total contingent deferred sales charge exceed
a maximum limit of 7% of total gross New Payments. Such total charge equals the
aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES. Where permitted by law, the
Company will waive the contingent deferred sales charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is: (a) admitted to
a medical care facility after the issue date of the Contract and remains
confined there until the later of one year after the issue date or 90
consecutive days; (b) first diagnosed by a licensed physician as having a fatal
illness after the issue date of the contract; or (c) physically disabled after
the issue date of the Contract and before attaining age 65. The Company may
require proof of such disability and continuing disability, including written
confirmation of receipt and approval of any claim for Social Security Disability
Benefits and reserves the right to obtain an examination by a licensed physician
of its choice and at its expense.
For purposes of the above provision, "medical care facility" means any state
licensed facility (or, in a state that does not require licensing)a facility
that is operating pursuant to state law, providing medically necessary inpatient
care which is prescribed by a licensed "physician" in writing and based on
physical limitations which prohibit daily living in a non-institutional setting;
"fatal illness" means a condition diagnosed by a licensed physician which is
expected to result in death within two years of the diagnosis; and "physician"
means a person other than the Owner, Annuitant or a member of one of their
families who is state licensed to give medical care or treatment and is acting
within the scope of that license.
Where contingent deferred sales charges have been waived under any one of
three situations discussed above, no additional payments under this Contract
will be accepted.
Where permitted by law, no contingent deferred sales charge is imposed (and
no commissions will be paid) on contracts issued where both the Contract Owner
and the Annuitant on the date of issue are within the following classes of
individuals ("eligible persons"): employees and registered representatives of
any broker-dealer which has entered into a Sales Agreement with the Company to
sell the Contract; officers, directors, trustees and employees of any of the
Underlying Funds, investment managers or sub-advisers; and the spouses and
children/other legal dependants (under age 21) of such eligible persons.
In addition, from time to time the Company may also reduce the amount of the
contingent deferred sales charge, the period during which it applies, or both,
when Contracts are sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider (a) the size and type of
group; (b) the total amount of payments to be received; (c) other transactions
where sales expenses are likely to be reduced. Any reduction or elimination in
the amount or duration of the contingent deferred sales charge will not
discriminate unfairly between purchasers of this Contract. The Company will not
make any changes to this charge where prohibited by law.
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Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the
contingent deferred sales charges is modified to effect certain exchanges of the
annuity contracts for the Contracts. See Statement of Additional Information.
WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, the Company
will waive the contingent deferred sales charge, if any, on an amount
("Withdrawal Without Surrender Charge") equal to the greatest of (1), (2) or
(3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by
total gross payments not previously redeemed ("Cumulative Earnings")
Where (2) is:
15% of the Accumulated Value as of the Valuation Date coincident with or
next following the date of receipt of the request for withdrawal, reduced
by the total amount of any prior partial redemptions made in the same
calendar year to which no contingent deferred sales charge was applied.
Where (3) is:
The amount calculated under the Company's life expectancy distribution
(see"LED Distributions," below) whether or not the withdrawal was part of
such distribution (applies only if Annuitant is also an Owner)
For example, an 81 year old Contract Owner/Annuitant with an Accumulated
Value of $15,000, of which $1,000 is Cumulative Earnings, would have a Free
Withdrawal Amount of $2,250, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 15% of Accumulated Value ($2,250); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge will first be deducted from
Cumulative Earnings. If the Withdrawal Without Surrender Charge exceeds
Cumulative Earnings, the excess amount will be deemed withdrawn from payments
not previously redeemed on a last-in-first-out ("LIFO") basis. If more than one
partial withdrawal is made during the year, on each subsequent withdrawal the
Company will waive the contingent deferred sales charge, if any, until the
entire Withdrawal Without Surrender Charge has been redeemed. Amounts withdrawn
from a Guarantee Period Account prior to the end of the applicable Guarantee
Period will be subject to a Market Value Adjustment.
LED DISTRIBUTIONS. Prior to the Annuity Date a Contract Owner who is also
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to a life expectancy distribution ("LED") option, by
returning a properly signed LED request form to the Company's Principal Office.
The LED option permits the Contract Owner to make systematic withdrawals from
the Contract over his or her lifetime. The amount withdrawn from the Contract
changes each year, because life expectancy changes each year that a person
lives. For example, actuarial tables indicate that a person age 70 has a life
expectancy of 16 years, but a person who attains age 86 has a life expectancy of
another 6.5 years.
If a Contract Owner elects the LED option, in each contract year a fraction
of the Accumulated Value is withdrawn based on the Contract Owner's then life
expectancy. The numerator of the fraction is 1 (one) and the denominator of the
fraction is the remaining life expectancy of the Contract Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value at the beginning of the year to determine the
amount to be distributed during the year. The Contract Owner may elect monthly,
bimonthly, quarterly, semiannual, or annual
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distributions, and may terminate the LED option at any time. The Contract Owner
may also elect to receive distributions under an LED option which is determined
on the joint life expectancy of the Contract Owner and a beneficiary. The
Company may also offer other systematic withdrawal options.
If a Contract Owner makes withdrawals under the LED distribution prior to
age 59 1/2, the withdrawals may be treated by the IRS as premature distributions
from the Contract. The payments would then be taxed on an "income first" basis,
and be subject to a 10% federal tax penalty. For more information, see "FEDERAL
TAX CONSIDERATIONS" and "B. Taxation of the Contracts in General." The LED will
cease on the Annuity Date.
SURRENDERS. In the case of a complete surrender, the amount received by the
Contract Owner is equal to the entire Accumulated Value under the Contract, net
of the applicable contingent deferred sales charge on New Payments, the Contract
Fee and any applicable tax withholding and adjusted for any applicable market
value adjustment. Subject to the same rules that are applicable to partial
redemptions, the Company will not assess a contingent deferred sales charge on
an amount equal to the greater of the Withdrawal Without Surrender Charge
Amount, described above, or the life expectancy distribution, if applicable.
Where a Contract Owner who is trustee under a pension plan surrenders, in
whole or in part, a Contract on a terminating employee, the trustee will be
permitted to reallocate all or a part of the total Accumulated Value under the
Contract to other contracts issued by the Company and owned by the trustee, with
no deduction for any otherwise applicable contingent deferred sales charge. Any
such reallocation will be at the unit values for the Subaccounts as of the
valuation date on which a written, signed request is received at the Company's
Principal Office.
For further information on surrender and partial redemption, including
minimum limits on amount redeemed and amount remaining under the Contract in the
case of partial redemption, and important tax considerations, see "Surrender"
and "Partial Redemption" under "DESCRIPTION OF THE CONTRACT" and see "FEDERAL
TAX CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If any commutable period
certain option or a non-commutable period certain option for less than ten years
is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization
in any Contract year under an option involving a life contingency or for any
non-commutable period certain option for ten years or more. However, a Market
Value Adjustment may apply. See "Guarantee Period Accounts". If an owner of a
fixed annuity Contract issued by the Company wishes to elect a variable annuity
option, the Company may permit such owner to exchange, at the time of
annuitization, the fixed Contract for a Contract offered in this Prospectus. The
proceeds of the fixed Contract, minus any contingent deferred sales charge
applicable under the fixed Contract if a period certain option is chosen, will
be applied towards the variable annuity option desired by the owner. The number
of Annuity Units under the option will be calculated using the Annuity Unit
values as of the 15th of the month preceding the Annuity Date.
E. TRANSFER CHARGE -- The Company currently makes no charge for processing
transfers. The Company guarantees that the first twelve transfers in a Contract
Year will be free of transfer charge, but reserves the right to assess a charge,
guaranteed never to exceed $25, for the thirteenth and each subsequent transfer
in a Contract Year.
The Contract Owner may have automatic transfers of at least $100 a month
made on a periodic basis (a) from Subaccount 203 (which invests in the Capital
Reserves Series), Subaccount 204 (which
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invests in the Money Market Series) or from the Fixed Account to one or more of
the other Subaccounts, or (b) in order to reallocate Contract Value among the
Subaccounts. The first automatic transfer counts as one transfer towards the
twelve transfers which are guaranteed to be free of a transfer change in each
Contract year. For more information, see "Transfer Privilege."
OTHER CHARGES -- Because the Subaccounts purchase shares of the Fund, the
value of the net assets of the Subaccounts will reflect the investment advisory
fee and other expenses incurred by the Underlying Series. The Prospectus and
Statement of Additional Information of the Fund contain additional information
concerning expenses of the Underlying Series.
SALES EXPENSE. The Company pays commissions on the Contracts of up to 6.5%
of purchase payments to entities which sell the Contracts. To the extent
permitted by NASD rules, expense reimbursement allowances and additional
payments for other services not directly related to the sale of the Contracts,
including the recruitment and training of personnel, production of promotional
literature, and similar services may also be made.
The Company intends to recoup the commissions and other sales expenses
through a combination of anticipated contingent deferred sales charges,
described above, and the investment earnings on amounts allocated to accumulate
on a fixed basis in excess of the interest credited on fixed accumulations by
the Company. There is no additional charge to Contract Owners or the Variable
Account. Any contingent deferred sales charges assessed on a Contract will be
retained by the company.
DESCRIPTION OF THE CONTRACT
The Contracts are designed for use in connection with several types of
retirement plans as well as for sale to individuals. Participants under such
plans, as well as Contract Owners, Annuitants, and beneficiaries, are cautioned
that the rights of any person to any benefits under such Contracts may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the Contracts.
The Contracts offered by the Prospectus may be purchased from
representatives of Allmerica Investments, Inc., a registered broker-dealer under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. (NASD). Allmerica Investments, Inc., 440 Lincoln
Street, Worcester, Massachusetts, 01653, is indirectly wholly-owned by the
Company. The Contracts also may be purchased from certain independent
broker-dealers which are NASD members.
Contract Owners may direct any inquiries to Annuity Customer Services,
Allmerica Financial Life Insurance and Annuity Company, 440 Lincoln Street,
Worcester, Massachusetts 01653.
A. PAYMENTS.
The Company's underwriting requirements, which include receipt of the
initial payment and allocation instructions by the Company at its Principal
Office, must be met before a Contract can be issued. These requirements may also
include the proper completion of an application; however, where permitted, the
Company may issue a contract without completion of an application for certain
classes of annuity contracts. Payments are to be made payable to the Company. A
net payment is equal to the payment received less the amount of any applicable
premium tax.
The initial net payment will be credited to the Contract as of the date that
all underwriting requirements are properly met. If all underwriting requirements
are not complied with within five business days of the Company's receipt of the
initial payment, the payment will be immediately returned unless the Owner
specifically consents to the holding of the initial payment until completion of
any outstanding underwriting requirements. Subsequent payments will be credited
as of the Valuation Date received at the Principal Office.
Payments are not limited as to frequency and number, but there are certain
limitations as to amount. Currently, the initial payment must be at least $600
($1,000 in Washington). Under a salary deduction or monthly automatic payment
plan, the minimum initial payment is $50. In all cases, each
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subsequent payment must be at least $50. Where the contribution on behalf of an
employee under an employee-sponsored retirement plan is less that $600 but more
than $300 annually, the Company may issue a contract on the employee, if the
plan's average annual contribution per eligible plan participant is at least
$600. The minimum allocation to a Guarantee Period Account is $1,000. If less
than $1,000 is allocated to a Guarantee Period Account, the Company reserves the
right to apply that amount to Subaccount 204 (Money Market Series).
Generally, unless otherwise requested, all payments will be allocated among
the accounts in the same proportion that the initial net payment is allocated,
or, if subsequently changed, according to the most recent allocation
instructions. However, to the extent permitted by state law, if the contract is
issued as an IRA or is issued in Georgia, Idaho, Indiana, Michigan, Missouri,
North Carolina, Oklahoma, South Carolina, Texas, Utah, Washington and West
Virginia, any portion of the initial net payment and of additional net payments
received during the contracts's first fifteen days measured from the date of
issue, allocated to any Subaccount and/or any Guarantee Period Account, will be
held in Subaccount 204 (Money Market Series) until the end of the fifteen day
period. Thereafter, these amounts will be allocated as requested.
The Contract Owner may change allocation instructions for new payments
pursuant to a written or telephone request. If telephone requests are elected by
the Contract Owner, a properly completed authorization must be on file before
telephone requests will be honored. The policy of the Company and its agents and
affiliates is that they will not be responsible for losses resulting from acting
upon telephone requests reasonably believed to be genuine. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; otherwise, the Company may be liable for any losses due
to unauthorized or fraudulent instructions. The procedures the Company follows
for transactions initiated by telephone include requirements that callers on
behalf of a Contract Owner identify themselves by name and identify the
Annuitant by name, date of birth and social security number. All transfer
instructions by telephone are tape recorded.
B. TRANSFER PRIVILEGE.
At any time prior to the Annuity Date a Contract Owner may have amounts
transferred among all accounts. Transfer values will be effected at the
Accumulation Value next computed after receipt of the transfer order. The
Company will make transfers pursuant to written or telephone requests. As
discussed in "A. Payments," a properly completed authorization form must be on
file before telephone requests will be honored.
Transfers to a Guarantee Period Account must be at least $1,000. If the
amount to be transferred to a Guarantee Period Account is less than $1,000, the
Company may transfer that amount to Subaccount 204 (Money Market Series ).
The Contract Owner may have automatic transfers of at least $100 each made
on a periodic basis from the Subaccounts investing in the capital Reserves
Series or the Money Market Series , or from the Fixed Account to one or more of
the other Subaccounts or may periodically reallocate values among the
Subaccounts. Automatic transfers may be made on a monthly, bimonthly, quarterly,
semiannual or annual schedule. The first automatic transfer counts as one
transfer towards the twelve transfers discussed below.
Currently, the Company makes no charge for processing transfers. The first
twelve (12) transfers in a Contract year are guaranteed to be free of any
transfer charge. For each subsequent transfer in a Contract year, the Company
reserves the right to assess a charge, guaranteed never to exceed $25, to
reimburse it for the expense of processing transfers.
C. SURRENDER.
At any time prior to the Annuity Date, a Contract Owner may surrender the
Contract and receive its Accumulated Value, less applicable charges and adjusted
for any Market Value Adjustment ("Surrender Amount"). The Contract Owner must
return the Contract and a signed, written request for
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surrender, satisfactory to the Company, to the Company's Principal Office. The
amount payable to the Contract Owner upon surrender will be based on the
Contract's Accumulated Value as of the Valuation Date on which the request and
the Contract are received at the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted
when a Contract is surrendered if payments have been credited to the Contract
during the last seven full contract years. See "CHARGES AND DEDUCTIONS." The
Contract Fee will be deducted upon surrender of the Contract.
After the Annuity Date, only Contracts under which future annuity benefit
payments are limited to a specified period (as specified in the Period Certain
Annuity Option) may be surrendered. The Surrender Amount is the commuted value
of any unpaid installments, computed on the basis of the assumed interest rate
incorporated in such annuity benefit payments. No contingent deferred sales
charge is imposed after the Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Subaccount in any
period during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each separate account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial
redemptions of amounts allocated to the Company's Fixed Account and Guarantee
Period Accounts for a period not to exceed six months.
The surrender rights of Contract Owners who are participants under Section
403(b) plans or who are participants in the Texas Optional Retirement Program
(Texas ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School
Systems and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL
TAX CONSIDERATIONS."
D. PARTIAL REDEMPTION.
At any time prior to the Annuity Date, a Contract Owner may redeem a portion
of the Accumulated Value of his or her Contract, subject to the limits stated
below. The Contract Owner must file a signed, written request for redemption,
satisfactory to the Company, at the Company's Principal Office. The written
request must indicate the dollar amount the Contract Owner wishes to receive and
the accounts from which such amount is to be redeemed. The amount redeemed
equals the amount requested by the Contract Owner plus any applicable contingent
deferred sales charge, as described under "CHARGES AND DEDUCTIONS." In addition,
amounts redeemed from a Guarantee Period Account prior to the end of the
applicable Guarantee Period will be subject to a Market Value Adjustment, as
described under "GUARANTEE PERIOD ACCOUNTS".
Where allocations have been made to more than one account, a percentage of
the partial redemption may be allocated to each such account. A partial
redemption from a Subaccount will result in cancellation of a number of units
equivalent in value to the amount redeemed, computed as of the Valuation Date
that the request is received at the Company's principal office.
Each partial redemption must be in a minimum amount of $100. No partial
redemption will be permitted if the Accumulated Value remaining under the
Contract would be reduced to less than $1,000. Partial redemptions will be paid
in accordance with the time limitations described under "Surrender."
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After the Annuity Date, only Contracts under which future variable annuity
benefit payments are limited to a specified period may be partially redeemed. A
partial redemption after the Annuity Date will result in cancellation of a
number of Annuity Units equivalent in value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Contract
Owners who are participants under Section 403(b) plans or under the Texas ORP,
see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems and Certain Tax
Exempt Organizations" and "J. Texas Optional Retirement Program." For important
tax consequences which may result from partial redemptions, see "FEDERAL TAX
CONSIDERATIONS."
E. DEATH BENEFIT.
If the Annuitant dies (or a Contract Owner predeceases the Annuitant) prior
to the Annuity Date while the Contract is in force, the Company will pay the
beneficiary a death benefit, except where the Contract continues as provided in
"F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY."
Upon death of the Annuitant (including an Owner who is also the Annuitant),
the death benefit is equal to the greatest of (a) the Accumulated Value under
the Contract increased for any positive Market Value Adjustment, (b) gross
payments accumulated daily at 5% starting on the date each payment is applied,
reduced proportionately to reflect withdrawals (for each withdrawal, the
proportionate reduction is calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the withdrawal amount and
divided by the Accumulated Value immediately prior to the withdrawal), or (c) or
the death benefit that would have been payable on the most recent contract
anniversary, increased for subsequent payments and reduced proportionally to
reflect withdrawals after that date.
If an Owner who is not also the Annuitant dies before the Annuity Date, the
death benefit will be the Accumulated Value increased by any positive Market
Value Adjustment. The death benefit will never be reduced by a negative Market
Value Adjustment. The death benefit will generally be paid to the Beneficiary in
one sum within 7 days of the receipt of due proof of death unless the Owner has
specified a death benefit annuity option. Instead, the Beneficiary may, by
Written Request, elect to:
(a) defer distribution of the death benefit for a period no more than 5
years from the date of death; or
(b) receive a life annuity or an annuity for a period certain not
extending beyond the Beneficiary's life expectancy. Annuity benefit
payments must begin within one year from the date of death.
If distribution of the death benefit is deferred under (a) or (b), any value
in the Guarantee Period Accounts will be transferred to Subaccount 204 (Money
Market Series). The excess, if any, of the death benefit over the Accumulated
Value will also be added to Subaccount 204 (Money Market Series). The
Beneficiary may, by Written Request, effect transfers and withdrawals during the
deferral period and prior to annuitization under (b), but may not make
additional payments. If there are multiple Beneficiaries, the consent of all is
required.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed annuity benefit payments, any unpaid amounts or
installments will be paid to the beneficiary. The Company must pay the remaining
payments at least as rapidly as under the payment option in effect on the date
of the Annuitant's death.
With respect to any death benefit, the Accumulated Value under the Contract
shall be based on the unit values next computed after due proof of the
Annuitant's death has been received at the Company's Principal Office. If the
beneficiary elects to receive the death benefit in one sum, the death benefit
will be paid within seven business days. If the beneficiary has not elected an
annuity option
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within one year from the date notice of death is received by the Company, the
Company will pay the death benefit in one sum. The death benefit will reflect
any earnings or losses experienced during the period and any withdrawals.
F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY.
The Contract Owner's spouse, if named as the sole beneficiary, may by
written request continue the Contract in lieu of receiving the amount payable
upon death of the Contract Owner. Upon such election, the spouse will become the
Owner and Annuitant subject to the following: (a) any value in the Guarantee
Period Accounts will be transferred to Subaccount 204 (Money Market Series); (b)
the excess, if any, of the death benefit over the Contract's Accumulated Value
will also be added to Subaccount 204 (Money Market Series). Additional payments
may be made; however, a Surrender charge will apply to these amounts. All other
rights and benefits provided in the Contract will continue, except that any
subsequent spouse of such new Contract Owner will not be entitled to continue
the Contract upon such new Owner's death.
G. ASSIGNMENT.
The Contracts, other than those sold in connection with certain qualified
plans, may be assigned by the Contract Owner at any time prior to the Annuity
Date and while the Annuitant is alive (see "FEDERAL TAX CONSIDERATIONS"). The
Company will not be deemed to have knowledge of an assignment unless it is made
in writing and filed at the Principal Office. The Company will not assume
responsibility for determining the validity of any assignment. If an assignment
of the Contract is in effect on the Annuity Date, the Company reserves the right
to pay to the assignee, in one sum, that portion of the Surrender Value of the
Contract to which the assignee appears to be entitled. The Company will pay the
balance, if any, in one sum to the Contract Owner in full settlement of all
liability under the Contract. The interest of the Contract Owner and of any
beneficiary will be subject to any assignment.
H. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
Subject to certain restrictions described below, the Contract Owner has the
right (1) to select the annuity option under which annuity benefit payments are
to be made, and (2) to determine whether payments are to be made on a fixed
basis, a variable basis, or a combination fixed and variable basis. Annuity
benefit payments are determined according to the annuity tables in the Contract,
by the annuity option selected, and by the investment performance of the
account(s) selected.
To the extent a fixed annuity is selected, Accumulated Value will be
transferred to the Fixed Account of the Company, and the annuity benefit
payments will be fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE
FIXED ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number
of Annuity Units in the Subaccount(s) is made monthly, quarterly, semiannually
or annually. Since the value of an Annuity Unit in a Subaccount will reflect the
investment performance of the Subaccount, the amount of each annuity benefit
payment will vary.
The annuity option selected must produce an initial payment of at least $50
(a lower amount may be required under some state laws). The Company reserves the
right to increase these minimum amounts. If the annuity option(s) selected does
not produce an initial payment which meet this minimum, a single payment will be
made. Once the Company begins making annuity benefit payments, the Annuitant
cannot make partial redemptions or surrender the annuity except in the case
where future annuity benefit payments are limited to a "period certain." Only
beneficiaries entitled to receive remaining payments for a "period certain" may
elect to instead receive a lump sum settlement.
The Annuity Date is selected by the Contract Owner. To the extent permitted
in your state, the Annuity Date may be the first day of any month (a) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Contract is 75 or under, or (b) within 10 years from the date of issue of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of
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issue is between 76 and 90. The Contract Owner may elect to change the Annuity
Date by sending a request to the Company's Principal Office at least one month
before the new Annuity date. The new Annuity Date must be the first day of any
month occurring before the Annuitant's 90th birthday and must be within the life
expectancy of the Annuitant. The Company shall determine such life expectancy at
the time a change in Annuity Date is requested. The Internal Revenue Code and
the terms of qualified plans impose limitations on the age at which annuity
benefit payments may commence and the type of annuity option selected. See
"FEDERAL TAX CONSIDERATIONS" for further information.
If the Contract Owner does not elect otherwise, a variable life annuity with
periodic payments for 10 years guaranteed will be purchased. Changes in either
the Annuity Date or annuity option can be made up to one month prior to the
Annuity Date.
I. DESCRIPTION OF VARIABLE ANNUITY OPTIONS.
The Company provides the variable annuity options described below.
Currently, variable annuity options may be funded through the Equity/Income
Series, the Capital Reserves Series and the Multiple Strategy Series.
The Company also provides these same options funded through the fixed
account (fixed-amount annuity option). Regardless of how payments were allocated
during the accumulation period, any one of the variable annuity options or the
fixed-amount options may be selected, or any one of the variable annuity options
may be selected in combination with any one of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS. This is a
variable annuity payable periodically during the lifetime of the payee with the
guarantee that if the payee should die before all payments have been made, the
remaining annuity benefit payments will continue to the beneficiary.
VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING THE LIFETIME OF THE PAYEE
ONLY. It would be possible under this option for the Annuitant to receive only
one annuity benefit payment if the Annuitant dies prior to the due date of the
second annuity benefit payment, two annuity benefit payments if the Annuitant
dies before the due date of the third annuity benefit payment, and so on.
However, payments will continue during the lifetime of the payee, no matter how
long the payee lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is a variable annuity payable
periodically during the lifetime of the payee with the guarantee that if (1)
exceeds (2) then periodic variable annuity benefit payments will continue to the
beneficiary until the number of such payments equals the number determined in
(1).
Where: (1) is the dollar amount of the Accumulated Value divided by the
dollar amount of the first payment (which determines the greatest
number of payments payable to the beneficiary), and
(2) is the number of payments paid prior to the death of the payee.
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to two payees during their joint lifetime, and then continuing during
the lifetime of the survivor. The amount of each payment to the survivor is
based on the same number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be either the person
designated as the Annuitant in the Contract or the beneficiary. There is no
minimum number of payments under this option.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. This is a variable
annuity payable jointly to two payees during their joint lifetime, and then
continuing thereafter during the lifetime of the survivor. However, the amount
of each periodic payment to the survivor is based upon two-thirds of the number
of Annuity Units which applied during the joint lifetime of the two payees. One
of the payees must be the person designated as the Annuitant in the Contract or
the beneficiary. There is no minimum number of payments under this option.
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PERIOD CERTAIN VARIABLE ANNUITY. This variable annuity provides periodic
payments for a stipulated number of years ranging from one to thirty. The Period
Certain Option does not involve a life contingency. In the computation of the
payments under this option, the charge for annuity rate guarantees, which
includes a factor for mortality risks, is made. Although not contractually
required to do so, the Company currently follows a practice of permitting
persons receiving payments under the Period Certain Option to elect to convert
to a variable annuity involving a life contingency. The Company may discontinue
or change this practice at any time, but not with respect to election of the
option made prior to the date of any change in this practice. See "FEDERAL TAX
CONSIDERATIONS" for a discussion of the possible adverse tax consequences of
selecting a Period Certain Option.
J. NORRIS DECISION.
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States
Supreme Court ruled that, in connection with retirement benefit options offered
under certain employer-sponsored employee benefit plans, annuity options based
on sex-distinct actuarial tables are not permissible under Title VII of the
Civil Rights Act of 1964. The ruling requires that benefits derived from
contributions paid into a plan after August 1, 1983 be calculated without regard
to the sex of the employee. Annuity benefits attributable to payments received
by the Company under a Contract issued in connection with an employer-sponsored
benefit plan affected by the Norris decision will be based on the greater of (1)
the Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed unisex rates described in such Contract, regardless of whether the
Annuitant is male or female.
K. COMPUTATION OF VALUES AND ANNUITY BENEFIT PAYMENTS.
THE ACCUMULATION UNIT. Each net payment is allocated to the account(s)
selected by the Contract Owner. Allocations to the Subaccounts are credited to
the Contract in the form of Accumulation Units. Accumulation Units are credited
separately for each Subaccount. The number of Accumulation Units of each
Subaccount credited to the Contract is equal to the portion of the net payment
allocated to the Subaccount, divided by the dollar value of the applicable
Accumulation Unit as of the Valuation Date the payment is received at the
Company's Principal Office. The number of Accumulation Units resulting from each
payment will remain fixed unless changed by a subsequent split of Accumulation
Unit value, a transfer, a partial redemption, or surrender. The dollar value of
an Accumulation Unit of each Subaccount varies from Valuation Date to Valuation
Date based on the investment experience of that Subaccount and will reflect the
investment performance, expenses and charges of its Underlying Funds. The value
of an Accumulation Unit was set at $1.00 on the first Valuation Date for each
Subaccount.
Allocations to the Guarantee Period Account and the Fixed Account are not
converted into Accumulation Units, but are credited interest at a rate
periodically set by the Company.
The Accumulated Value under the Contract is determined by (1) multiplying
the number of Accumulation Units in each Subaccount by the value of an
Accumulation Unit of that Subaccount on the Valuation Date, (2) adding the
products, and (3) adding the amount of the accumulations in the Fixed Account,
if any.
NET INVESTMENT FACTOR
The Net Investment Factor is an index that measures the investment
performance of a Subaccount from one Valuation Period to the next. This factor
is equal to 1.000000 plus the result from dividing (a) by (b) and subtracting
(c) and (d) where:
(a) is the investment income of a Subaccount for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(b) is the value of that Subaccount's assets at the beginning of the
Valuation Period;
(c) is a charge for mortality and expense risks equal to 1.25% on an
annual basis of the daily value of the Subaccount's assets, and
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(d) is an administrative charge of 0.15% on an annual basis of the daily
value of the Subaccount's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor. For an illustration of an Accumulation Unit calculation using
a hypothetical example see "Annuity Payments" in the Statement of Additional
Information. Subject to compliance with applicable state and federal law, the
Company reserves the right to change the methodology for determining the net
investment factor.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a
measure of the value of the Annuitant's monthly annuity benefit payments under a
variable annuity option. The value of an Annuity Unit in each Subaccount
initially was set at $1.00. The value of an Annuity Unit under a Subaccount on
any Valuation Date thereafter is equal to the value of such unit on the
immediately preceding Valuation Date, multiplied by the product of (1) the net
investment factor of the Subaccount for the current Valuation Period and (2) a
factor to adjust benefits to neutralize the assumed interest rate. The assumed
interest rate, discussed below, is incorporated in the variable annuity options
offered in the Contract.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The
first periodic annuity benefit payment is based upon the Accumulated Value as of
a date not more than four weeks preceding the date that the first annuity
benefit payment is due. Currently, variable annuity benefit payments are made on
the first of a month based on unit values as of the 15th day of the preceding
month.
The Contract provides annuity rates which determine the dollar amount of the
first periodic payment under each form of annuity for each $1,000 of applied
value. For life option and noncommutable period certain options of 10 or more
years, the annuity value is the Accumulated Value less any premium taxes and
adjusted for any Market Value Adjustment. For commutable period certain options
or any period certain option less than 10 years, the value is the Surrender
Value less any premium tax. For a death benefit annuity, the annuity value will
be the amount of the death benefit. The annuity rates in the Contract are based
on a modification of the 1983 Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. Norris Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3 1/2% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity benefit payments will
increase over periods when the actual net investment result of the Subaccount(s)
funding the annuity exceeds the equivalent of the assumed interest rate for the
period. Variable annuity benefit payments will decrease over periods when the
actual net investment result of the respective Subaccount is less than the
equivalent of the assumed interest rate for the period.
The dollar amount of the first periodic annuity benefit payment under life
annuity options and non-commutable period certain options of 10 years or more is
determined by multiplying (1) the Accumulated Value applied under that option
(after application of any Market Value Adjustment and less premium tax, if any)
divided by $1,000, by (2) the applicable amount of the first monthly payment per
$1,000 of value. For commutable period certain options and any period certain
option of less than 10 years, the Surrender Value less premium taxes, if any, is
used rather than the Accumulated Value. The dollar amount of the first variable
annuity benefit payment is then divided by the value of an Annuity Unit of the
selected Subaccount(s) to determine the number of Annuity Units represented by
the first payment. This number of Annuity Units remains fixed under all annuity
options except the joint and two-thirds survivor annuity option. For each
subsequent payment, the dollar amount of the variable annuity benefit payment is
determined by multiplying this fixed number of Annuity Units by the value of an
Annuity unit on the applicable Valuation Date.
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After the first payment, the dollar amount of each periodic variable annuity
benefit payment will vary with subsequent variations in the value of the Annuity
Unit of the selected Subaccount(s). The dollar amount of each fixed amount
annuity benefit payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Contract Owners both fixed and
variable annuity rates more favorable than those contained in the Contract. Any
such rates will be applied uniformly to all Contract Owners of the same class.
For an illustration of variable annuity benefit payment calculation using a
hypothetical example, see "Annuity Payments" in the Statement of Additional
Information.
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 or the Investment Company Act of 1940. Accordingly, the staff of the
Commission has not reviewed the disclosures in this Prospectus relating to the
Guarantee Period Accounts or the Fixed Account. Nevertheless, disclosures
regarding the Guarantee Period Accounts and the Fixed Account of this annuity
Contract or any benefits offered under these accounts may be subject to the
provisions of the Securities Act of 1933 relating to the accuracy and
completeness of statements made in the Prospectus.
INVESTMENT OPTIONS -- In most jurisdictions, there are currently seven
Guarantee Period Accounts available under this Contract with Guarantee Periods
of three, five, six, seven, eight, nine and ten years. Each Guarantee Period
Account established for the Contract Owner is accounted for separately in a
non-unitized segregated account. Each Guarantee Period Account provides for the
accumulation of interest at a Guaranteed Interest Rate. The Guaranteed Interest
Rate on amounts allocated or transferred to a Guarantee Period Account is
determined from time-to-time by the Company in accordance with market
conditions; however, once an interest rate is in effect for a Guarantee Period
Account, the Company may not change it during the duration of the Guarantee
Period. In no event will the Guaranteed Interest Rate be less than 3%.
To the extent permitted by law, the Company reserves the right at any time
to offer Guarantee Periods with durations that differ from those which were
available when a Contract was initially issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Contract Owners may allocate net payments or make transfers from any of the
subaccounts, the Fixed Account or an existing Guarantee Period Account to
establish a new Guarantee Period Account at any time prior to the Annuity Date
(subject to the Fixed Account limitations in Oregon; see Appendix A, More
Information about the Fixed Account). Transfers from a Guarantee Period Account
on any date other than on the day following the expiration of that Guarantee
Period will be subject to a Market Value Adjustment. The Company establishes a
separate investment account each time the Contract Owner allocates or transfers
amounts to a Guarantee Period Account except that amounts allocated to the same
Guarantee Period on the same day will be treated as one Guarantee Period
Account. The minimum that may be allocated to establish a Guarantee Period
Account is $1,000. If less than $1,000 is allocated, the Company reserves the
right to apply that amount to the Money Market Account. The Contract Owner may
allocate amounts to any of the Guarantee Periods available. Notwithstanding any
other provision in this Prospectus, with respect to contracts issued in the
state of Pennsylvania, no amounts may be allocated or transferred to any
Guarantee Period that would extend more than six months beyond the Annuity Date
in effect on the date the allocation or transfer is effected.
At least 45 days, but not more than 75 days prior to the end of a Guarantee
Period, the Company will notify the Contract Owner in writing of the expiration
of that Guarantee Period. At the end of a
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Guarantee Period the Owner may transfer amounts to the Subaccounts, the Fixed
Account or establish a new Guarantee Period Account of any duration then offered
by the Company without a Market Value Adjustment. If reallocation instructions
are not received at the Principal Office before the end of a Guarantee Period,
the Account value will be automatically applied to a new Guarantee Period
Account with the same duration, unless (a) less than $1,000 would remain in the
Guarantee Period Account on the expiration date, or (b) the Guarantee Period
would extend beyond the Annuity Date or is no longer available. In such cases,
the Guarantee Period Account value will be transferred to Subaccount 204 (Money
Market Series).
MARKET VALUE ADJUSTMENT -- No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of the Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "Death Benefit". A Market
Value Adjustment will apply to all other transfers, withdrawals, or a surrender.
Amounts applied under an annuity option are treated as withdrawals when
calculating the Market Value Adjustment. The Market Value Adjustment will be
determined by multiplying the amount taken from each Guarantee Period Account
before deduction of any Surrender Charge by the market value factor. The market
value factor for each Guarantee Period Account is equal to:
[(1+i)/(1+j)]n/365 - 1
where:
i is the Guaranteed Interest Rate expressed as a decimal (for example:
3% = 0.03) being credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate, expressed as a decimal, for a
Guarantee Period with a duration equal to the number of years
remaining in the current Guarantee Period, rounded to the next higher number
of whole years. If that rate is not available, the Company will use a
suitable rate or index allowed by the Department of Insurance; and
n is the number of days remaining from the Effective Valuation Date to
the end of the current Guarantee Period.
If the Guaranteed Interest Rate being credited is lower than the current
Guaranteed Interest Rate, the Market Value Adjustment will decrease the
Guarantee Period Account value. Similarly, if the Guaranteed Interest Rate being
credited is higher than the current Guaranteed Interest Rate, the Market Value
Adjustment will increase the Guarantee Period Account value. The Market Value
Adjustment will never result in a change to the value more than the interest
earned in excess of the Minimum Guarantee Period Account Interest Rate (see
Specifications page) compounded annually from the beginning of the current
Guarantee Period. For examples of how the Market Value Adjustment works, See
Appendix B.
WITHDRAWALS -- Prior to the Annuity Date, the Contract Owner may make
withdrawals of amounts held in the Guarantee Period Accounts. Withdrawals from
these accounts will be made in the same manner and be subject to the same rules
as set forth under "Partial Redemptions" and "Surrender." In addition, the
following provisions also apply to withdrawals from a Guarantee Period Account:
a) a Market Value Adjustment will apply to all withdrawals, including
Withdrawals without Surrender Charge, unless made at the end of the Guarantee
Period; and b) the Company reserves the right to defer payments of amounts
withdrawn from a Guarantee Period Account for up to six months from the date it
receives the withdrawal request. If deferred for 30 days or more, the Company
will pay interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a
portion of the value of a Guarantee Period Account, it will be calculated on the
amount requested and deducted or added to the amount remaining in the Guarantee
Period Account. If the entire amount in a Guarantee Period
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Account is requested, the adjustment will be made to the amount payable. If a
Contingent Deferred Sales Charge applies to the withdrawal, it will be
calculated as set forth under "Contingent Deferred Sales Charge" after
application of the Market Value Adjustment.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Contract, on
redemptions or surrenders, on annuity benefit payments, and on the economic
benefit to the Contract Owner, Annuitant, or beneficiary depends upon a variety
of factors. The following discussion is based upon the Company's understanding
of current federal income tax laws as they are interpreted as of the date of
this Prospectus. No representation is made regarding the likelihood of
continuation of current federal income tax laws or of current interpretations by
the Internal Revenue Service (IRS).
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER SHOULD ALWAYS BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income,
assets, or existence of the Contracts, the Variable Account or the Subaccounts
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
Contract Owners and with respect to each separate account as though that
separate account were a separate taxable entity.
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 Code. The Company files a consolidated tax return with
its affiliates.
The Internal Revenue Service has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
contracts under Section 817(h) of the Internal Revenue Code ("Code"). The
regulations provide that the investments of a segregated asset account
underlying a variable annuity contract are adequately diversified if no more
than 55% of the value of its assets is represented by any one investment, no
more than 70% by any two investments, no more than 80% by any three investments,
and no more than 90% by any four investments. If the investments are not
adequately diversified, the income on a contract, for any taxable year of the
Contract Owner, would be treated as ordinary income received or accrued by the
Contract Owner. It is anticipated that the Trust will comply with the
diversification requirements.
A. QUALIFIED AND NON-QUALIFIED CONTRACTS.
From a federal tax viewpoint there are two types of variable annuity
Contracts, "qualified" Contracts and "non-qualified" Contracts. A qualified
Contract is one that is purchased in connection with a retirement plan which
meets the requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Contract is one that is not purchased in connection with one of
the indicated retirement plans. The tax treatment for certain partial
redemptions or surrenders will vary according to whether they are made from a
qualified Contract or a non-qualified Contract. For more information on the tax
provisions applicable to qualified Contracts, see Sections D through J, below.
B. TAXATION OF THE CONTRACTS IN GENERAL.
The Company believes that the Contracts described in this Prospectus will,
with certain exceptions (see K below), be considered annuity contracts under
Section 72 of the Internal Revenue Code (the "Code"). This section provides for
the taxation of annuities. The following discussion concerns annuities subject
to Section 72. Section 72(e)(11)(A)(ii) requires that all non-qualified deferred
annuity Contracts issued by the same insurance company to the same Contract
Owner during the same calendar year be treated as a single Contract in
determining taxable distributions under Section 72(e).
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With certain exceptions, any increase in the Accumulated Value of the
Contract is not taxable to the Contract Owner until it is withdrawn from the
Contract. If the Contract is surrendered or amounts are withdrawn prior to the
Annuity Date, to the extent of the amount withdrawn any investment gain in value
over the cost basis of the Contract would be taxed as ordinary income. Under the
current provisions of the Code, amounts received under a non-qualified Contract
prior to the Annuity Date (including payments made upon the death of the
Annuitant or Contract Owner), or as non-periodic payments after the Annuity
Date, are generally first attributable to any investment gains credited to the
Contract over the taxpayer's basis (if any) in the Contract. Such amounts will
be treated as income subject to federal income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if
the withdrawal is made prior to age 59 1/2. The penalty tax will not be imposed
after age 59 1/2, or if the withdrawal follows the death of the Contract Owner
(or, if the Contract Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Owner. Furthermore, under Section 72 of the Code,
this penalty tax will not be imposed, irrespective of age, if the amount
received is one of a series of "substantially equal" periodic payments made at
least annually for the life or life expectancy of the payee. This requirement is
met when the Contract Owner elects to have distributions made over the Contract
Owner's life expectancy, or over the joint life expectancy of the Contract Owner
and beneficiary. The requirement that the amount be paid out as one of a series
of "substantially equal" periodic payments is met when the number of units
withdrawn to make each distribution is substantially the same.
In a Private Letter Ruling, the IRS took the position that where
distributions from a variable annuity contract were determined by amortizing the
accumulated value of the contract over the taxpayer's remaining life expectancy
(such as under the Contract's life expectancy distribution ("LED") option), and
the option could be changed or terminated at any time, the distributions failed
to qualify as part of a "series of substantially equal payments" within the
meaning of Section 72 of the Code. The distributions were therefore subject to
the 10% federal penalty tax. This Private Letter Ruling may be applicable to a
Contract Owner who receives distributions under the LED option prior to age
59 1/2. Subsequent private letter rulings, however, have treated LED-type
withdrawal programs as effectively avoiding the 10% penalty tax. The position of
the IRS on this issue is unclear.
If the Contract Owner transfers (assigns) the Contract to another individual
as a gift prior to the Annuity Date, the Code provides that the Contract Owner
will incur taxable income at the time of the transfer. An exception is provided
for certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the Surrender Value of the
Contract over the Contract Owner's cost basis at the time of the transfer. The
transfer is also subject to federal gift tax provisions. Where the Contract
Owner and Annuitant are different persons, the change of ownership of the
Contract to the Annuitant on the Annuity Date, as required under the Contract,
is a gift and will be taxable to the Contract Owner as such. However, the
Contract Owner will not incur taxable income. Rather the Annuitant will incur
taxable income upon receipt of annuity benefit payments as discussed below.
When annuity benefit payments are commenced under the Contract, generally a
portion of each payment may be excluded from gross income. The excludable
portion is generally determined by a formula that establishes the ratio that the
cost basis of the Contract bears to the expected return under the Contract. The
portion of the payment in excess of this excludable amount is taxable as
ordinary income. Once all cost basis in the Contract is recovered, the entire
payment is taxable. If the Annuitant dies before cost basis is recovered, a
deduction for the difference is allowed on the Annuitant's final tax return.
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C. TAX WITHHOLDING AND PENALTIES.
The Code requires withholding with respect to payments or distributions from
nonqualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.
In certain situations, the Code provides for a tax penalty if, prior to
death, disability or attainment of age 59 1/2, a Contract Owner makes a
withdrawal or receives any amount under the Contract, unless the distribution is
in the form of a life annuity (including life expectancy distributions). The
penalty is 10% of the amount includible in income by the Contract Owner.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Contracts offered by this Prospectus will vary according to
whether the amount redeemed or surrendered is allocable to an investment in the
Contract made before or after certain dates.*
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified employer plans, as defined by the
Code, vary according to the type of plan and the terms and conditions of the
plan itself. Therefore, the following is general information about the use of
the Contracts with various types of qualified plans. The rights of any person to
any benefits under such qualified plans will be subject to the terms and
conditions of the qualified plans themselves regardless of the terms and
conditions of the Contract.
A loan to a participant or beneficiary from plans qualified under Sections
401 and 403 or an assignment or pledge of an interest in such a plan is
generally treated as a distribution. This general rule does not apply to loans
which contain certain repayment terms and do not exceed a specified maximum
amount, as required under Section 72(p).
E. QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS AND QUALIFIED ANNUITY
PLANS.
When an employee (including a self-employed individual) or one or more of
the employee's beneficiaries receives a "lump sum" distribution (a distribution
from a qualified plan described in Code Section 401(a) within one taxable year
equal to the total amount payable with respect to such an employee) the taxable
portion of such distribution may qualify for special treatment under a special
five-year income averaging provision of the Code. The employee must have had at
least 5 years of participation under the plan, and the lump sum distribution
must be made after the employee has attained age 59 1/2 or on account of his or
her death, separation from the employer's service (in the case of a common-law
employee) or disability (in the case of a self-employed individual). Such
treatment can be elected for only one taxable year once the individual has
reached age 59 1/2. An employee who attained age 50 before January 1, 1986 may
elect to treat part of the taxable portion of a lump-sum distribution as
long-term capital gains and may also elect 10-year averaging instead of
five-year averaging.
The Company can provide prototype plans for certain of the pension or profit
sharing plans for review by your legal counsel. For information, ask your agent.
F. SELF-EMPLOYED INDIVIDUALS.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended,
frequently referred to as "H.R. 10", allows self-employed individuals and
partners to establish qualified pension and profit sharing trusts and annuity
plans to provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements
applicable to corporate qualified plans, with some special restrictions imposed
on "owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
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G. INDIVIDUAL RETIREMENT ACCOUNT PLANS.
Any individual who earns "compensation" (as defined in the Code and
including alimony payable under a court decree) from employment or
self-employment, whether or not he or she is covered by another qualified plan,
may establish an Individual Retirement Account or Annuity plan ("IRA") for the
accumulation of retirement savings on a tax-deferred basis. Income from
investments is not included in "compensation." The assets of an IRA may be
invested in, among other things, annuity Contracts including the Contracts
offered by this Prospectus.
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the
above-described limit on each. An individual with an IRA may establish an
additional IRA for a non-working spouse if they file a joint return.
Contributions to the two IRAs together are deductible up to the lesser of $2,250
or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 and years thereafter. Contributions for that year and
for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be deducted,
taxes on their earnings are deferred until the earnings are distributed. The
maximum permissible non-deductible contribution is $2,000 for an individual
taxpayer and $2,250 for a taxpayer and non-working spouse. These limits are
reduced by the amount of any deductible contributions made by the taxpayer.
Contributions may be made with respect to a particular year until the due
date of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity benefit payments and other distributions under an IRA will be
taxed as ordinary income unless the owner has made non-deductible contributions.
In addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 , and failure to make
adequate distributions at this time may result in certain adverse tax
consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a
non-deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's tax
return to enable the IRS to determine the proportion of the IRA balance which
represents non-deductible contributions. If the required information is
provided, that part of the amount withdrawn which is proportionate to the
individual's aggregate non-deductible contributions over the aggregate balance
of all of the individual's IRAs, is excludable from income.
Distributions which are a return of a non-deductible contribution are
non-taxable, as they represent a return of basis. If the required information is
not provided to the IRS, distributions from an IRA to which both deductible and
non-deductible contributions have been made are presumed to be fully taxable.
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H. SIMPLIFIED EMPLOYEE PENSIONS.
Employers may establish Simplified Employee Pensions ("SEPs") under Code
Section 408(k) if certain requirements are met. A SEP is an IRA to which the
employer contributes under a written formula. Currently, a SEP may accept
employer contributions each year up to $30,000 or 15% of compensation (as
defined), whichever is less. To establish SEPs the employer must make a
contribution for every employee age 21 and over who has performed services for
the employer for at least three of the five immediately preceding calendar years
and who has earned at least $300 for the year. SEP contributions for employees
over age 70 1/2 are permissible.
The employer's contribution is excluded from the employee's gross income for
the taxable year for which it was made up to the $30,000/15% limit. In addition
to the employer's contribution, the employee may contribute 100% of the
employee's earned income, up to $2,000, to the SEP, but such contributions will
be subject to the rules described above in "G. Individual Retirement Account
Plans."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
I. PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS.
Under the provisions of Section 403(b) of the Code, payments made for
annuity Contracts purchased for employees under annuity plans adopted by public
school systems and certain organizations which are tax exempt under Section
501(c)(3) of the Code are excludable from the gross income of such employees to
the extent that the aggregate purchase payments for such annuity Contracts in
any year do not exceed the maximum contribution permitted under the Code.
A Contract qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Contract Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax. The distribution restrictions are
effective for years beginning after December 31, 1988, but only with respect to
amounts that were not held under the Contract as of that date.
J. TEXAS OPTIONAL RETIREMENT PROGRAM.
Under a Code Section 403(b) annuity contract issued as a result of
participation in the Texas Optional Retirement Program, distributions may not be
received except in the case of the participant's death, retirement or
termination of employment in the Texas public institutions of higher education.
These restrictions are imposed by reason of an opinion of the Texas Attorney
General interpreting the Texas laws governing the Optional Retirement Program.
K. SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES.
Code Section 457 allows employees of a state, one of its political
subdivisions, or certain tax-exempt entities to participate in eligible
government deferred compensation plans. An eligible plan, by its terms, must not
allow deferral of more than $7,500 or 33 1/3% of a participant's includible
compensation for the taxable year, whichever is less. Includible compensation
does not include amounts excludable under the eligible deferred compensation
plan or amounts paid into a Code Section 403(b) annuity. The amount a
participant may defer must be reduced dollar-for-dollar by elective deferrals
under a SEP, 401(k) plan or a deductible employee contribution to a 501(c)(18)
plan. Under eligible deferred compensation plans the state, political
subdivision, or tax-exempt entity will be owner of the Contract.
If an employee also participates in another eligible plan or contributes to
a Code Section 403(b) annuity, a single limit of $7,500 will be applied for all
plans. Additionally, the employee must
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designate how much of the $7,500 or 33 1/3% limitation will be allocated among
the various plans. Contributions to an eligible plan will serve to reduce the
maximum exclusion allowance for a Code Section 403(b) annuity. Amounts received
by employees under such plans generally are includible in gross income in the
year of receipt.
L. NON-INDIVIDUAL OWNERS.
Non-individual Owners (e.g., a corporation) of deferred annuity contracts
generally will be currently taxed on any increase in the cash surrender value of
the deferred annuity attributable to contributions made after February 28, 1986.
This rule does not apply to immediate annuities or to deferred annuities held by
a qualified pension plan, an IRA, a 403(b) plan, estates, employers with respect
to terminated pension plans, or a nominee or agent holding a contract for the
benefit of an individual. Corporate-owned annuities may result in exposure to
the alternative minimum tax, to the extent that income on the annuities
increases the corporation's adjusted current earnings.
REPORTS
A Contract Owner is sent a report semi-annually which states certain
financial information about the Underlying Funds. The Company will also furnish
an annual report to the Contract Owner containing a statement of his or her
account, including unit values and other information as required by applicable
law, rules and regulations.
LOANS (QUALIFIED CONTRACTS ONLY)
Loans are available to owners of TSA contracts (i.e. contracts issued under
Section 403(b) of the Internal Revenue Code and to contracts issued to plans
qualified under Sections 401(a) and 401(k) of the Code. Loans are subject to
provisions of the Code and to applicable qualified retirement plan rules. Tax
advisors and plan fiduciaries should be consulted prior to exercising loan
privileges.
Loaned amounts will first be withdrawn from Subaccount and Fixed Account
values on a pro-rata basis until exhausted. Thereafter, any additional amounts
will be withdrawn from the Guarantee Period Accounts (pro-rata by duration and
LIFO (last-in, first-out) within each duration), subject to any applicable
Market Value Adjustments. The maximum loan amount will be determined under the
Company's maximum loan formula. The minimum loan amount is $1,000. Loans will be
secured by a security interest in the contract and the amount borrowed will be
transferred to a loan asset account within the Company's General Account, where
it will accrue interest at a specified rate below the then-current loan rate.
Generally, loans must be repaid within five years or less and repayments must be
made quarterly and in substantially equal amounts. Repayments will be allocated
pro-rata in accordance with the most recent payment allocation, except that any
allocations to a Guarantee Period Account will instead be allocated to the Money
Market Subaccount.
CHANGES IN OPERATION OF THE VARIABLE ACCOUNT
The Company reserves the right, subject to compliance with applicable law,
to (1) transfer assets from any separate account or Subaccount to another of the
Company's variable accounts or Subaccounts having assets of the same class, (2)
to operate the variable account or any Subaccount as a management investment
company under the 1940 Act or in any other form permitted by law, (3) to
deregister the Variable account under the 1940 Act in accordance with the
requirements of the 1940 Act and (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Subaccount, in the event that Underlying Fund shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the Subaccount
(5) to change the methodology for determining the net investment factor, and (6)
to change the names of the Variable account or of the Subaccounts. In no event
will the changes described above be made without notice to Contract Owners in
accordance with the 1940 Act.
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LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a
party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted in this
Prospectus pursuant to the rules and regulations of the Commission. The omitted
information may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the Commission's prescribed fees.
39
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account are not generally subject to regulation under the
provisions of the Securities Act of 1933 or the Investment Company Act of 1940.
Disclosures regarding the fixed portion of the annuity contract and the Fixed
Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission.
The Fixed Account is made up of all of the general assets of the Company
other than those allocated to the separate account. Allocations to the Fixed
Account become part of the assets of the Company and are used to support
insurance and annuity obligations. A portion or all of net purchase payments may
be allocated to accumulate at a fixed rate of interest in the Fixed Account.
Such net amounts are guaranteed by the Company as to principal and a minimum
rate of interest. Under the Contracts, the minimum interest which may be
credited on amounts allocated to the Fixed Account is 3% compounded annually.
Additional "Excess Interest" may or may not be credited at the sole discretion
of the Company.
If a Contract is surrendered, or if an Excess Amount is redeemed, while the
Contract is in force and before the Annuity Date, a contingent deferred sales
charge is imposed if such event occurs before the payments attributable to the
surrender or withdrawal have been credited to the Contract less than seven full
contract years.
In Oregon, payments and transfers to the Fixed Account are subject to the
following restrictions:
If a Contract issued prior to the Annuitant's 60th birthday, allocations
to the Fixed Account will be permitted until the Annuitant's 61st birthday.
On and after the Annuitant's 61st birthday, no additional Fixed Account
allocations will be accepted. If a Contract is issued on or after the
Annuitant's 81st birthday, Fixed Account allocations will be permitted
during the first Contract year. On and after the first Contract anniversary,
no additional allocations to the Fixed Account will be permitted. If a
Contract is issued after the Annuitant's 81st birthday, no payments to the
Fixed Account will be permitted at any time.
If an allocation designated as a Fixed Account allocation is received at
the principal office during a period when the Fixed Account is not available
due to the limitations outlined above, the monies will be allocated to the
Money Market Fund.
40
<PAGE>
APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no partial withdrawals and that the free
withdrawal amount is equal to the greater of 15% of the current Account Value or
the accumulated earnings in the Contract. The table below presents examples of
the surrender charge resulting from a full surrender of the Contract Owner's
Account, based on hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE SURRENDER
ACCOUNT ACCUMULATED WITHDRAWAL CHARGE SURRENDER
YEAR VALUE AMOUNT PERCENTAGE CHARGE
- --------------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
1 54,000.00 8,100.00 7% 3,213.00
2 58,320.00 8,748.00 6% 2,974.32
3 62,985.60 12,985.60 5% 2,500.00
4 68,024.45 18,024.45 4% 2,000.00
5 73,466.40 23,466.40 3% 1,500.00
6 79,343.72 29,343.72 2% 1,000.00
7 85,691.21 35,691.21 1% 500.00
8 92,546.51 42,546.51 0% 0.00
</TABLE>
PARTIAL WITHDRAWAL
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume that the free withdrawal amount is equal to the
greater of 15% of the current Account Value or the accumulated earnings in the
contract and there are partial withdrawals as detailed below. The table below
presents examples of the surrender charge resulting from partial surrenders of
the Contract Owner's Account, based on hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE SURRENDER
ACCOUNT ACCUMULATED PARTIAL WITHDRAWAL CHARGE SURRENDER
YEAR VALUE WITHDRAWAL AMOUNT PERCENTAGE CHARGE
- --------------- ------------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1 54,000.00 0.00 8,100.00 7% 0.00
2 58,320.00 0.00 8,748.00 6% 0.00
3 62,985.60 0.00 12,985.60 5% 0.00
4 68,024.45 30,000.00 18,024.45 4% 479.02
5 41,066.40 10,000.00 6,159.96 3% 115.20
6 33,551.72 5,000.00 5,032.76 2% 0.00
7 30,835.85 10,000.00 4,625.38 1% 53.75
8 22,502.72 15,000.00 3,375.41 0% 0.00
</TABLE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is:
[(1+i)/(1+j)]n/365-1
The following examples assume:
1. The Payment was allocated to a ten year Guarantee Period Account with a
guaranteed interest rate of 8%.
2. The date of surrender is seven years (2555 days) from the expiration
date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at the
end of three years.
4. No transfers of partial withdrawals affecting this Guarantee Period
Account have been made.
41
<PAGE>
5. Surrender charges, if any, are calculated in the same manner as shown in
the examples in Part 1.
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.10)]2555/365-1
= (.98182)(7)-1
= -.12054
The market value adjustment = the market value factor multiplied by the
withdrawal
= -.12054*$62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.07)]2555/365-1
= (1.0093)(7)-1
= .06694
The market value adjustment = the market value factor multiplied by the
withdrawal
= .06694*$62,985.60
= $4,216.26
</TABLE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.11)]2555/365-1
= (.97297)(7)-1
= -.17454
The market value adjustment = Minimum of the market value factor
multiplied by the withdrawal or the
negative of the excess interest earned
over 3%
= Minimum of (-.17454*$62,985.60 or
-$8,349.25)
= Minimum of (-$10,993.51 or -$8,349.25)
= -$8,349.25
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.06)]2555/365-1
= (1.01887)(7)-1
= .13981
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C>
The market value adjustment = Minimum of the market value factor
multiplied by the withdrawal or the
excess interest earned over 3%
= Minimum of (.13981*$62,985.60 or
$8,349.25)
= Minimum of ( $8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
43
<PAGE>
APPENDIX C
THE DEATH BENEFIT
PART 1: DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no partial withdrawals and that the Death
Benefit Effective Annual Yield is equal to 5%. The table below presents examples
of the Death Benefit based on the hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL
HYPOTHETICAL MARKET HYPOTHETICAL
ACCUMULATED VALUE DEATH DEATH DEATH DEATH
YEAR VALUE ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) BENEFIT
--- ------------ ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1 53,000.00 0.00 53,000.00 52,500.00 50,000.00 53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.
Death Benefit (b) is the gross payments accumulated daily at the Death
Benefit Effective Annual Yield reduced proportionately to reflect withdrawals.
Death Benefit (c) is the death benefit that would have payable on the most
recent contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits
(a), (b), or (c).
DEATH BENEFIT ASSUMING PARTIAL WITHDRAWALS
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Payments are made. Assume there are partial withdrawals as detailed
in the table below and that the Death Benefit Effective Annual Yield is equal to
5%. The table below presents examples of the Death Benefit based on the
hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL
HYPOTHETICAL MARKET HYPOTHETICAL
ACCUMULATED PARTIAL VALUE DEATH DEATH DEATH DEATH
YEAR VALUE WITHDRAWAL ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) BENEFIT
--- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 53,000.00 0.00 0.00 53,000.00 52,500.00 50,000.00 53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 3,816.94 3,635.18 3,883.00
4 3,494.70 0.00 500.00 3,994.70 4,007.79 3,883.00 4,007.79
5 3,844.17 0.00 0.00 3,844.17 4,208.18 4,007.79 4,208.18
6 4,228.59 0.00 500.00 4,728.59 4,418.59 4,208.18 4,728.59
7 4,651.45 0.00 0.00 4,651.45 4,639.51 4,728.59 4,728.59
8 5,116.59 0.00 500.00 5,616.59 4,871.49 4,728.59 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,115.07 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 599.51 628.25 691.07
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.
44
<PAGE>
Death Benefit (b) is the gross payments accumulated daily at the Death
Benefit Effective Annual Yield reduced proportionately to reflect withdrawals.
Death Benefit (c) is the death benefit that would have payable on the most
recent contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits
(a), (b), or (c).
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no partial withdrawals and that the Death
Benefit Effective Annual Yield is equal to 5%. The table below presents examples
of the Death Benefit based on the hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL
HYPOTHETICAL MARKET HYPOTHETICAL
ACCUMULATED VALUE DEATH
YEAR VALUE ADJUSTMENT BENEFIT
--- ------------ ------------ ------------
<S> <C> <C> <C>
1 53,000.00 0.00 53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>
The hypothetical Death Benefit is the Accumulated Value increased by any
positive Market Value Adjustment.
45
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
FOR
INDIVIDUAL VARIABLE ANNUITY POLICIES FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-K
INVESTING IN SHARES OF DELAWARE GROUP PREMIUM FUND, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS FOR THE ABOVE SUBACCOUNTS OF THE SEPARATE
ACCOUNT DATED APRIL 30, 1996 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE
OBTAINED FROM ANNUITY CUSTOMER SERVICES, ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY, 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653
DATED JULY 8, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE POLICY, THE SEPARATE ACCOUNT AND THE COMPANY . . . . . 3
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 8
GENERAL INFORMATION AND HISTORY
Separate Account VA-K ("Separate Account") is a separate investment account of
Allmerica Financial Life Insurance and Annuity Company ("Company") established
by vote of the Board of Directors on November 1, 1990. The Company is a life
insurance company organized under the laws of Delaware in July, 1974. Its
Principal Office is located at 440 Lincoln Street, Worcester, Massachusetts
01653, Telephone 508-855-1000. The Company is subject to the laws of the State
of Delaware governing insurance companies and to regulation by the Commissioner
of Insurance of Delaware. In addition, the Company is subject to the insurance
laws and regulations of other states and jurisdictions in which it is licensed
to operate. As of December 31, 1995, the Company had over $5 billion in
assets and over $18 billion of life insurance in force.
Effective October 1, 1995, the Comany changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirect wholly-owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company, converted to
a stock life insurance company on October 16, 1995, and adopted its present
name. First Allmerica is the fifth oldest life insurance company in America.
As of December 31, 1995 First Allmerica and its subsidiaries (including the
Company) had over $11 bllion in combined assets and over $35.2 billion in
life insurance in force.
Ten Subaccounts of the Separate Account are available under the Policies. Each
of the ten Subaccounts invests in a corresponding investment portfolio of the
Delaware Group Premium Fund, Inc. (the "Fund"). The Series are managed by
Delaware Management Company, Inc., except for the International Equity Series
which is managed by Delaware International Advisers Ltd.
The Fund is an open-end, diversified series investment company. The Fund
currently consists of ten different investment portfolios: the Equity/Income
Series, High Yield Series, Capital Reserves Series, Money Market Series,
Growth Series, Multiple Strategy Series, Value Series, Emerging Growth Series
Global Bond Series and International Equity Series (the "Underlying Series").
Each Underlying Series has its own investment objectives and certain attendant
risks.
-2-
<PAGE>
TAXATION OF THE POLICIES, SEPARATE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
Policy, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any
other taxes that may become payable in the future in connection with the
Policies or the Separate Account.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Code and files a consolidated tax return with its parent and
affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Policies or the Separate Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Policy Owners. The Separate Account
presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Separate Account. Fund shares owned by the Subaccounts are held on an open
account basis. A Subaccount's ownership of Fund shares is reflected on the
records of the Fund and not represented by any transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995
and of Separate Account VA-K Delaware Medallion of the Company as of December
31, 1995 and for the periods indicated, included in this Statement of
Additional Information constituting part of the Registration Statement, have
been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Policies.
UNDERWRITERS
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD), serves as principal underwriter for the Policies pursuant
to a contract among Allmerica Investments, Inc., the Company, and the Separate
Account. Allmerica Investments, Inc. distributes the Policies on a best efforts
basis. Allmerica Investments, Inc., 440 Lincoln Street, Worcester,
Massachusetts 01653 was organized in 1969 as a wholly-owned subsidiary of First
Allmerica and is, at present, a indirectly wholly-owned by First Allmerica.
The Policies offered by this Prospectus are offered continuously and may be
purchased from certain independent broker-dealers which are NASD members and
whose representatives are authorized by applicable law to sell variable annuity
policies.
All persons selling the Policies are required to be licensed by their respective
state insurance authorities for the sale of variable annuity policies.
Commissions are paid by the Company on sales of the Policies. For the first
$100 million of total purchase payments, commissions will equal 7.00% of
purchase payments; thereafter, commissions will equal 6.75% of purchase
payments. Commissions not to exceed 6% of purchase payments will be paid to
entities which sell the Policies. The remaining commissions payable by the
Company on sales of the Policies will be paid, pursuant to a Wholesaler
Agreement among the Company, Allmerica Investments, Inc. and Delaware
Distributors, Inc. ("Delaware Distributors"), to Delaware Distributors, a
registered broker-dealer under the Securities Exchange Act of 1934, a member of
the NASD and an affiliate of Delaware Management Company, Inc. and the Fund. In
addition, expense reimbursement allowances may be paid. Additional payments may
be made for other services not directly related to
-3-
<PAGE>
the sale of the Policies, including the recruitment and training of
personnel, production of promotional literature and similar services.
The aggregate amount of commissions paid with respect to sales of the Policies
was $________________ for independent broker-dealers and $__________________ for
Delaware Distributors, Inc. in 1995, $6,969,614.45 for independent brokers-
dealers and $700,288.03 for Delaware Distributors, Inc. in 1994 and $805,008.90
for independent broker-dealers and $208,594,64?.00 for Delaware Distributors,
Inc. in 1993. Sales of the Policies began in March 1992.
Commissions paid by the Company do not result in any charge to Policy Owners or
to the Separate Account in addition to the charges described under "CHARGES AND
DEDUCTIONS" in the Prospectus. The Company intends to recoup the commission and
other sales expense through a combination of anticipated surrender, partial
redemption and/or annuitization charges, the investment earnings on amounts
allocated to accumulate on a fixed basis in excess of the interest credited on
fixed accumulations by the Company, and the profit, if any, from the mortality
and expense risk charge.
ANNUITY PAYMENTS
The method by which the Accumulated Value under the Policy is determined is
described in detail under "K. Computation of Policy Values and Annuity Payments"
in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Subaccount at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit value at the end of the current Valuation Period would be
calculated as follows:
(1) Accumulation Unit Value - Previous Valuation Period . . . . . . . $ 1.135000
(2) Value of Assets - Beginning of Valuation Period . . . . . . . . . $5,000,000
(3) Excess of investment income and net gains over capital losses . . $1,675
(4) Adjusted Gross Investment Rate for the valuation period (3):(2) . 0.000335
(5) Annual Charge (one day equivalent of 1.40% per annum) . . . . . . 0.000038
(6) Net Investment Rate (4)-(5) . . . . . . . . . . . . . . . . . . . 0.000297
(7) Net Investment Factor 1.000000 + (6). . . . . . . . . . . . . . . 1.000297
(8) Accumulation Unit Value - Current Period (1)x(7). . . . . . . . . $1.135337
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
accumulated unit value at the end of the Valuation Period would have been
$1.134577.
The method for determining the amount of annuity payments is described in detail
under "K. Computation of Policy Values and Annuity Payments" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY PAYMENT CALCULATION USING HYPOTHETICAL EXAMPLE.
The determination of the Annuity Unit value and the variable annuity payment may
be illustrated by the following hypothetical example: Assume
-4-
<PAGE>
an Annuitant has 40,000 Accumulation Units in a Separate Account, and that
the value of an Accumulation Unit on the Valuation Date used to determine the
amount of the first variable annuity payment is $1.120000. Therefore, the
Accumulation Value of the Policy is $44,800 (40,000 x $1.120000). Assume
also that the Policy Owner elects an option for which the first monthly
payment is $6.57 per $1,000 of Accumulated Value applied. Assuming no
premium tax or contingent deferred sales charge, the first monthly payment
would be 44.800 multiplied by $6.57, or $294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3-1/2% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit values
because the former reflect the 3-1/2% assumed interest rate used in the annuity
rate calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined to be 267.5818. The value of this same number of Annuity Units will
be paid in each subsequent month under most options. Assume further that the
net investment factor for the Valuation Period applicable to the next annuity
payment is 1.000190. Multiplying this factor by .999906 (the one-day adjustment
factor for the assumed interest rate of 3-1/2% per annum) produces a factor of
1.000096. This is then multiplied by the Annuity Unit value on the immediately
preceding Valuation Date (assumed here to be $1.105000). The result is an
Annuity Unit value of $1.105106 for the current monthly payment. The current
monthly payment is then determined by multiplying the number of Annuity Units by
the current Annuity Unit value, or 267.5818 times $1.105106, which produces a
current monthly payment of $295.71.
PERFORMANCE INFORMATION
Performance information for a Subaccount may be compared, in reports and
promotional literature, to certain indices described in the prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other materials information on
various topics of interest to Policy Owners and prospective Policy Owners.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, market timing, dollar cost
averaging, asset allocation, constant ratio transfer and account rebalancing),
the advantages and disadvantages of investing in tax-deferred and taxable
investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and investment
alternatives to certificates of deposit and other financial instruments,
including comparisons between the Policies and the characteristics of and market
for such financial instruments.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment in a
Subaccount and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Subaccounts asset charge and any applicable contingent deferred sales
load which would be assessed upon complete redemption of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission. The quotations are computed by
finding the average annual compounded rates of return over the specified periods
that would equate the initial amount invested to the ending redeemable values,
according to the following formula:
TO THE POWER OF N
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
-5-
<PAGE>
ERV = the ending redeemable value of the $1,000 payment at the end of the
specified period
The calculation of Total Return includes the annual charges against the asset of
the Subaccount. This charge is 1.40% on an annual basis. The calculation of
ending redeemable value assumes (1) the policy was issued at the beginning of
the period and (2) a complete surrender of the policy at the end of the period.
The deduction of the contingent deferred sales charge, if any, applicable at the
end of the period is included in the calculation, according to the following
schedule:
<TABLE>
<CAPTION>
POLICY FORM A
-------------
POLICY YEAR FROM DATE OF CHARGE AS PERCENTAGE OF NEW
PAYMENT IN WHICH SURRENDER OCCURS PURCHASE PAYMENTS REDEEMED*
--------------------------------- ---------------------------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
<CAPTION>
POLICY FORM B
-------------
POLICY YEAR FROM DATE OF CHARGE AS PERCENTAGE OF NEW
PAYMENT IN WHICH SURRENDER OCCURS PURCHASE PAYMENTS REDEEMED
--------------------------------- ---------------------------
<S> <C>
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%
</TABLE>
*Subject to the maximum limit described in the prospectus.
No contingent deferred sales charge is deducted upon expiration of the periods
specified above. In all calendar years, an amount equal to the greater of
Cumulative Earnings, 10% of the Accumulated Value under the Policy or the life
expectancy distribution, is not subject to the contingent sales load.
The calculations of Total Return include the deduction of the $30 Annual Policy
fee.
-6-
<PAGE>
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return information in this section refers to the total of
the income generated by an investment in a Subaccount and of the changes of
value of the principal invested (due to realized and unrealized capital gains or
losses) for a specified period reduced by the Subaccount's asset charges.
However, it is assumed that the investment is NOT redeemed at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
TO THE POWER OF N
P(1 + T) = EV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of the specified
period
The calculation of Supplemental Total Return reflects the 1.40% annual charge
against the assets of the Subaccounts. The ending value assumes that the policy
is NOT redeemed at the end of the specified period, and there is therefore no
adjustment for the contingent deferred sales charge that would be applicable if
the policy was redeemed at the end of the period.
The calculations of Supplemental Total Return includes the deduction of the $30
Annual Policy fee.
-7-
<PAGE>
YIELD AND EFFECTIVE YIELD - SUBACCOUNT 204 (INVESTS IN THE MONEY MARKET SERIES
OF THE FUND)
Set forth below is yield and effective yield information for Subaccount 204 for
the seven-day period ended December 31, 1995:
Yield 5.69%
Effective Yield 5.53%
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the Securities and Exchange Commission. Under those
methods, the yield quotation is computed by determining the net change
(exclusive of capital changes) in the value of a hypothetical pre-existing
account having a balance of one accumulation unit of the Subaccount at the
beginning of the period, subtracting a charge reflecting the annual 1.40%
deduction for mortality and expense risk and the administrative charge, dividing
the difference by the value of the account at the beginning of the same period
to obtain the base period return, and then multiplying the return for a seven-
day base period by (365/7), with the resulting yield carried to the nearest
hundredth of one percent.
Subaccount 204 computes effective yield by compounding the unannualized base
period return by using the formula:
Effective Yield = [(base period return + 1)(365/7)] - 1
The calculations of yield and effective yield do NOT reflect the $30 Annual
Policy fee.
FINANCIAL STATEMENTS
Financial Statements are included for the Company and for the Subaccounts of
Separate Account VA-K investing in shares of the Underlying Series.
-8-
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DGPF DGPF DGPF
EQUITY INCOME HIGH YIELD CAPITAL RESERVES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
201 202 203
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Delaware Group Premium Fund, Inc. $ 76,463,303 $ 49,835,924 $ 23,877,321
Accrued investment income........................ ....... -- 407,870 127,602
Receivable from Allmerica Financial Life Insurance
and Annuity Company (Sponsor).................. ....... -- -- --
------------ ------------ ------------
Total assets.................................. ....... 76,463,303 50,243,794 24,004,923
============ ============ ============
LIABILITIES:
Payable to Allmerica Financial Life Insurance
and Annuity Company (Sponsor).................. ....... 49,346 107,415 35,114
------------ ------------ ------------
Net assets............................................ $ 76,413,957 $ 50,136,379 $ 23,969,809
============ ============ ============
Net asset distribution by category:
Qualified variable annuity policies.................... $ 20,911,543 $ 14,656,079 $ 5,526,354
Non-qualified variable annuity policies................ 55,502,414 35,480,300 18,443,455
------------ ------------ ------------
$ 76,413,957 $ 50,136,379 $ 23,969,809
============ ============ ============
Qualified units outstanding, December 31, 1995........... 13,219,307 11,055,009 4,569,198
Net asset value per qualified unit, December 31, 1995.... $ 1.581894 $ 1.325741 $ 1.209480
Non-qualified units outstanding, December 31, 1995....... 35,086,051 26,762,619 15,249,078
Net asset value per non-qualified unit, December 31, 1995 $ 1.581894 $ 1.325741 $ 1.209480
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DGPF DGPF DGPF DGPF DGPF DGPF
MONEY MARKET GROWTH MULTIPLE STRATEGY INTERNATIONAL EQUITY VALUE EMERGING GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
204 205 206 207 208 209
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 12,585,034 $ 50,462,674 $ 52,670,993 $ 28,134,693 $ 11,490,483 $ 18,226,642
58,539 -- -- -- -- --
-- -- -- -- 3,703 --
------------ ------------ ------------ ------------ ------------ ------------
12,643,573 50,462,674 52,670,993 28,134,693 11,494,186 18,226,642
============ ============ ============ ============ ============ ============
74,616 55,142 55,072 20,548 -- 13,787
------------ ------------ ------------ ------------ ------------ ------------
$ 12,568,957 $ 50,407,532 $ 52,615,921 $ 8,114,145 $ 11,494,186 $ 18,212,855
============ ============ ============ ============ ============ ============
$ 3,261,236 $ 15,328,952 $ 14,976,218 $ 7,670,937 $ 3,939,957 $ 5,263,020
9,307,721 35,078,580 37,639,703 20,443,208 7,554,229 12,949,835
------------ ------------ ------------ ------------ ------------ ------------
$ 12,568,957 $ 50,407,532 $ 52,615,921 $ 28,114,145 $ 11,494,186 $ 18,212,855
============ ============ ============ ============ ============ ============
3,001,554 10,705,630 10,589,318 5,894,147 3,245,076 3,875,056
$ 1.086516 $ 1.431859 $ 1.414276 $ 1.301450 $ 1.214134 $ 1.358179
8,566,575 24,498,627 26,614,114 15,708,024 6,221,907 9,534,704
$ 1.086516 $ 1.431859 $ 1.414276 $ 1.301450 $ 1.214134 $ 1.358179
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DGPF DGPF DGPF
EQUITY INCOME HIGH YIELD CAPITAL RESERVES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
201 202 203
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends......................................... $ 2,712,649 $ 4,457,302 $ 1,500,392
------------- ------------ ------------
EXPENSES:
Mortality and expense risk fees................... 732,463 561,304 280,312
Administrative expense charges.................... 87,895 67,357 33,638
------------- ------------ ------------
Total expenses................................... 820,358 628,661 313,950
------------- ------------ ------------
Net investment income (loss)...................... 1,892,291 3,828,641 1,186,442
------------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss).......................... 351,231 (333,660) (182,041)
Net unrealized gain............................... 14,864,268 2,308,842 1,645,315
------------- ------------ ------------
Net realized and unrealized gain on investments... 15,215,499 1,975,182 1,463,274
------------- ------------ ------------
Net increase in net assets from operations........ $ 17,107,790 $ 5,803,823 $ 2,649,716
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DGPF DGPF DGPF DGPF DGPF DGPF
MONEY MARKET GROWTH MULTIPLE STRATEGY INTERNATIONAL EQUITY VALUE EMERGING GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
204 205 206 207 208 209
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 765,440 $ 208,522 $1,378,902 $ 615,593 $ 133,051 $ 54,841
---------- ---------- ---------- ---------- ---------- ----------
177,722 508,004 554,677 313,971 103,790 135,254
21,328 60,961 66,561 37,677 12,455 16,231
---------- ---------- ---------- ---------- ---------- ----------
199,050 568,965 621,238 351,648 116,245 151,485
---------- ---------- ---------- ---------- ---------- ----------
566,390 (360,443) 757,664 263,945 16,806 (96,644)
---------- ---------- ---------- ---------- ---------- ----------
-- 469,048 233,085 242,722 46,388 220,458
-- 9,842,970 8,991,892 2,434,397 1,696,345 3,031,765
---------- ---------- ---------- ---------- ---------- ----------
-- 10,312,018 9,224,977 2,677,119 1,742,733 3,252,223
---------- ---------- ---------- ---------- ---------- ----------
$ 566,390 $9,951,575 $9,982,641 $2,941,064 $1,759,539 $3,155,579
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DGPF DGPF
EQUITY INCOME HIGH YIELD
SUB-ACCOUNT 201 SUB-ACCOUNT 202
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss).................................. $ 1,892,291 $ 2,267,865 $ 3,828,641 $ 3,088,388
Net realized gain (loss) from security transactions........... 351,231 3,449 (333,660) (308,296)
Net unrealized gain (loss) on investments....... 14,864,268 (2,965,177) 2,308,842 (4,224,440)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from operations......... 17,107,790 (693,863) 5,803,823 (1,444,348)
----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments......................................... 12,611,903 14,802,843 6,631,293 14,433,874
Terminations.................................................. (2,880,389) (1,651,909) (2,405,303) (1,534,910)
Annuity benefits.............................................. (1,019,742) (353,256) (785,046) (391,703)
Other transfers from (to) the General Account of
Allmerica Financial Life Insurance and
Annuity Company (Sponsor)........................................ 5,127,464 3,332,690 3,958,649 (1,197,665)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from capital transactions.. 13,839,236 16,130,368 7,399,593 11,309,596
----------- ----------- ----------- -----------
Net increase (decrease) in net assets............................ 30,947,026 15,436,505 13,203,416 9,865,248
NET ASSETS:
Beginning of year............................................. 45,466,931 30,030,426 36,932,963 27,067,715
----------- ----------- ----------- -----------
End of year................................................... $76,413,957 $45,466,931 $50,136,379 $36,932,963
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DGPF DGPF DGPF
CAPITAL RESERVES MONEY MARKET GROWTH
SUB-ACCOUNT 203 SUB-ACCOUNT 204 SUB-ACCOUNT 205
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 1,186,442 $ 1,171,043 $ 566,390 $ 259,597 $ (360,443) $ (258,550)
(182,041) (240,991) -- -- 469,048 263,853
1,645,315 (1,747,833) -- -- 9,842,970 (1,509,855)
------------ ------------ ------------ ------------ ------------ ------------
2,649,716 (817,781) 566,390 259,597 9,951,575 (1,504,552)
------------ ------------ ------------ ------------ ------------ ------------
2,286,246 8,493,873 22,144,514 27,816,729 5,639,806 9,040,443
(1,066,956) (725,896) (2,008,989) (593,317) (2,178,906 (1,052,599)
(219,799) (322,325) (603,945) -- (542,098) (445,753)
(1,691,704) (3,379,667) (22,149,008) (18,463,931) 4,925,391 2,069,057
------------ ------------ ------------ ------------ ------------ ------------
(692,213) 4,065,985 (2,617,428) 8,759,481 7,844,193 9,611,148
------------ ------------ ------------ ------------ ------------ ------------
1,957,503 3,248,204 (2,051,038) 9,019,078 17,795,768 8,106,596
22,012,306 18,764,102 14,619,995 5,600,917 32,611,764 24,505,168
------------ ------------ ------------ ------------ ------------ ------------
$ 23,969,809 $ 22,012,306 $ 12,568,957 $ 14,619,995 $ 50,407,532 $ 32,611,764
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DGPF DGPF
MULTIPLE STRATEGY INTERNATIONAL EQUITY
SUB-ACCOUNT 206 SUB-ACCOUNT 207
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss)........................... $ 757,664 $ 889,593 $ 263,945 $ (147,736)
Net realized gain (loss) from security transactions.... 233,085 (21,360) 242,722 35,518
Net unrealized gain (loss) on investments.............. 8,991,892 (1,495,074) 2,434,397 (133,482)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations.. 9,982,641 (626,841) 2,941,064 (245,700)
------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS:
Net purchase payments.................................. 6,717,347 13,465,944 4,058,453 9,837,628
Terminations........................................... (2,312,816) (1,201,117) (1,156,726) (533,917)
Annuity benefits....................................... (877,372) (493,674) (380,631) (132,866)
Other transfers from the General Account of
Allmerica Financial Life Insurance and
Annuity Company (Sponsor)............................. 1,349,350 1,254,523 913,674 5,788,068
------------ ------------ ------------ ------------
Net increase in net assets from capital transactions... 4,876,509 13,025,676 3,434,770 14,958,913
------------ ------------ ------------ ------------
Net increase in net assets............................. 14,859,150 12,398,835 6,375,834 14,713,213
NET ASSETS:
Beginning of year...................................... 37,756,771 25,357,936 21,738,311 7,025,098
------------ ------------ ------------ ------------
End of year............................................ $ 52,615,921 $ 37,756,771 $ 28,114,145 $ 21,738,311
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DGPF DGPF
VALUE EMERGING GROWTH
SUB-ACCOUNT 208 SUB-ACCOUNT 209
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
$ 16,806 $ (44,094) $ (96,644) $ (46,109)
46,388 350 220,458 (7,906)
1,696,345 26,014 3,031,765 24,080
------------ ----------- ------------ ------------
1,759,539 (17,730) 3,155,579 (29,935)
------------ ----------- ------------ ------------
2,180,809 3,146,569 3,777,567 3,321,192
(318,373) (67,564) (529,800) (159,504)
(62,760) (19,428) (30,371) (10,501)
1,931,543 2,955,309 5,710,419 2,957,173
------------ ----------- ------------ ------------
3,731,219 6,014,886 8,927,815 6,108,360
------------ ----------- ------------ ------------
5,490,758 5,997,156 12,083,394 6,078,425
6,003,428 6,272 6,129,461 51,036
------------ ----------- ------------ ------------
$ 11,494,186 $ 6,003,428 $ 18,212,855 $ 6,129,461
============ =========== ============ ============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1995
NOTE 1 - ORGANIZATION
Separate Account VA-K - Delaware Medallion (VA-K) is a separate investment
account of Allmerica Financial Life Insurance and Annuity Company (formerly
named SMA Life Assurance Company) (the Company), established on November 1, 1990
for the purpose of separating from the general assets of the Company those
assets used to fund certain variable annuity policies issued by the Company.
Effective October 16, 1995, concurrent with the demutualization, State Mutual
Life Assurance Company of America changed their name to First Allmerica
Financial Life Insurance Company (First Allmerica). The Company is a
wholly-owned subsidiary of First Allmerica. Under applicable insurance law, the
assets and liabilities of VA-K are clearly identified and distinguished from the
other assets and liabilities of the Company. VA-K cannot be charged with
liabilities arising out of any other business of the Company.
VA-K is registered as a unit investment trust under the Investment Company Act
of 1940, as amended (the 1940 Act). VA-K currently offers nine Sub-Accounts
under the Delaware Medallion policies. Each Sub-Account invests exclusively in a
corresponding investment portfolio of the Delaware Group Premium Fund, Inc.
(DGPF or the Fund), managed by Delaware Management Company, Inc., or Delaware
International Advisors, Ltd. DGPF is an open-end, diversified series management
investment company registered under the 1940 Act.
Separate Account VA-K has two types of variable annuity policies, "qualified"
policies and "non-qualified" policies. A qualified policy is one that is
purchased in connection with a retirement plan which meets the requirements of
Section 401, 403, 408, or 457 of the Internal Revenue Code, while a
non-qualified policy is one that is not purchased in connection with one of the
indicated retirement plans. The tax treatment for certain partial redemptions or
surrenders will vary according to whether they are made from a qualified policy
or a non-qualified policy.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Investments - Security transactions are recorded on the trade date.
Investments in shares of DGPF are stated at the net asset value per share of the
respective investment portfolio of DGPF. Net realized gains and losses on
securities sold are determined on the average cost method. Dividends and capital
gain distributions are recorded on the ex-dividend date and are reinvested in
additional shares of the respective investment portfolio of DGPF at net asset
value.
Federal Income Taxes - The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code and files a consolidated federal
income tax return with First Allmerica. The Company anticipates no tax liability
resulting from the operations of VA-K. Therefore, no provision for income taxes
has been charged against VA-K .
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in DGPF at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO INFORMATION
SUB- INVESTMENT NUMBER OF AGGREGATE NET ASSET
ACCOUNT PORTFOLIO SHARES COST VALUE PER SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
201 Equity Income.................. 5,155,988 $ 63,111,192 $ 14.83
202 High Yield..................... 5,574,488 51,242,233 8.94
203 Capital Reserves............... 2,404,564 24,091,782 9.93
204 Money Market................... 1,258,503 12,585,034 10.00
205 Growth......................... 3,335,273 39,745,113 15.13
206 Multiple Strategy.............. 3,398,129 44,474,987 15.50
207 International Equity........... 2,146,048 25,326,463 13.11
208 Value.......................... 921,450 9,768,124 12.47
209 Emerging Growth................ 1,300,046 15,170,507 14.02
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum based on the average daily net
assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account .15% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account but are paid to
the Company on a monthly basis.
A policy fee is currently deducted on the policy anniversary date and upon
full surrender of the policy when the accumulated value is $50,000 or less. The
policy fee is $30. The policy fee is currently waived for policies originally
issued as part of a 401(k) plan. For the year ended December 31, 1995, policy
fees deducted from accumulated value in VA-K amounted to $111,927.
Allmerica Investments, Inc. (Allmerica Investments), a wholly-owned subsidiary
of First Allmerica, is principal underwriter and general distributor of VA-K,
and does not receive any compensation for sales of the VA-K - Delaware Medallion
policies. Commissions are paid by the Company to registered representatives of
broker-dealers who are registered under the Securities Exchange Act of 1934 and
are members of the National Association of Securities Dealers. As the current
series of policies have a contingent deferred sales charge, no deduction is made
for sales charges at the time of the sale. For the year ended December 31, 1995,
the Company received $447,478 for contingent deferred sales charges applicable
to VA-K.
<PAGE>
NOTE 5 - POLICYOWNERS AND SPONSOR TRANSACTIONS
Transactions from policyowners were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994
UNITS AMOUNT UNITS AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Income
Sub-Account 201
Issuance of units................. 16,817,312 $ 23,691,234 19,171,947 $ 22,831,542
Redemption of units............... (7,103,035) (9,851,998) (5,666,972) (6,701,174)
----------- ------------ ------------ -------------
Net increase...................... 9,714,277 $ 13,839,236 13,504,975 $ 16,130,368
=========== ============ ============ =============
High Yield
Sub-Account 202
Issuance of units................. 13,701,843 $ 16,906,107 19,488,761 $ 23,253,050
Redemption of units............... (7,619,617) (9,506,514) (10,034,596) (11,943,454)
----------- ------------ ------------ -------------
Net increase...................... 6,082,226 $ 7,399,593 9,454,165 $ 11,309,596
=========== ============ ============ =============
Capital Reserves
Sub-Account 203
Issuance of units................. 4,266,217 $ 4,976,279 11,238,496 $ 12,211,124
Redemption of units............... (4,924,028) (5,668,492) (7,515,413) (8,145,139)
----------- ------------ ------------ -------------
Net increase (decrease)........... (657,811) $ (692,213) 3,723,083 $ 4,065,985
=========== ============ ============ =============
Money Market
Sub-Account 204
Issuance of unit.................. 39,103,291 $ 41,569,167 42,330,436 $ 43,599,780
Redemption of units............... (41,533,117) (44,186,595) (33,815,190) (34,840,299)
----------- ------------ ------------ -------------
Net increase (decrease)........... (2,429,826) $ (2,617,428) 8,515,246 $ 8,759,481
=========== ============ ============ =============
Growth
Sub-Account 205
Issuance of units................. 13,019,605 $ 16,432,159 15,645,616 $ 18,116,419
Redemption of units (6,915,534) (8,587,966) (7,347,214) (8,505,271)
----------- ------------ ------------ -------------
Net increase...................... 6,104,071 $ 7,844,193 8,298,402 $ 9,611,148
=========== ============ ============ =============
Multiple Strategy
Sub-Account 206
Issuance of units................. 8,419,696 $ 10,930,861 16,287,349 $ 18,753,977
Redemption of units............... (4,548,601) (6,054,352) (5,000,350) (5,728,301)
----------- ------------ ------------ -------------
Net increase...................... 3,871,095 $ 4,876,509 11,286,999 $ 13,025,676
=========== ============ ============ =============
International Equity
Sub-Account 207
Issuance of units................. 9,412,885 $ 11,535,614 15,701,936 $ 18,561,102
Redemption of units............... (6,571,322) (8,100,844) (3,079,760) (3,602,189)
----------- ------------ ------------ -------------
Net increase...................... 2,841,563 $ 3,434,770 12,622,176 $ 14,958,913
=========== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED DECEMBER 31,
1995 1994
UNITS AMOUNT UNITS AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Value
Sub-Account 208
Issuance of units................. 4,656,792 $ 5,103,171 6,433,373 $ 6,412,580
Redemption of units............... (1,229,779) (1,371,952) (399,675) (397,694)
----------- ------------ ------------ -------------
Net increase...................... 3,427,013 $ 3,731,219 6,033,698 $ 6,014,886
=========== ============ ============ =============
Emerging Growth
Sub-Account 209
Issuance of units................. 9,842,931 $ 12,048,818 7,129,299 $ 7,066,268
Redemption of units............... (2,630,518) (3,121,003) (982,590) (957,908)
----------- ------------ ------------ -------------
Net increase...................... 7,212,413 $ 8,927,815 6,146,709 $ 6,108,360
=========== ============ ============ =============
</TABLE>
NOTE 6 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
contract for federal income tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations issued
by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that VA-K satisfies the current requirements of
the regulations, and it intends that VA-K will continue to meet such
requirements.
NOTE 7 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the DGPF shares by VA-K during
the year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUB-
ACCOUNT INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
201 Equity Income................................ $ 20,683,947 $ 4,944,675
202 High Yield................................... 17,379,753 6,125,619
203 Capital Reserves............................. 4,543,667 4,021,898
204 Money Market................................. 27,099,066 29,026,441
205 Growth....................................... 12,692,122 5,197,139
206 Multiple Strategy............................ 9,091,071 3,443,276
207 International Equity......................... 9,126,168 5,416,662
208 Value........................................ 4,572,637 817,161
209 Emerging Growth.............................. 10,861,874 2,003,623
-------------- --------------
Totals....................................... $ 116,050,305 $ 60,996,494
============== ==============
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance
and Annuity Company and Policyowners
of Separate Account VA-K - Delaware Medallion 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 (201,
202, 203, 204, 205, 206, 207, 208, and 209) constituting the Separate Account
VA-K - Delaware Medallion of Allmerica Financial Life and Annuity Company at
December 31, 1995, and 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 generally accepted accounting
principles. These financial statements are the responsibility of Allmerica
Financial Life Insurance and Annuity Company's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at December 31, 1995 by
correspondence with the Fund, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 23, 1996
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
(formerly SMA Life Assurance Company)
STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
December 31, 1995
Statutory Financial Statements
Report of Independent Accountants . . . . . . . . . . . . . . . . . 1
Statement of Assets, Liabilities, Surplus and Other Funds . . . . . 3
Statement of Operations and Changes in Capital and Surplus. . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Statutory Financial Statements . . . . . . . . . . . . . . 6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)
We have audited the accompanying statutory basis statement of assets,
liabilities, surplus and other funds of Allmerica Financial Life Insurance and
Annuity Company as of December 31, 1995 and 1994, and the related statutory
basis statements of operations and changes in capital and surplus, and of cash
flows for each of the three years ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, which practices
differ from generally accepted accounting principles. The effects on the
financial statements of the variances between the statutory basis of accounting
and generally accepted accounting principles, although not reasonably
determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Allmerica Financial Life Insurance and Annuity Company as of December 31,
1995 and 1994, or the results of its operations or its cash flows for each of
the three years ended December 31, 1995.
<PAGE>
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)
Page 2
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities, surplus and other funds of
Allmerica Financial Life Insurance and Annuity Company as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years ended December 31, 1995, on the basis of accounting described in
Note 1.
As discussed in Note 1 to the financial statements, the Company's parent, State
Mutual Life Assurance Company of America, converted from a Massachusetts mutual
life insurance company to a Massachusetts stock life insurance company on
October 16, 1995. In connection with this transaction, the Company changed its
name to Allmerica Financial Life Insurance and Annuity Company and its parent
became a wholly-owned subsidiary of Allmerica Financial Corporation.
/s/Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Boston, MA
February 5, 1996
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF ASSETS, LIABILITIES, SURPLUS AND
OTHER FUNDS
as of December 31,
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash $ 7,791 $ 7,248
Investments:
Bonds 1,659,575 1,595,275
Stocks 18,132 12,283
Mortgage loans 239,522 295,532
Policy loans 122,696 116,600
Real estate 40,967 51,288
Short term investments 3,500 45,239
Other invested assets 40,196 27,443
----------- -----------
Total cash and investments 2,132,379 2,150,908
Premiums deferred and uncollected (1,231) 5,452
Investment income due and accrued 38,413 39,442
Other assets 6,060 10,569
Assets held in separate accounts 2,978,409 1,869,695
----------- -----------
$ 5,154,030 $ 4,076,066
----------- -----------
----------- -----------
LIABILITIES, SURPLUS AND OTHER FUNDS
Liabilities:
Policy liabilities:
Life reserves $ 856,239 $ 890,880
Annuity and other fund reserves 865,216 928,325
Accident and health reserves 167,246 121,580
Claims payable 11,047 11,720
----------- -----------
Total policy liabilities 1,899,748 1,952,505
Expenses and taxes payable 20,824 17,484
Other liabilities 27,499 36,466
Asset valuation reserve 31,556 20,786
Obligations related to separate account business 2,967,547 1,859,502
----------- -----------
Total liabilities 4,947,174 3,886,743
----------- -----------
Surplus and Other Funds:
Common stock, $1,000 par value
Authorized - 10,000 shares
Issued and outstanding - 2,517 shares 2,517 2,517
Paid-in surplus 199,307 199,307
Unassigned surplus (deficit) 4,282 (13,621)
Special contingency reserves 750 1,120
----------- -----------
Total surplus and other funds 206,856 189,323
----------- -----------
$ 5,154,030 $ 4,076,066
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF OPERATIONS AND
CHANGES IN CAPITAL AND SURPLUS
for the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
REVENUE 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums and other considerations:
Life $ 156,864 $ 195,633 $ 189,285
Annuities 729,222 707,172 660,143
Accident and health 31,790 31,927 35,718
Reinsurance commissions and reserve adjustments 20,198 4,195 2,309
---------- ---------- ----------
Total premiums and other considerations 938,074 938,927 887,455
Net investment income 167,470 170,430 177,612
Realized capital losses, net of tax (2,295) (17,172) (7,225)
Other revenue 37,466 26,065 19,055
---------- ---------- ----------
Total revenue 1,140,715 1,118,250 1,076,897
---------- ---------- ----------
POLICY BENEFITS AND OPERATING EXPENSES
Policy benefits:
Claims, surrenders and other benefits 391,254 331,418 275,290
Increase (decrease) in policy reserves (22,669) 40,113 15,292
---------- ---------- ----------
Total policy benefits 368,585 371,531 290,582
Operating and selling expenses 150,215 164,175 160,928
Taxes, except capital gains tax 26,536 22,846 19,066
Net transfers to separate accounts 556,856 553,295 586,539
---------- ---------- ----------
Total policy benefits and operating expenses 1,102,192 1,111,847 1,057,115
---------- ---------- ----------
NET INCOME 38,523 6,403 19,782
CAPITAL AND SURPLUS, BEGINNING OF YEAR 189,323 182,216 171,941
Unrealized capital gains (losses) on investments 8,279 12,170 (9,052)
Transfer from (to) asset valuation reserve (10,770) (9,822) 1,974
Other adjustments (18,499) (1,644) (2,429)
---------- ---------- ----------
CAPITAL AND SURPLUS, END OF YEAR $ 206,856 $ 189,323 $ 182,216
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF CASH FLOWS
for the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums, deposits and other income $ 964,129 $ 962,147 $ 902,725
Allowances and reserve adjustments on
reinsurance ceded 20,693 3,279 22,185
Net investment income 170,949 173,294 182,843
Net increase in policy loans (6,096) (7,585) (7,812)
Benefits to policyholders and beneficiaries (393,472) (330,900) (298,612)
Operating and selling expenses and taxes (153,504) (193,796) (171,533)
Net transfers to separate accounts (608,480) (600,760) (634,021)
Federal income tax (excluding tax on capital gains) (6,771) (19,603) (4828)
Other sources (applications) (13,642) 19,868 7,757
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (26,194) 5,944 (1,296)
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sales and maturities of long term investments:
Bonds 572,640 478,512 386,414
Stocks 481 63 64
Real estate and other invested assets 13,008 3,008 11,094
Repayment of mortgage principal 55,202 65,334 79,844
Capital gains tax (400) (968) (3,296)
Acquisition of long term investments:
Bonds (640,339) (508,603) (466,086)
Stocks (44) - -
Real estate and other invested assets (11,929) (24,544) (2,392)
Mortgage loans (415) (364) (2,266)
Other investing activities (3,206) 18,934 (27,254)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (15,002) 31,372 (23,878)
---------- ---------- ----------
Net change in cash and short term investments (41,196) 37,316 (25,174)
CASH AND SHORT TERM INVESTMENTS
Beginning of the year 52,487 15,171 40,345
---------- ---------- ----------
End of the year $ 11,291 $ 52,487 $ 15,171
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTES TO STATUTORY FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Financial" or the "Company", formerly SMA Life
Assurance Company) is a wholly owned subsidiary of SMA Financial Corp., which is
wholly owned by First Allmerica Financial Life Insurance Company ("First
Allmerica", formerly, State Mutual Life Assurance Company of America), a stock
life insurance company. On October 16, 1995, First Allmerica converted from a
mutual life insurance company to a stock life insurance company. Concurrent
with this transaction, First Allmerica became a wholly owned subsidiary of
Allmerica Financial Corporation ("AFC").
The stockholder's equity of the Company is being maintained at a minimum level
of 5% of general account assets by First Allmerica in accordance with a policy
established by vote of First Allmerica's Board of Directors.
The Company's financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware and in conformity with practices prescribed by the National Association
of Insurance Commissioners (NAIC), which while common in the industry, vary in
some respects from generally accepted accounting principles. Significant
differences include:
- Bonds considered to be "available-for-sale" or "trading" are not
carried at fair value and changes in fair value are not recognized
through surplus or the statement of operations, respectively;
- The Asset Valuation Reserve, represents a reserve against possible
losses on investments and is recorded as a liability through a charge
to surplus. The Interest Maintenance Reserve is designed to include
deferred realized gains and losses (net of applicable federal income
taxes) due to interest rate changes and is also recorded as a
liability, however, the deferred net realized investment gains and
losses are amortized into future income generally over the original
period to maturity of the assets sold. These liabilities are not
required under generally accepted accounting principles;
- Total premiums, deposits and benefits on certain investment-type
contracts are reflected in the statement of operations, instead of
using the deposit method of accounting;
- Policy acquisition costs, such as commissions, premium taxes and other
items, are not deferred and amortized in relation to the revenue/gross
profit streams from the related contracts;
- Benefit reserves are determined using statutorily prescribed interest,
morbidity and mortality assumptions instead of using more realistic
expense, interest, morbidity, mortality and voluntary withdrawal
assumptions with provision made for adverse deviation;
- Amounts recoverable from reinsurers for unpaid losses are not recorded
as assets, but as offsets against the respective liabilities;
- Deferred federal income taxes are not provided for temporary
differences between amounts reported in the financial statements and
those included in the tax returns;
- Certain adjustments related to prior years are recorded as direct
charges or credits to surplus;
- Certain assets, designated as "non-admitted" assets (principally
agents' balances), are not recorded as assets, but are charged to
surplus; and,
- Costs related to other postretirement benefits are recognized only for
employees that are fully vested.
6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The preparation of financial statements in accordance with practices prescribed
or permitted by the Insurance Department of the State of Delaware and in
conformity with practices prescribed by the NAIC requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
VALUATION OF INVESTMENTS - Investments in bonds are carried principally at
amortized cost, in accordance with NAIC guidelines. Preferred stocks are
carried generally at cost and common stocks are carried at market value. Policy
loans are carried principally at unpaid principal balances.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts. Mortgage loans are reduced for losses expected by
management to be realized on transfers of mortgage loans to real estate (upon
foreclosure), on the disposition or settlement of mortgage loans and on mortgage
loans which management believes may not be collectible in full. In determining
the amount of the loss, management considers, among other things, the estimated
fair value of the underlying collateral. Investment real estate and real estate
acquired through foreclosure are carried at the lower of depreciated cost or
market value. Depreciation is generally calculated using the straight-line
method.
An asset valuation reserve (AVR) for bonds, mortgage loans, stocks, real estate,
and other invested assets is maintained by appropriations from surplus in
accordance with a formula specified by the NAIC and is classified as a
liability.
FINANCIAL INSTRUMENTS - In the normal course of business, the Company enters
into transactions involving various types of financial instruments including
investments such as bonds, stocks and mortgage loans and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuations. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
RECOGNITION OF PREMIUM INCOME AND ACQUISITION COSTS - In general, premiums are
recognized as revenue over the premium paying period of the policies;
commissions and other costs of acquiring the policies are charged to operations
when incurred.
SEPARATE ACCOUNTS - Separate account assets and liabilities represent segregated
funds administered and invested by the Company for the benefit of certain
variable annuity and variable life contract holders. Assets consist principally
of bonds, common stocks, mutual funds, and short term obligations at market
value. The investment income, gains, and losses of these accounts generally
accrue to the contract holders and therefore, are not included in the Company's
net income. Appreciation and depreciation of the Company's interest in the
separate accounts, including undistributed net investment income, is reflected
in capital and surplus.
INSURANCE RESERVES AND ANNUITY AND OTHER FUND RESERVES - Reserves for life
insurance, annuities, and accident and health insurance are established in
amounts adequate to meet the estimated future obligations of policies in
force. These liabilities are computed based upon mortality, morbidity and
interest rate assumptions applicable to these coverages, including provision
for adverse deviation. Reserves are computed using interest rates ranging
from 3% to 6% for individual life insurance policies, 3% to 5 1/2% for
accident and health policies and 3 1/2% to 9 1/2% for annuity contracts.
Mortality, morbidity and withdrawal assumptions for all policies are based on
the Company's own experience and industry standards. The assumptions vary by
plan, age at issue, year of issue and duration. Claims reserves are computed
based on historical experience modified for expected trends in frequency and
severity. Withdrawal characteristics of annuity and other fund reserves vary
by contract. At December 31, 1995 and 1994, approximately 84% and 77%,
respectively, of the contracts (included in both the general account and
separate accounts of the Company) were not subject to discretionary
withdrawal or were subject to withdrawal at book value less surrender charge.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, management
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
FEDERAL INCOME TAXES - AFC, its life insurance subsidiaries, First Allmerica and
Allmerica Financial and its non-insurance domestic subsidiaries file a
life-nonlife consolidated United States federal income tax return. Entities
included within the consolidated group are segregated into either a life
insurance or non-life insurance company subgroup. The consolidation of these
subgroups is subject to certain statutory restrictions on the percentage of
eligible non-life taxable operating losses that can be applied to offset life
company taxable income. Allmerica P&C and its subsidiaries file a separate
United States Federal income tax return.
The federal income tax allocation policies and procedures are subject to written
agreement between the companies. The federal income tax for all subsidiaries in
the consolidated return of AFC is calculated on a separate return basis. Any
current tax liability is paid to AFC. Tax benefits resulting from taxable
operating losses or credits of AFC's subsidiaries are not reimbursed to the
subsidiary until such losses or credits can be utilized by the subsidiary on a
separate return basis.
CAPITAL GAINS AND LOSSES - Realized capital gains and losses, net of applicable
capital gains tax or benefit, exclusive of those transferred to the interest
maintenance reserve ("IMR"), are included in the statement of operations.
Unrealized capital gains and losses are reflected as direct credits or charges
to capital and surplus. The IMR, which is included in other liabilities,
establishes a reserve for realized gains and losses, net of tax, resulting from
changes in interest rates on short and long term fixed income investments. Net
realized gains and losses charged to the IMR are amortized into net investment
income over the remaining life of the investment sold. The Company uses the
seriatim method of amortization for interest related gains and losses arising
from the sale of mortgages, and uses the group method to amortize interest
related gains and losses arising from all other fixed income investments.
NOTE 2 - INVESTMENTS
BONDS - The carrying value and fair value of investments in bonds are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 67,039 $ 3,063 $ - $ 70,102
State, local and government agency bonds 13,607 2,290 23 15,874
Foreign government bonds 12,121 772 249 12,644
Corporate securities 1,471,422 55,836 6,275 1,520,983
Mortgage-backed securities 95,385 951 - 96,336
---------- ---------- ---------- ----------
Total $1,659,574 $ 62,912 $ 6,457 $1,715,939
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
December 31, 1995
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
Federal government bonds $ 17,651 $ 8 $ 762 $ 16,897
State, local and government agency bonds 1,110 54 - 1,164
Foreign government bonds 31,863 83 3,735 28,211
Corporate securities 1,462,871 8,145 56,011 1,415,005
Mortgage-backed securities 81,780 268 1,737 80,311
---------- ---------- ---------- ----------
Total $1,595,275 $ 8,558 $ 62,245 $1,541,588
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The carrying value and fair value by contractual maturity at December 31, 1995,
are shown below. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties or the Company may have the right to put or
sell the obligation back to the issuer. Mortgage-backed securities are
classified based on expected maturities.
<TABLE>
<CAPTION>
Carrying Fair
(In thousands) Value Value
----- -----
<S> <C> <C>
Due in one year or less $ 250,578 $ 258,436
Due after one year through five years 736,003 763,179
Due after five years through ten years 538,897 558,445
Due after ten years 134,097 135,880
---------- ----------
Total $1,659,575 $1,715,940
---------- ----------
---------- ----------
</TABLE>
MORTGAGE LOANS AND REAL ESTATE - Mortgage loans and real estate investments, are
diversified by property type and location. Real estate investments have been
obtained primarily through foreclosure. Mortgage loans are collateralized by
the related properties and are generally no more than 75% of the property value
at the time the original loan is made. At December 31, 1995 and 1994, mortgage
loan and real estate investments were distributed by the following types and
geographic regions:
<TABLE>
<CAPTION>
(In thousands)
Property Type 1995 1994
- ------------- ---- ----
<S> <C> <C>
Office buildings $ 127,149 $ 140,292
Residential 59,934 57,061
Retail 29,578 72,787
Industrial/Warehouse 38,192 39,424
Other 25,636 37,256
----------- -----------
Total $ 280,489 $ 346,820
----------- -----------
----------- -----------
Geographic Region 1995 1994
- ----------------- ---- ----
South Atlantic $ 86,410 $ 92,934
East North Central 55,991 72,704
Middle Atlantic 38,666 48,688
Pacific 32,803 39,892
West North Central 21,486 27,377
Mountain 9,939 12,211
New England 24,886 26,613
East South Central 5,487 6,224
West South Central 4,821 20,177
---------- ----------
Total $ 280,489 $ 346,820
---------- ----------
---------- ----------
</TABLE>
Reserves for mortgage loans and real estate reflected in the above amounts were
$18.9 million and $21.0 million at December 31, 1995 and 1994, respectively.
9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NET INVESTMENT INCOME - The components of net investment income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 122,318 $ 123,495 $ 126,729
Stocks 1,653 1,799 953
Mortgage loans 26,356 31,945 40,823
Real estate 9,139 8,425 9,493
Policy loans 9,486 8,797 8,215
Other investments 3,951 1,651 674
Short term investments 2,252 1,378 840
---------- ---------- ----------
175,155 177,490 187,727
Less investment expenses 9,703 9,138 11,026
---------- ---------- ----------
Net investment income, before IMR amortization 165,452 168,352 176,701
IMR amortization 2,018 2,078 911
---------- ---------- ----------
Net investment income $ 167,470 $ 170,430 $ 177,612
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES - Realized capital gains (losses) on
investments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 727 $ 645 $ 10,133
Stocks (263) (62) 16
Mortgage loans (1,083) (17,142) (83)
Real estate (1,892) 605 (2,044)
--------- --------- ---------
(2,511) (15,954) 8,022
Less income tax 400 968 3,296
--------- --------- ---------
Net realized capital gains (losses) before transfer to IMR (2,911) (16,922) 4,726
Net realized capital gains transferred to IMR 616 (250) (11,951)
--------- --------- ---------
Net realized capital gains (losses) $ (2,295) $(17,172) $ (7,225)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from voluntary sales of investments in bonds during 1995, 1994 and 1993
were $22.4 million, $17.9 million, and $13.2 million, respectively. Gross gains
of $4.3 million, $3.0 million, and $4.5 million and gross losses of $5.2
million, $4.6 million, and $ .5 million, respectively, were realized on those
sales.
NOTE 3 - FAIR VALUE DISCLOSURES OF FINANCIAL INFORMATION
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value information
about certain financial instruments (insurance contracts, real estate, goodwill
and taxes are excluded) for which it is practicable to estimate such values,
whether or not these instruments are included in the balance sheet. The fair
values presented for certain financial instruments are estimates which, in many
cases, may differ significantly from the amounts which could be recognized upon
immediate liquidation. In cases where market prices are not available,
estimates of fair value are based on discounted cash flow analyses which utilize
current interest rates for similar financial instruments which have comparable
terms and credit quality.
10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
FINANCIAL ASSETS:
CASH AND SHORT TERM INVESTMENTS - The carrying amounts reported in the statement
of assets, liabilities, surplus and other funds approximate fair value.
BONDS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models using
discounted cash flow analyses.
STOCKS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models.
MORTGAGE LOANS - Fair values are estimated by discounting the future contractual
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings. The fair value of below investment grade
mortgage loans is limited to the lesser of the present value of the cash flows
or book value.
POLICY LOANS - The carrying amount reported in the statement of assets,
liabilities, surplus and other funds approximates fair value since policy loans
have no defined maturity dates and are inseparable from the insurance contracts.
FINANCIAL LIABILITIES:
ANNUITY AND OTHER FUND RESERVES (WITHOUT MORTALITY/MORBIDITY FEATURES) - Fair
values for the Company's liabilities under individual annuity contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments as of December 31 were as
follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 7,791 $ 7,791 $ 7,248 $ 7,248
Short term investments 3,500 3,500 45,239 45,239
Bonds 1,659,575 1,715,940 1,595,275 1,541,588
Stocks 18,132 18,414 12,283 12,590
Mortgage loans 239,522 250,196 295,532 291,704
Policy loans 122,696 122,696 116,600 116,600
Financial Liabilities:
Individual annuity contracts 803,099 797,024 869,230 862,662
Supplemental contracts without life
contingencies 16,796 16,796 16,673 16,673
Other contract deposit funds 632 632 1,105 1,105
</TABLE>
11
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTE 4 - FEDERAL INCOME TAXES
The federal income tax provisions for 1995, 1994 and 1993 were $17.4 million,
$13.1 million and $8.6 million, respectively, which include taxes applicable to
realized capital gains of $.4 million, $1.0 million and $3.3 million.
The effective federal income tax rates were 27%, 67% and 30% in 1995, 1994 and
1993, respectively. The differences between the federal statutory rate and the
Company's effective tax rates are primarily related to decreases in taxable
income for the write-offs of mortgage loans; and increases in taxable income for
differences in policyholder liabilities for federal income tax purposes and
financial reporting purposes and the deferral of policy acquisition costs for
federal tax purposes.
The consolidated federal income tax returns are routinely audited by the
Internal Revenue Service (IRS) and provisions are routinely made in the
financial statements in anticipation of the results of these audits. The IRS
has completed its examination of all of the consolidated federal income tax
returns through 1988. In management's opinion, adequate tax liabilities have
been established for all years. However, the amount of these liabilities could
be revised in the near term if estimates of the Company's ultimate liability are
revised.
NOTE 5 - REINSURANCE
The Company participates in reinsurance to reduce overall risks, including
exposure to large losses and to permit recovery of a portion of direct losses.
Reinsurance contracts do not relieve the Company from its obligation to its
policyholders. Reinsurance financial data for the years ended December 31, is
as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reinsurance premiums assumed $ 3,442 $ 3,788 $ 4,190
Reinsurance premiums ceded
42,914 17,430 14,798
Deduction from insurance
liability including
reinsurance recoverable on
unpaid claims 82,227 46,734 42,805
</TABLE>
Individual life premiums ceded to First Allmerica aggregated $6.8 million, $7.8
million and $9.0 million in 1995, 1994 and 1993, respectively. The Company has
also entered into various reinsurance agreements with First Allmerica under
which certain insurance risks related to individual accident and health
business, premium income and related expenses are assumed by the Company from
First Allmerica. Premiums assumed pursuant to these agreements aggregated $3.4
million, $3.8 million and $4.2 million in 1995, 1994 and 1993, respectively .
During the year Allmerica Financial entered into a coinsurance agreement to
reinsure substantially all of its yearly renewable term life insurance.
Premiums ceded and reinsurance credits taken under this agreement amounted to
$25.4 million and $20.7 million, respectively. At December 31, 1995, the
deduction from insurance liability, including reinsurance recoverable on unpaid
claims under this agreement was $12.7 million.
NOTE 6 - ACCIDENT AND HEALTH POLICY AND CLAIM LIABILITIES
The Company regularly updates its estimates of policy and claims liabilities as
new information becomes available and further events occur which may impact the
resolution of unsettled claims for its accident and health line of business.
Changes in prior estimates are generally reflected in results of operations in
the year such changes are determined to be needed and recorded.
The policy and claims liabilities related to the Company's accident and health
business were $169.7 million and $123.5 million at December 31, 1995 and 1994,
respectively. Accident and health policy and claims liabilities have been
re-estimated for all prior years and were increased by $42.5 million, $10.9
million and $13.2 million, in 1995, 1994 and 1993, respectively, including $21.9
million and $2.8 million recorded as an adjustment to surplus in 1995 and 1993,
respectively. The unfavorable development is primarily due to reserve
strengthening and adverse experience in the Company's individual accident and
health line of business.
12
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTE 7 - DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its statutory policyholder surplus as of the preceding
December 31 or (ii) the individual company's statutory net gain from operations
for the preceding calendar year (if such insurer is a life company) or its net
income (not including realized capital gains) for the preceding calendar year
(if such insurer is not a life company). Any dividends to be paid by an
insurer, whether or not in excess of the aforementioned threshold, from a source
other than statutory earned surplus would also require the prior approval of the
Delaware Commissioner of Insurance. At January 1, 1996, the Company could pay
dividends of $4.3 million to First Allmerica, without prior approval.
NOTE 8 - OTHER RELATED PARTY TRANSACTIONS
First Allmerica provides management, operating personnel and facilities on a
cost reimbursement basis to the Company. Expenses for services received from
First Allmerica were $ 85.8 million, $102.5 million and $98.9 million in 1995,
1994 and 1993, respectively. The net amounts payable to First Allmerica and
affiliates for accrued expenses and various other liabilities and receivables
were $12.6 million and $8.3 million at December 31, 1995 and 1994, respectively.
NOTE 9 - FUNDS ON DEPOSIT
In March 1994, the Company voluntarily withdrew from being licensed in New York.
In connection with the withdrawal First Allmerica, which is licensed in New
York, became qualified to sell the products previously sold by Allmerica
Financial in New York. The Company agreed with the New York Department of
Insurance to maintain, through a custodial account in New York, a security
deposit, the market value of which will at all times equal 102% of all
outstanding general account liabilities of the Company for New York
policyholders, claimants and creditors. As of December 31, 1995, the carrying
value and fair value of the assets or deposit was $295.0 million and $303.6
million, respectively, which is in excess of the required amount.
Additional securities with a carrying value of $4.2 million and $3.9 million
were on deposit with various other state and governmental authorities as of
December 31, 1995 and 1994, respectively.
NOTE 10 - LITIGATION
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the
advice of legal counsel, the ultimate resolution of these proceedings will not
have a material effect on the Company's financial statements.
13
<PAGE>
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 the Subaccounts of Separate Account VA-K
of Allmerica Financial Life Insurance and Annuity Company investing in
the Underlying Series
FINANCIAL STATEMENTS INCLUDED IN PART C
None
(B) EXHIBITS
Exhibit 1 - Vote Authorizing Establishment of Registrant dated November 1,
1990 was previously filed on April 1, 1991, in Registration
Statement No. 33-39702, 811-6293 and is incorporated herein
by reference.
Exhibit 2 - Not Applicable. Pursuant to Rule 26a-2, the Insurance Company
may hold the assets of the Registrant NOT pursuant to a trust
indenture or other such instrument.
Exhibit 3 - Wholesaling Agreement was previously filed under Registration
statement No. 33-44830 on March 27, 1992 and is incorporated by
reference herein. Broker's Agreement and Specimen Schedule of
Sales Commissions for Variable Annuity Policies were previously
filed under Registration Statement No. 33-44830 on December 27,
1991 and are incorporated herein by reference.
Exhibit 4 - Specimen Generic Policy Form A was previously filed on December
27, 1991 in Registration Statement No. 33-44830 and are
incorporated herein by reference.
Generic Policy Form B is Exhibit 4___
Exhibit 5 - Specimen Generic Application Form were previously filed on
December 27, 1991 in Registration Statement No. 33-44830 and
are incorporated herein by reference.
Generic Policy Application Form B is Exhibit 5___
Exhibit 6 - The Depositor's Articles of Incorporation, as amended effective
October 1, 1995 to reflect its new name were previously filed
on October 1, 1995 and are incorporated by reference herein.
Exhibit 7 - Not Applicable.
Exhibit 8 - AUV Calculation Services Agreement with The Shareholder
Services Group dated March 31, 1995 was previously filed on
May 1, 1995 and is incorporated by reference herein.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants.
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 14 - Not Applicable.
Exhibit 15 - Services Agreement with Fidelity Investments et al, was
previously filed on Apirl 30, 1996 and is incorporated herein
by reference
Exhibit 27 - Financial Data Schedules
<PAGE>
Item 25. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEPOSITOR
The Principal business address of all the following Directors and
Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
<TABLE>
<CAPTION>
Name and Position Principal Occupation(s) During Past Five Years
- ----------------- ----------------------------------------------
<S> <C>
Bruce C. Anderson Director of First Allmerica since 1996; Vice
Director President, First Allmerica
Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel,
Secretary and Counsel First Allmerica
Mark R. Colborn Vice President and Controller, First Allmerica
Vice President and Controller
Kruno Huitzingh Director of First Allmerica since 1996; Vice President
Director, Vice President and & Chief Information Officer, First Allmerica since 1993;
Chief Information Officer Executive Vice President, Chicago Board Options Exchange,
1985 to 1993
John F. Kelly Director of First Allmerica since 1996; Senior Vice
Director President, General Counsel and Assistant Secretary,
First Allmerica
John F. O'Brien Director, Chairman of the Board, President and Chief
Director and Chairman of the Board Executive Officer of First Allmerica
Edward J. Parry, III Vice President and Treasurer, First Allmerica since 1993;
Vice President and Treasurer Assistant Vice President to 1992 to 1993; Manager, Price
Waterhouse, 1987 to 1992
Richard M. Reilly Director of First Allmerica since 1996; Vice President,
Director and Vice President First Allmerica; Director and President, Allmerica
Investments, Inc.; Director and President Allmerica
Investment Management Company, Inc., since 1992, Director
and Executive Vice President, 1990 to 1992.
Larry C. Renfro Director of First Allmerica since 1996; Vice President,
Director First Allmerica
Theodore J. Rupley Director of First Allmerica since 1996; President,
Director The Hanover Insurance Company since 1992; President, Fountain
Powerboats, 1992; President; Metropolitan Property & Casualty
Company, 1986-1992.
Phillip E. Soule Director of First Allmerica since 1996; Vice President,
Director First Allmerica
Eric Simonsen Director of First Allmerica since 1996; Vice President,
Director, Vice President and First Allmerica
Chief Financial Officer
Diane E. Wood Director of First Allmerica since 1996; Vice President,
Director and Vice President First Allmerica
</TABLE>
<PAGE>
Item 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT. See attached
organization chart.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester, MA 01653
Allmerica Asset Management, 440 Lincoln Street Investment advisory service
Inc. Worcester, MA 01653
Allmerica Employees Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester, MA 01653
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester, MA 01653
Allmerica Fund 440 Lincoln Street Investment Company
Worcester, MA 01653
Allmerica Institutional Services, 440 Lincoln Street Accounting, marketing
Inc. (formerly known as 440 Worcester, MA 01653 and shareholder services
Financial Group of Worcester, Inc. for investment companies
Allmerica Investment 440 Lincoln Street Investment advisory
Management Company, Inc. Worcester, MA 01653 services
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-
Worcester, MA 01653 dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester, MA 01653
Allmerica Property and 440 Lincoln Street Investment Company
Casualty Companies, Inc. Worcester, MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester, MA 01653
Allmerica Services, Inc. 440 Lincoln Street Service Company
Worcester, MA 01653
Allmerica Trust Company, 440 Lincoln Street Limited purpose national
N.A. Worcester, MA 01653 trust company
AMGRO, Inc. 472 Lincoln Street Premium financing
Worcester, MA 01653
APC Funding Corp. 440 Lincoln Street Special purpose funding
Worcester, MA 01653 vehicle for commerical
paper
<PAGE>
Beltsville Drive Properties 440 Lincoln Street Real estate partnership
Limited Partnership Worcester, MA 01653
Citizens Corporation 440 Lincoln Street Holding Company
Worcester, MA 01653
Citizens Insurance Company 645 West Grand River Multi-line fire & casualty
Howell, MI 48843 insurance
Citizens Insurance Company of 3950 Priority Way Multi-line fire & casualty
the Midwest South Drive, Suite 200 insurance
Indianapolis, IN 46280
Citizens Insurance Company of 8101 N. High Street Multi-line fire & casualty
Ohio P.O. Box 342250 insurance
Columbus, OH 43234
Citizens Management, Inc. 645 West Grand River Services Management
Howell, MI 48843 Company
Greendale Special Placements 440 Lincoln Street Massachusetts Grantor
Fund Worcester, MA 01653 Trust
The Hanover American Insurance 100 North Parkway Multi-line fire & casualty
Company Worcester, MA 01653 insurance
The Hanover Insurance 100 North Parkway Multi-line fire & casualty
Company Worcester, MA 01605 insurance
Hanover Texas Insurance 801 East Campbell Road Incorporated Branch Office of
Management Company, Inc. Richardson, TX 75081 The Hanover Insurance Company
Attorney-in-fact for Hanover
Lloyd's Insurance Company
Hanover Lloyd's Insurance 801 East Campbell Road Multi-line fire & casualty
Company Richardson, TX 75081 insurance
Hollywood Center, Inc. 440 Lincoln Street General business corporation
Worcester, MA 01653
Linder Skokie Real Estate 440 Lincoln Street General business corporation
Corporation Worcester, MA 01653
Lloyds Credit Corporation 440 Lincoln Street Premium financing service
Worcester, MA 01653 franchises
Logan Wells Water Company 603 Heron Drive Water Company, servicing
Inc. Bridgeport, NJ 08014 land development investment
Massachusetts Bay Insurance 100 North Parkway Multi-line fire and casualty
Company Worcester, MA 01653
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester, MA 01653
Allmerica Financial Life 440 Lincoln Street Life insurance, accident and
Insurance and Annuity Worcester, MA 01653 health insurance, annuities,
Company variable annuities and variable
life insurance
Somerset Square, Inc. 440 Lincoln Street General Business Corporation
Worcester, MA 01653
Sterling Risk Management 100 North Parkway Risk Management
Services, Inc. Worcester, MA 01605 services
</TABLE>
<PAGE>
Item 27. NUMBER OF CONTRACT OWNERS.
As of December 31, 1995 there were 4227 Policy owners of qualified Policies
and 4,534 Policy owners of non-qualified Policies.
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, Separate Accounts VA-A, VA-B, VA-C, VA-G,
VA-H, VA-P, Allmerica Select Separate Account Group VEL Account,
Allmerica Select Separate Account II and Inheiritage Account
of Allmerica Financial Life Insurance and Annuity Company
- Separate Accounts I, VA-K, VA-P, VEL II Account, Inheiritage Account
and Allmerica Select Separate Account of First Allmerica Financial Life
Insurance and Annuity Company.
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
Name Position or Office with Underwriter
---- -----------------------------------
Abigail M. Armstrong Secretary and Counsel
Philip J. Coffey Vice President
John F. Kelly Director
John F. O'Brien Director
<PAGE>
Stephen Parker President and Chief Executive Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Mark Steinberg Senior Vice President
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester, Massachusetts or on
behalf of the Company by The First Data Investor Services, Inc. at 4400 Computer
Drive, Westboro, Massachusetts 01581.
Item 31. MANAGEMENT SERVICES.
Effective March 31, 1995, the Company has engaged The Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts to provide daily unit value
calculations and related services for the Company's separate accounts.
Item 32. UNDERTAKINGS.
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
(b) The registrant hereby undertakes to include in the prospectus a postcard
that the applicant can remove to send for a Statement of Additional Information.
(c) The registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the requirements
of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Directors, Officers and Controlling Persons of Registrant under any
registration statement, underwriting agreement or otherwise, Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, Officer or Controlling Person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(b)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.
Registrant, a separate account of Allmerica Financial Life Insurance and Annuity
Company ("Company"), states that it is (a) relying on Rule 6c-7 under the 1940
Act with respect to withdrawal restrictions under the Texas Optional Retirement
Program ("Program") and (b) relying on the "no-action" letter (Ref. No. IP-6-88)
issued on November 28, 1988 to the American Council of Life Insurance, in
applying the withdrawal restrictions of Internal Revenue Code Section
403(b)(11). Registrant has taken the following steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption restrictions imposed by the
Program and by Section 403(b)(11) have been included in the prospectus of
each registration statement used in connection with the offer of the
Company's variable contracts.
2. Appropriate disclosures regarding the redemption restrictions imposed by the
Program and by Section 403(b)(11) have been included in sales literature
used in connection with the offer of the Company's variable contracts.
<PAGE>
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
restrictions imposed by the Program and by Section 403(b)(11) to the
attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (I) the
restrictions on redemption imposed by the Program and by Section 403(b)(11)
and (ii) the investment alternatives available under the employer's
arrangement will be obtained from each participant who purchases a variable
annuity contract prior to or at the time of purchase.
Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not so
denied or limited will be effected as expeditiously as possible.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Worcester, and Commonwealth of Massachusetts
on the 3rd day of May, 1996.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT VA-K
BY: /s/ Joseph W. MacDougall, Jr.
------------------------------
Joseph W. MacDougall, Jr.
Vice President, Associate General Counsel
and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities on May 3, 1996
/s/ John F. O' Brien /s/ John F. Kelly
- ------------------------------- -----------------------------------
John F. O'Brien John F. Kelly
Director and Chairman of the Board Director
/s/ Richard M. Reilly
- ----------------------------------- -----------------------------------
Richard M. Reilly James R. McAuliffe
Director, President, and CEO Director
/s/ Eric A. Simonsen /s/ Larry C. Renfro
- ----------------------------------- -----------------------------------
Eric A. Simonsen Larry C. Renfro
Director, Vice President and CFO Director
/s/ Bruce C. Anderson /s/ Theodore J. Rupley
- ----------------------------------- -----------------------------------
Bruce C. Anderson Theodore J. Rupley
Director Director
/s/ Mark R. Colborn /s/ Phillip E. Soule
- ----------------------------------- -----------------------------------
Mark R. Colborn Phillip J. Soule
Vice President and Controller Director
/s/ Kruno Huitzingh /s/ Diane E. Wood
- ----------------------------------- -----------------------------------
Kruno Huitzingh Diane E. Wood
Director, Vice President and Director, Vice President and
Chief Information Officer Chief Investment Officer
<PAGE>
EXHIBIT TABLE
Exhibit 4- Policy Form B
Exhibit 5- Application Form B
Exhibit 9- Consent and Opinion of Counsel
Exhibit 10- Consent of Independent Accountants
Exhibit 27- Financial Data Schedules
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
ANNUITY BENEFIT PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED
ON THE INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. PLEASE REFER TO THE VALUE OF
THE VARIABLE ACCOUNT SECTION FOR ADDITIONAL INFORMATION.
VALUES REMOVED FROM A GUARANTEE PERIOD ACCOUNT PRIOR TO THE END OF ITS GUARANTEE
PERIOD MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT THAT MAY INCREASE OR DECREASE
THE VALUES. A NEGATIVE MARKET VALUE ADJUSTMENT WILL NEVER BE APPLIED TO THE
DEATH BENEFIT. A POSITIVE MARKET VALUE ADJUSTMENT, IF APPLICABLE, WILL BE ADDED
TO THE DEATH BENEFIT WHEN THE BENEFIT PAID IS THE CONTRACT'S ACCUMULATED VALUE.
PLEASE REFER TO THE MARKET VALUE ADJUSTMENT SECTION FOR ADDITIONAL INFORMATION.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of its
authorized representatives within ten days after receipt. If returned, the
Company will refund an amount equal to the sum of (1) gross payments, less any
amounts allocated to the Variable Account, (2) the Accumulated Value of amounts
allocated to the Variable Account on the date the returned contract is received
at the Principal Office and (3) any fees or other charges imposed on the amounts
allocated to the Variable Account. If, however, the contract is issued as an
Individual Retirement Annuity (IRA), the Company will refund the greater of the
above or the gross payments.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
This is a legal contract between Allmerica Financial Life Insurance and Annuity
Company (the Company) and the Owner and is issued in consideration of the
initial payment shown on the Specifications page. Additional payments are
permitted and may be made either to the Principal Office or to an authorized
representative of the Company. Payments may be allocated to Variable Sub-
Accounts, the Fixed Account or Guarantee Period Accounts. While this contract
is in effect, the Company agrees to pay annuity benefits to the Annuitant
beginning on the Annuity Date or to pay a death benefit to the Beneficiary if
either the Owner or Annuitant dies prior to the Annuity Date.
/s/ John F. O'Brien /s/ Abigail M. Armstrong
President Secretary
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OWNER AND BENEFICIARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
VALUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
WITHDRAWAL AND SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . . . .10
DEATH BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
ANNUITY BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
ANNUITY OPTION TABLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
2
<PAGE>
SPECIFICATIONS
Annuitant: Contract Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Issue Date: Contract Type:
Annuitant Sex: Annuitant Date of Birth:
Owner: Owner Date of Birth:
Joint Owner: Joint Owner Date of Birth:
Annuity Date: [The earlier of the date, if any, Beneficiary:
selected by the Owner or the later
of annuitant's age 85 or birthday following the
tenth contract anniversary not to exceed 90]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Minimum Fixed Account Guaranteed Interest Rate: [3%] Minimum Additional Payment: [$50]
Minimum Guarantee Period Account Interest Rate: [3% ] Minimum Guarantee Period Account Allocation: [$1,000]
Death Benefit Effective Annual Yield: [5%] Minimum Withdrawal Amount: [$100]
Minimum Annuity Benefit Payment: [$50] Minimum Accumulated Value After Withdrawal: [$1,000]
</TABLE>
Maximum Alternative Annuity Date: No later than the first of the month
preceding the Annuitant's [90th]
birthday and within life expectancy
Surrender Charge Table:
Years Measured From Surrender Charge as a
Date of Payment Percent of the Payments
To Date of Withdrawal Withdrawn
------------------------------------------------------
[Less than: 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%]
Withdrawal without Surrender Charge: [15%]
Mortality and Expense Risk Charge: [1.25%] on an annual basis of the daily
value of the Sub-Account assets.
Administrative Charge: [.15%] on an annual basis of the daily value of the
Sub-Account assets.
Contract Fee: [$30, if the Accumulated Value is less than $50,000].
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
[(1-800-533-2124)]
3
<PAGE>
SPECIFICATIONS (continued)
Annuitant: Contract Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Initial Net Payment:
Initial Net Payment Allocation:
VARIABLE SUB-ACCOUNTS
FIXED ACCOUNT
Initial Interest Rate:
GUARANTEE PERIOD ACCOUNTS
GUARANTEED
GUARANTEE INTEREST EXPIRATION
PERIOD RATE DATE
--------- ---------- ----------
[2 years
3 years
4 years
5 years
6 years
7 years
8 years
9 years
10 years]
-----
100% TOTAL
4
<PAGE>
DEFINITIONS
ACCUMULATED The value of all accounts in this contract before
VALUE the Annuity Date. As long as the Accumulated
Value is greater than zero, the contract will stay
in effect.
ACCUMULATION A measure used to calculate the value of a Sub-
UNIT Account before annuity benefit payments begin.
ANNUITY DATE The date annuity benefit payments begin. The
Annuity Date is shown on the Specifications page,
unless the Owner elects an alternative Annuity
Date.
ANNUITY UNIT A measure used to calculate annuity benefit
payments under a variable annuity option.
BENEFICIARY The person, persons or entity entitled to the death benefit.
COMPANY Allmerica Financial Life Insurance and Annuity Company.
CONTRACT YEAR A period of one year computed from the date of issue or from
an anniversary of the date of issue.
EFFECTIVE The Valuation Date on or immediately following the
VALUATION DATE day a payment, request for transfer, withdrawal or
surrender, or proof of death is received at the
Principal Office.
FIXED ACCOUNT The part of the Company's General Account to which
all or a portion of a payment or transfer may be
allocated.
FUND Each separate investment series eligible for
investment by a Sub-Account of the Variable
Account.
GENERAL ACCOUNT All assets of the Company that are not allocated
to a Separate Account.
GUARANTEED The annual effective rate of interest after daily
INTEREST RATE compounding credited to a Guarantee Period
Account.
GUARANTEE PERIOD The number of years that a Guaranteed Interest
Rate may be credited to a Guarantee Period
Account. The Guarantee Period may range from two
to ten years.
GUARANTEE PERIOD An account which corresponds to a Guaranteed
ACCOUNT Interest Rate for a specified Guarantee Period and
is supported by assets in a Separate Account.
MARKET VALUE A positive or negative adjustment assessed if any
ADJUSTMENT portion of a Guarantee Period Account is withdrawn
or transferred prior to the end of its Guarantee Period.
OWNER The person, persons or entity entitled to exercise
the rights and privileges under this contract.
Joint owners are permitted if one of the two is
the annuitant.
PRINCIPAL OFFICE The Company's office at 440 Lincoln Street,
Worcester, Massachusetts, 01653.
PRO RATA How a payment or withdrawal may be allocated among
the accounts. A Pro Rata allocation or withdrawal
will be made in the same proportion that the value
of each account bears to the Accumulated Value.
5
<PAGE>
SEPARATE ACCOUNT A segregated account established by the Company.
The assets are not commingled with the Company's
general assets and obligations.
SUB-ACCOUNT A Variable Account subdivision that invests
exclusively in shares of a corresponding Fund.
SURRENDER VALUE The amount payable to the Owner on full surrender
after application of any Surrender Charge, Market
Value Adjustment and contract fee.
TELEPHONE A request by telephone to the Principal Office. A
REQUEST signed authorization must be on file for such
requests to be honored.
VALUATION DATE A day the values of all units are determined.
Valuation Dates occur at the close of business on
each day the New York Stock Exchange is open for trading.
VALUATION PERIOD The interval between two consecutive Valuation Dates.
VARIABLE ACCOUNT The Company's Separate Account, consisting of Sub-Accounts
that invest in the underlying Funds.
WRITTEN REQUEST A request or notice in writing satisfactory to the
OR WRITTEN Company and filed at the Principal Office.
NOTICE
6
<PAGE>
OWNER AND BENEFICIARY
OWNER During the lifetime of the Annuitant and before
the Annuity Date, the Owner will be as shown on
the Specifications page unless changed in
accordance with the terms of this contract. On
and after the Annuity Date, the Annuitant will be
the Owner unless the Owner immediately prior to
the Annuity Date is not a person. In that case,
ownership will remain the same on and after the
Annuity Date.
The Owner may exercise all rights and options
granted in this contract or by the Company,
subject to the consent of any irrevocable
Beneficiary. Where the contract is owned jointly,
the consent of both is required in order to
exercise any ownership rights.
ASSIGNMENT The Owner may be changed at any time prior to the Annuity
Date and while the Annuitant is alive. Only the Owner
may assign this contract. An absolute assignment will
transfer ownership to the assignee. This contract may
also be collaterally assigned as security. The
limitations on ownership rights while the collateral
assignment is in effect are stated in the assignment.
Additional limitations may exist for contracts issued
under provisions of the Internal Revenue Code.
An assignment will take place only when the Company has
received Written Notice and recorded the change at the
Principal Office. The Company will not be deemed to know
of the assignment until it has received Written Notice.
When recorded, the assignment will take effect as of the
date it was signed. The assignment will be subject to
payments made or actions taken by the Company before the
change was recorded.
The Company will not be responsible for the validity of
any assignment nor the extent of any assignee's interest.
The interests of the Annuitant and the Beneficiary will
be subject to any assignment.
BENEFICIARY The Beneficiary is as named on the Specifications page
unless subsequently changed. The Owner may declare any
Beneficiary to be revocable or irrevocable. A revocable
Beneficiary may be changed at any time. An irrevocable
Beneficiary must consent in writing to any change.
Unless otherwise indicated, the Beneficiary will be
revocable.
A Beneficiary change must be made in writing on a
Beneficiary designation form and will be subject to the
rights of any assignee of record. When the Company
receives the form, the change will take place as of the
date it was signed, even if the Owner or Annuitant is
then deceased. Any rights created by the change will be
subject to payments made or actions taken by the Company
before the change was recorded.
All death benefits provided by this contract will be
divided equally among the surviving Beneficiaries of the
same class, unless the Owner directs otherwise. If there
is no surviving Beneficiary, the deceased Beneficiary's
interest will pass to the Owner or the Owner's estate.
PROTECTION OF To the extent allowed by law, this contract and any
PROCEEDS payments made under it will be exempt from the claims of
creditors. Neither the Annuitant nor the Beneficiary can
assign, transfer, commute, anticipate or encumber the
proceeds or payments unless given that right by the Owner.
7
<PAGE>
PAYMENTS
The Initial Payment is shown on the Specifications page.
ADDITIONAL Prior to the Annuity Date, the Owner may make
PAYMENTS additional payments of at least the Minimum
Additional Payment (see Specifications page).
Total payments made may not exceed $5,000,000
without the Company's consent.
NET PAYMENTS Each Net Payment is equal to the gross payment
less the amount of any applicable premium tax.
The Company reserves the right to deduct the
amount of the premium tax from the Accumulated
Value at a later date rather than when the tax
is first incurred. In no event will an amount
be deducted for premium taxes before the Company
has incurred a tax liability under applicable
state law.
NET PAYMENT The initial Net Payment is allocated as shown on
ALLOCATIONS the Specifications page. Additional Net
Payments will be allocated in the same
proportion as the initial Net Payment, unless
changed by the Owner's Written or Telephone
Request.
If the Right To Examine Contract provision
provides for a full refund of all payments, any
portion of a Net Payment allocated to a Sub-
Account or a Guarantee Period Account will be
held in the Money Market Sub-Account during the
contract's first fifteen days. After fifteen
days, these amounts will be allocated as
requested.
The minimum that may be allocated to a Guarantee
Period Account is shown on the Specifications
page. If less is allocated to a Guarantee
Period Account, the Company reserves the right
to apply that amount to the Money Market Sub-
Account.
VALUES
VALUE OF THE The value of a Sub-Account on a Valuation Date
VARIABLE ACCOUNT is determined by multiplying the Accumulation
Units in that Sub-Account by the Accumulation
Unit value as of the Valuation Date.
Accumulation Units are credited when an amount
is allocated to a Sub-Account. The number of
Accumulation Units credited equals that amount
divided by the applicable Accumulation Unit
Value as of the Effective Valuation Date.
ACCUMULATION The value of a Sub-Account Accumulation Unit as
UNIT VALUES of any Valuation Date is determined by
multiplying the value of an Accumulation Unit
for the preceding Valuation Date by the net
investment factor for that Valuation Period.
NET INVESTMENT The net investment factor measures the
FACTOR investment performance of a Sub-Account from one
Valuation Period to the next. This factor is
equal to 1.000000 plus the result from dividing
(a) by (b) and subtracting (c) and (d) where:
(a) is the investment income of a Sub-Account for the
Valuation Period, including realized or unrealized
capital gains and losses during the Valuation Period,
adjusted for provisions made for taxes, if any;
8
<PAGE>
(b) is the value of that Sub-Account's assets at the
beginning of the Valuation Period;
(c) is the Mortality and Expense Risk Charge (see
Specifications page); and
(d) is the Administrative Charge (see Specifications page).
The Company assumes the risk that actual
mortality and expenses may exceed the amount
provided for such costs and guarantees that the
charge for mortality and expense risks and the
administrative charge will not be increased.
Subject to applicable state and federal laws,
these charges may be decreased or the method
used to determine the net investment factor may
be changed.
VALUE OF THE Allocations to the Fixed Account are credited
FIXED ACCOUNT interest at rates periodically set by the
Company. The Company guarantees that the rate
of interest in effect when an amount is
allocated to the Fixed Account will remain in
effect for that amount for one year.
Thereafter, the rate of interest for that amount
will be the Company's current interest rate, but
no less than the Minimum Fixed Account
Guaranteed Interest Rate (see Specifications page).
The value of the Fixed Account on any date is
the sum of allocations to the Fixed Account plus
interest compounded and credited daily at the
rates applicable to those allocations. The
value of the Fixed Account will be at least
equal to the minimum required by law in the
state in which this contract is delivered.
VALUE OF THE A Guarantee Period Account will be established
GUARANTEE PERIOD on the date a Net Payment or transfer is
ACCOUNTS allocated to a specific Guarantee Period.
Amounts allocated to the same Guarantee Period
on the same day will be treated as one Guarantee
Period Account. The interest rate in effect
when an amount is allocated is guaranteed for
the duration of the Guarantee Period. Additional
amounts allocated to Guarantee Periods of the
same or different durations will result in
additional Guarantee Period Accounts, each with
its own Guaranteed Interest Rate and expiration
date.
The value of a Guarantee Period Account on any
date is the sum of the allocation to that
Guarantee Period Account plus interest
compounded and credited daily at the rate
applicable to that allocation.
GUARANTEED The Company will periodically set Guaranteed
INTEREST RATES Interest Rates for each available Guarantee
Period. These rates will be guaranteed for the
duration of the respective Guarantee Periods. A
Guaranteed Interest Rate will never be less than
the Minimum Guarantee Period Account Interest
Rate (see Specifications page.)
RENEWAL At least 45 days, but not more than 75 days
GUARANTEE prior to the end of a Guarantee Period, the
PERIODS Company will notify the Owner in writing of the
expiration of that Guarantee Period. The Owner
may transfer amounts to the Sub-Accounts, the
Fixed Account or establish a new Guarantee
Period Account of any duration then offered by
the Company as of the day following the
expiration of the Guarantee Period without a
Market Value Adjustment. Guaranteed Interest
Rates corresponding to the available Guarantee
Periods may be higher or lower than the previous
Guaranteed Interest Rate. If reallocation
instructions are not received at the Principal
Office before the end of a Guarantee Period,
9
<PAGE>
the Guarantee Period Account value will be
automatically applied to a new Guarantee Period
Account with the same Guarantee Period unless:
(a) less than the Minimum Guarantee Period Account
Allocation (see Specifications page) remains in the
Guarantee Period Account on the expiration date; or
(b) the Guarantee Period would extend beyond the Annuity
Date or is no longer available.
In such cases, the Guarantee Period Account
value will be transferred to the Money Market
Sub-Account.
CONTRACT FEE The Company will deduct a contract fee (see
Specifications page) Pro Rata on each contract
anniversary prior to the Annuity Date and when
the contract is surrendered. If the contract is
issued to and maintained by the Trustee of a
401(k) Plan, the Company will waive the contract
fee, but reserves the right to impose a fee of
not more than $30.
TRANSFERS
Prior to the Annuity Date, the Owner may transfer amounts
among accounts by Written or Telephone Request to the
Principal Office. Transfers to a Guarantee Period Account
will be subject to the Minimum Guarantee Period Account
Allocation (see Specifications page). If less would be
allocated to a Guarantee Period Account, the Company may
transfer that amount to the Money Market Sub-Account.
Any transfer from a Guarantee Period Account prior to the
end of its Guarantee Period will be subject to a Market
Value Adjustment. In the case of a partial transfer of a
Guarantee Period Account the Market Value Adjustment will
be applied to the value remaining in the account.
There is no charge for the first twelve transfers per
contract year. A transfer charge of up to $25 may be
imposed on each additional transfer.
WITHDRAWAL AND SURRENDER
The Owner may, by Written Request, withdraw a part of the
Accumulated Value of this contract or surrender it for
its Surrender Value prior to the Annuity Date.
Any withdrawal must be at least the Minimum Withdrawal
Amount (see Specifications page). A withdrawal will not
be permitted if the Accumulated Value remaining in the
contract would be less than the Minimum Accumulated Value
After Withdrawal (see Specifications page). The Written
Request must indicate the dollar amount to be paid and
the accounts from which it is to be withdrawn.
When surrendered, this contract terminates and the
Company has no further liability under it. The Surrender
Value will be based on the Accumulated Value on the
Effective Valuation Date.
10
<PAGE>
Amounts taken from the Variable Account will be paid
within 7 days of the date a Written Request is received
(plus any period of extension under applicable laws,
rules and regulations governing variable annuities).
Amounts taken from the Fixed Account or the Guarantee
Period Accounts will normally be paid within 7 days of
receipt of a Written Request. The Company may defer
payment for up to six months from the receipt date. If
deferred for 30 days or more, the amount payable will be
credited interest at a rate of at least 3%.
WITHDRAWAL WITHOUT In each calendar year, withdrawals up to the greater of
SURRENDER CHARGE (a) or (b) may be made without a surrender charge where:
(a) is cumulative earnings, calculated as the Accumulated
Value as of the Effective Valuation Date reduced by
total gross payments not previously withdrawn; and
(b) is a percent (see Specifications page) of the
Accumulated Value as of the Effective Valuation Date
reduced by any prior withdrawal without surrender charge
made in the same calendar year.
The withdrawal without surrender charge will first be
deducted from cumulative earnings even if it is based
upon (b) above. To the extent that it exceeds cumulative
earnings, the excess will be considered withdrawn on a
(last-in, first-out basis from payments not previously
withdrawn. Amounts withdrawn from a Guarantee Period
Account prior to the end of the applicable Guarantee
Period will be subject to a Market Value Adjustment.
LIFE EXPECTANCY In each calendar year, the amount of the life
DISTRIBUTION expectancy distribution available under the
BENEFIT Company's then current life expectancy
distribution rules that exceeds the withdrawal
without surrender charge may also be withdrawn
without charge. Life expectancy distribution is
available only if the Annuitant is an Owner.
WITHDRAWAL WITH Any amounts withdrawn or surrendered in excess
SURRENDER CHARGE of the withdrawal without surrender charge or
life expectancy distribution benefit may be
subject to a surrender charge.
These amounts will be taken on a first-in,
first-out basis from payments not previously
considered withdrawn. The Company will compute
applicable charges using the Surrender Charge
Table (see Specifications page) until the total
amount withdrawn equals the amount of the
withdrawal requested plus the withdrawal charge
or, if a surrender, until all remaining payments
have been exhausted. The surrender charge will
then be deducted from the Accumulated Value in
the same manner as the withdrawals.
WAIVER OF The surrender charge will be waived if an Owner,
SURRENDER CHARGE or the Annuitant if the Owner is not a person
is:
(a) admitted to a "medical care facility" after the issue
date of the contract and remains confined there until
the later of one year after the issue date or 90
consecutive days;
(b) first diagnosed by a licensed "physician" as having a
"fatal illness" after the issue date of the contract; or
11
<PAGE>
(c) physically disabled after the issue date of the
contract and before attaining age 65. The Company may
require proof of continuing disability, including
written confirmation of receipt and approval of any
claim for Social Security Disability Benefits, and
reserves the right to obtain an examination by a
licensed physician of its choice and at its expense.
"Medical care facility" means any state licensed
facility providing medically necessary inpatient
care which is prescribed by a licensed
"physician" in writing and based on physical
limitations which prohibit daily living in a
non-institutional setting. "Fatal illness"
means a condition diagnosed by a licensed
"physician" which is expected to result in death
within two years of the diagnosis. "Physician"
means a person other than the Owner, the
Annuitant or a member of one of their families
who is state licensed to give medical care or
treatment and is acting within the scope of that
license.
No additional payments are permitted after this
provision becomes effective.
MARKET VALUE A transfer, withdrawal or surrender from a
ADJUSTMENT Guarantee Period Account at the end of its
Guarantee Period will not be subject to a Market
Value Adjustment. A Market Value Adjustment
will apply to all other transfers or
withdrawals, or a surrender. Amounts applied
under an annuity option are treated as
withdrawals when calculating the Market Value
Adjustment. The Market Value Adjustment will be
determined by multiplying the amount taken from
each Guarantee Period Account before deduction
of any Surrender Charge by the market value
factor. The market value factor for each
Guarantee Period Account is equal to:
[(1+i)/(1+j)]n/365 -1
where:
i is the Guaranteed Interest Rate expressed as
a decimal (for example: 3% = 0.03) being
credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate,
expressed as a decimal, for a
Guarantee Period with a duration
equal to the number of years
remaining in the current Guarantee
Period, rounded to the next higher
number of whole years. If that rate
is not available, the Company will
use a suitable rate or index allowed
by the Department of Insurance; and
n is the number of days remaining from the
Effective Valuation Date to the end of the
current Guarantee Period.
If the Guaranteed Interest Rate being credited
is lower than the current Guaranteed Interest
Rate, the Market Value Adjustment will decrease
the Guarantee Period Account value. Similarly,
if the Guaranteed Interest Rate being credited
is higher than the current Guaranteed Interest
Rate, the Market Value Adjustment will increase
the Guarantee Period Account value. The Market
Value Adjustment will never result in a change
to the value more than the interest earned in
excess of the Minimum Guarantee Period Account
Interest Rate (see Specifications page)
compounded annually from the beginning of the
current Guarantee Period.
12
<PAGE>
DEATH BENEFIT
At the death of the Annuitant, Owner or joint Owner,
whichever occurs first, the Company will pay to the
Beneficiary a death benefit determined as of the
Effective Valuation Date upon receipt at the Principal
Office of proof of death. If the Annuitant is also an
Owner and dies, the Annuitant's death benefit will apply.
ANNUITANT'S DEATH If the Annuitant dies before the Annuity Date, the death
BENEFIT BEFORE THE benefit will be the greatest of:
ANNUITY DATE
(a) the Accumulated Value increased by any positive Market
Value Adjustment;
(b) gross payments accumulated daily at the Death Benefit
Effective Annual Yield shown on the Specifications page,
starting on the Effective Valuation Date of each gross
payment, reduced proportionately to reflect withdrawals.
For each withdrawal, the proportionate reduction is
calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the
withdrawal amount and divided by the Accumulated Value
immediately prior to the withdrawal; or,
(c) the death benefit that would have been payable on the
most recent contract anniversary, increased for
subsequent payments, and decreased proportionately for
subsequent withdrawals.
OWNER'S DEATH If an Owner who is not also the Annuitant dies before the
BENEFIT BEFORE Annuity Date, the death benefit will be the Accumulated
THE ANNUITY DATE Value increased by any positive Market Value Adjustment.
PAYMENT OF THE The death benefit will be paid to the Beneficiary within
DEATH BENEFIT 7 days of the Effective Valuation Date unless the Owner
BEFORE THE has specified a death benefit annuity option. Instead,
ANNUITY DATE the Beneficiary may, by Written Request, elect to:
(a) defer distribution of the death benefit for a period
no more than 5 years from the date of death ; or
(b) receive a life annuity or an annuity for a period
certain not extending beyond the Beneficiary's life
expectancy. Annuity benefit payments must begin within
one year from the date of death .
If distribution of the death benefit is deferred under
(a) or (b), any value in the Guarantee Period Accounts
will be transferred to the Money Market Sub-Account. The
excess, if any, of the death benefit over the Accumulated
Value will also be added to the Money Market Sub-Account.
The Beneficiary may, by Written Request, effect transfers
and withdrawals, but may not make additional payments.
If there are multiple Beneficiaries, the consent of all
is required.
If the sole Beneficiary is the deceased Owner's spouse,
the Beneficiary may, by Written Request, continue the
contract and become the new Owner and Annuitant subject
to the following:
(a) any value in the Guarantee Period Accounts will be
transferred to the Money Market Sub-Account.
13
<PAGE>
(b) the excess, if any, of the death benefit over the
contract's Accumulated Value will also be added to the
Money Market Sub-Account;
(c) additional payments may be made. A surrender charge will
apply only to these additional payments; and
(d) any subsequent spouse of the new Owner, if named as the
Beneficiary, may not continue the contract.
DEATH BENEFIT AND If the Annuitant dies after the Annuity Date but before
PAYMENT AFTER THE all guaranteed annuity benefit payments have been made,
ANNUITY DATE the remaining payments will be paid to the Beneficiary at
least as rapidly as under the annuity option in effect on
the Annuitant's death.
ANNUITY BENEFIT
ANNUITY OPTIONS Annuity options are available on a fixed, variable or
combination fixed and variable basis. The annuity options
described below or any alternative option offered by the
Company may be chosen. If no option is chosen, monthly
benefit payments under a variable life annuity with
payments guaranteed for 10 years will be made.
The Owner may also elect to have the death benefit
applied under a life annuity or a period certain annuity
not extending beyond the Beneficiary's life expectancy.
Such an election may not be altered by the Beneficiary.
Fixed annuity options are funded through the Fixed
Account. Variable annuity options may be funded through
one or more of the Sub-Accounts. Not all Sub-Accounts
may be made available.
ANNUITY BENEFIT Annuity benefit payments may be received on a
PAYMENTS monthly, quarterly, semiannual or annual basis.
If the first payment would be less than the
Minimum Annuity Benefit Payment (see
Specifications page), a single payment will be
made instead. The Company reserves the right to
increase the minimum payment amount to not more
than $500, subject to applicable state
regulations. Satisfactory proof of the payee's
date of birth must be received at the Principal
Office before annuity benefit payments begin.
Where a life annuity option has been elected,
the Company may require satisfactory proof that
the payee is alive before any payment is made.
ANNUITY VALUE The amount of the first annuity benefit payment
under all available options except period
certain options will depend on the age of the
payee or payees on the Annuity Date and the
annuity value applied. Period certain options
are based on the duration of payments and the
annuity value.
For life annuity options and non-commutable
period certain options with a duration of 10
years or more, the annuity value will be the
Accumulated Value and may include any applicable
Market Value Adjustment less any premium tax.
For commutable period certain options or any
period certain option less than 10 years, the
annuity value will be the Surrender Value less
any premium tax. For a death benefit annuity,
the annuity value will be the amount of the
death benefit. The annuity value applied under
a variable annuity option is based on the
Accumulation Unit value on a Valuation Date not
more than four weeks, uniformly applied, before
the Annuity Date.
14
<PAGE>
ANNUITY UNIT A Sub-Account Annuity Unit value on any
VALUES Valuation Date is equal to its value on the
preceding Valuation Date multiplied by the
product of:
(a) a discount factor equivalent to the assumed
interest rate; and
(b) the net investment factor of the Sub-Account funding
the annuity benefit payments for the applicable
Valuation Period.
The value of an Annuity Unit as of any date
other than a Valuation Date is equal to its
value as of the preceding Valuation Date.
Each variable annuity benefit payment is equal
to the number of Annuity Units multiplied by the
applicable value of an Annuity Unit, except that
under a Joint and Two-Thirds Option, payments to
the surviving payee are based on two-thirds the
number of Annuity Units that applied when both
payees were living. Variable annuity benefit
payments will increase or decrease with the
value of annuity units. The Company guarantees
that the amount of each variable annuity benefit
payment will not be affected by changes in
mortality and expense experience.
NUMBER OF The number of Annuity Units determining the
ANNUITY UNITS benefit payable is equal to the amount of the
first annuity benefit payment divided by the
value of the Annuity Unit as of the Valuation
Date used to calculate the amount of the first
payment. Once annuity benefit payments begin,
the number of Annuity Units will not change
unless a split is made.
ANNUITY BENEFIT VARIABLE OR FIXED LIFE ANNUITY WITH PAYMENTS
PAYMENT OPTIONS GUARANTEED FOR 10 YEARS: Periodic annuity
benefit payments during the payee's life. If
the payee dies before all guaranteed payments
have been made, the remaining payments will be
made to the Beneficiary.
VARIABLE OR FIXED LIFE ANNUITY: Periodic
annuity benefit payments during the payee's
life.
UNIT REFUND VARIABLE OR FIXED LIFE ANNUITY:
Periodic annuity benefit payments during the
payee's life. If the payee dies and the annuity
value initially applied to purchase the option,
divided by the first payment, exceeds the number
of payments made before the payee's death,
payments will continue to the Beneficiary until
the number of payments equals the Annuity Value
divided by the first payment.
JOINT AND SURVIVOR VARIABLE OR FIXED LIFE
ANNUITY: Periodic annuity benefit payments
during the joint lifetime of two payees with
payments continuing during the lifetime of the
survivor. One of the payees must be the
Annuitant or, if the Annuitant is not living
when payments begin, one of the payees must be
the Beneficiary.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE OR FIXED
LIFE ANNUITY: Periodic annuity benefit
payments during the joint lifetime of two payees
with payments continuing during the lifetime of
the survivor at two-thirds the amount payable
when both payees were living. One of the payees
must be the Annuitant or, if the Annuitant is
not living when payments begin, one of the
payees must be the Beneficiary.
VARIABLE OR FIXED ANNUITY FOR A PERIOD CERTAIN:
Periodic annuity benefit payments for a chosen
number of years. The number of years
15
<PAGE>
selected may be from 1 to 30. If the payee dies before
the end of the period, remaining payments will
continue to the Beneficiary.
ANNUITY TABLES The first annuity benefit payment will be based on the
greater of the guaranteed annuity rates shown in the
following tables or the Company's non-guaranteed current
annuity option rates applicable to this class of
contracts. Second and subsequent annuity benefit
payments, when based on the investment experience of the
Variable Account, may increase or decrease.
16
<PAGE>
ANNUITY OPTION TABLES
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Age Life Annuity with Life Unit Refund
Nearest Payments Guaranteed Annuity Life Annuity
Birthday for 10 Years
- --------------------------------------------------------------------------------
50 4.22 4.24 4.14
51 4.28 4.31 4.19
52 4.34 4.37 4.25
53 4.41 4.44 4.31
54 4.48 4.52 4.37
55 4.55 4.59 4.43
56 4.63 4.68 4.50
57 4.71 4.76 4.57
58 4.80 4.86 4.65
59 4.89 4.96 4.73
60 4.98 5.06 4.82
61 5.08 5.18 4.90
62 5.19 5.30 5.00
63 5.30 5.43 5.10
64 5.42 5.56 5.20
65 5.55 5.71 5.31
66 5.68 5.87 5.43
67 5.81 6.04 5.55
68 5.96 6.22 5.68
69 6.11 6.41 5.81
70 6.26 6.62 5.96
71 6.43 6.84 6.11
72 6.60 7.08 6.27
73 6.77 7.34 6.44
74 6.95 7.62 6.62
75 7.13 7.91 6.81
- --------------------------------------------------------------------------------
These tables are based on an annual interest rate of 3 1/2%
and the 1983(a) Individual Mortality Table.
17
<PAGE>
ANNUITY OPTION TABLES (CONTINUED)
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Joint and Two-Thirds Survivor Life
Joint and Survivor Life Annuity Annuity
Older Age Older Age
- ---------------------------------------------------------------------------------------------------
50 55 60 65 70 75 80 50 55 60 65 70 75 80
- ----------------------------------------------------------------------------------------------------
Y 50 3.91 3.97 4.02 4.05 4.07 4.09 4.10 4.25 4.40 4.57 4.76 4.96 5.18 5.39
O
U 55 4.18 4.26 4.32 4.36 4.39 4.41 4.60 4.80 5.02 5.26 5.50 5.75
N
G 60 4.54 4.65 4.73 4.78 4.81 5.08 5.35 5.63 5.92 6.21
E
R 65 5.04 5.19 5.29 5.35 5.74 6.10 6.46 6.82
A 70 5.75 5.95 6.08 6.67 7.15 7.62
G 75 6.77 7.06 8.04 8.69
E 80 8.29 10.05
</TABLE>
These tables are based on an annual interest rate of 3 1/2%
and the 1983(a) Individual Mortality Table.
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Number of Variable or Fixed Annuity Number of Variable or Fixed Annuity
Years for a Period Certain Years for a Period Certain
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 84.65 16 6.76
2 43.05 17 6.47
3 29.19 18 6.20
4 22.27 19 5.97
5 18.12 20 5.75
6 15.35 21 5.56
7 13.38 22 5.39
8 11.90 23 5.24
9 10.75 24 5.09
10 9.83 25 4.96
11 9.09 26 4.84
12 8.46 27 4.73
13 7.94 28 4.63
14 7.49 29 4.53
15 7.10 30 4.45
These tables are based on an annual interest rate of 3 1/2%.
18
<PAGE>
GENERAL PROVISIONS
ENTIRE CONTRACT The entire contract consists of this contract, any
application attached at issue and any endorsements.
MISSTATEMENT OF If a payee's age is misstated, the Company will adjust
AGE all annuity benefit payments to those that the annuity
value applied would have purchased at the correct age.
Any underpayments already made by the Company will be
paid immediately. Any overpayments will be deducted
from future annuity benefits.
MODIFICATIONS Only the President, a Vice President or Secretary of the
Company may modify or waive any provisions of this
contract. Agents or Brokers are not authorized to do so.
INCONTESTABILITY The Company cannot contest this contract.
CHANGE OF ANNUITY The Owner may change the Annuity Date by Written Request
DATE at any time after the contract has been issued. The
request must be received at the Principal Office at least
one month before the new Annuity Date. The alternative
Annuity Date must be the first of any month prior to the
Maximum Alternative Annuity Date shown on the
Specifications page and must be within the life
expectancy of the Annuitant. The Company will determine
life expectancy at the time a change in the Annuity Date
is requested.
MINIMUMS All values, benefits or settlement options available
under this contract equal or exceed those required by the
state in which the contract is delivered.
ANNUAL REPORT The Company will furnish an annual report to the Owner
containing a statement of the number and value of
Accumulation Units credited to the Sub-Accounts, the
value of the Fixed Account and the Guarantee Period
Accounts and any other information required by applicable
law, rules and regulations.
ADDITION, DELETION, The Company reserves the right, subject to compliance
OR SUBSTITUTION OF with applicable law, to add to, delete from, or
INVESTMENTS substitute for the shares of a Fund that are held by the
Sub-Accounts or that the Sub-Accounts may purchase. The
Company also reserves the right to eliminate the shares
of any Fund no longer available for investment or if the
Company believes further investment in the Fund is no
longer appropriate for the purposes of the Sub-Accounts.
The Company will not substitute shares attributable to
any interest in a Sub-Account without notice to the Owner
and prior approval of the Securities and Exchange
Commission as required by the Investment Company Act of
1940. This will not prevent the Variable Account from
purchasing other securities for other series or classes
of contracts, or from permitting a conversion between
series or classes of contracts on the basis of requests
made by Owners.
The Company reserves the right, subject to compliance
with applicable laws, to establish additional Guarantee
Period Accounts and Sub-Accounts and to make them
available to any class or series of contracts as the
Company considers appropriate. Each new Sub-Account will
invest in a new investment company or in shares of
another open-end investment company. The Company also
reserves the right to eliminate or combine existing
Sub-Accounts and to transfer the assets of any
Sub-Accounts to any other Sub-Accounts. In the event of
any substitution or change, the Company may, by
appropriate notice,
19
<PAGE>
make such changes in this and other
contracts as may be necessary or appropriate to reflect
the substitution or change. If the Company considers it
to be in the best interests of contract Owners, the
Variable Account or any Sub-Account may be operated as a
management company under the Investment Company Act of
1940, or may be deregistered under that Act in the event
registration is no longer required, or may be combined
with other accounts of the Company.
CHANGE OF NAME Subject to compliance with applicable law, the Company
reserves the right to change the names of the Variable
Account or the Sub-Accounts.
FEDERAL TAX The Variable Account is not currently subject to tax, but
CONSIDERATIONS the Company reserves the right to assess a charge for
taxes if the Variable Account becomes subject to tax.
SPLITTING OF UNITS The Company reserves the right to split the value of a
unit, either to increase or decrease the number of units.
Any splitting of units will have no material effect on
the benefits, provisions or investment return of this
contract or upon the Owner, the Annuitant, any
Beneficiary, or the Company.
INSULATION OF The investment performance of Separate Account assets is
SEPARATE ACCOUNT determined separately from the other assets of the
Company. The assets of a Separate Account equal to the
reserves and liabilities of the contracts supported by
the account will not be charged with liabilities from any
other business that the Company may conduct.
VOTING RIGHTS The Company will notify Owners with voting interests of
any shareholders' meeting at which Fund shares held by
each Sub-Account will be voted and will provide proxy
materials together with a form to be used to give voting
instructions to the Company. The Company will vote Fund
shares for which no timely instructions have been
received in the same proportion as shares of that Fund
for which instructions have been received.
Prior to the Annuity Date, the number of shares is
determined by dividing the dollar value of the
Sub-Account Accumulation Units by the net asset value of
one Fund share. After the Annuity Date, the number of
Fund shares is determined by dividing the reserves held
in each Sub-Account to meet the annuity obligations by
the net asset value of one Fund share.
Flexible Payment Deferred Variable and Fixed Annuity
Annuity Benefits Payable to Annuitant on the Annuity Date
Death Benefit Payable to Beneficiary if either Owner or
Annuitant Dies prior to Annuity Date
Non-Participating
20
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND 440 LINCOLN STREET, VARIABLE ANNUITY APPLICATION
ANNUITY COMPANY WORCESTER, MA 01653
_______________________________________________________________________________
1. ANNUITANT
Please Print Clearly
First MI Last
___________________________________________________________________________
Street Address Apt.
___________________________________________________________________________
City State ZIP
___________________________________________________________________________
Daytime Telephone / / Male Date of Birth
( ) / / Female / /
___________________________________________________________________________
S.S.#
___________________________________________________________________________
_______________________________________________________________________________
2. OWNER COMPLETE THIS SECTION ONLY IF (CHECK ONE AND FILL IN BELOW):
Please Print Clearly
/ / THE OWNER IS OTHER THAN THE ANNUITANT, OR
/ / THIS IS A JOINT OWNER WITH THE ANNUITANT.
First MI Last
_______________________________________________________________________________
Street Address Apt.
_______________________________________________________________________________
City State Zip
_______________________________________________________________________________
S.S.#/Tax I.D. # Date of Birth Date of Trust
/ / / /
_______________________________________________________________________________
_______________________________________________________________________________
3. BENEFICIARY
/ /______ Day Common Disaster Clause
_______________________________________________________________________________
Primary Relationship to Annuitant
_______________________________________________________________________________
Contingent Relationship to Annuitant
_______________________________________________________________________________
4. TYPE OF PLAN
/ / 401(a) Pension/Profit Sharing* / / 408(k) SEP-IRA*
/ / 401(k) Profit Sharing* / / 457 Deferred Comp.
/ / 403(b) TSA* / / Non-Qual. Def. Comp.
/ / 408(b) IRA / / Non-Qualified
*Attach required additional forms.
_______________________________________________________________________________
5. INITIAL PAYMENT
Initial Payment $ _________________________________________
If IRA or SEP-IRA application, the applicant has received a
Disclosure Buyer's Guide and this payment is a (check one):
/ / Rollover / /Trustee to Trustee Transfer
/ / Regular or SEP-IRA Payment for Tax Year ___________
_______________________________________________________________________________
6. REPLACEMENT
Will the proposed contract replace or change any existing
annuity or insurance policy? / / NO / / YES
(If yes, list company name and policy number)
_________________________________________________________
_______________________________________________________________________________
7. ALLOCATION OF PAYMENTS (FUNDS)
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________% 3 Year
___________% 5 Year
___________% 6 Year
___________% 7 Year
___________% 8 Year
___________% 9 Year
___________% 10 Year
1 0 0 % (All allocations above must total 100%)
___________
________________________________________________________________________
/ / I elect Automatic Account Rebalancing among the above accounts
(excluding the Fixed and Guarantee Period Accounts) starting on the
16th day after the issue date and continuing every:
/ / 1 / / 2 / / 3 / / 6 / / 12 Months
NOTE: If the contract applied for provides for a full refund of the
initial payment under its "Right to Examine" provision, that portion
of each payment not allocated to the Fixed Account will be allocated
solely to the Money Market account during its first 15 days.
Reallocation will then be made as specified.
_______________________________________________________________________________
8. TELEPHONE TRANSFER
I/We authorize and direct Allmerica Financial Life Insurance and Annuity
Company to accept telephone instructions from any person who can furnish
proper identification to effect transfers and future payment allocation
changes. I agree to hold harmless and indemnify Allmerica Financial
Life Insurance and Annuity Company and its affiliates and their collective
directors, officers, employees and agents against any claim arising from
such action.
/ / I DO NOT accept this telephone transfer privilege.
_______________________________________________________________________________
SML-1443 (7/96)
<PAGE>
_______________________________________________________________________________
9. DOLLAR COST AVERAGING
Please transfer $_________________ from (check ONE source account)
($100 minimum)
/ / Fixed Account / / Government Bond / / Money Market
EVERY: / / 1 / / 2 / / 3 / / 6 / / 12 months
FUNDS
TO: ___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
Dollar Cost Averaging begins on the 16th day after the issue date and
ends when the source account value is exhausted.
DOLLAR COST AVERAGING INTO THE FIXED OR GUARANTEE PERIOD ACCOUNTS IS
NOT AVAILABLE.
_______________________________________________________________________________
10. SYSTEMATIC WITHDRAWALS
Please withdraw $_________________
($100 minimum)
EVERY: / / 1 / / 2 / / 3 / / 6 / / 12 months
(Systematic withdrawls from the Guarantee Period Accounts are not available.)
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
1 0 0 % TOTAL
___________
/ / Do NOT Withhold Federal Income Taxes
/ / Do Withhold at 10% or _________ (% or $)
Systematic withdraws begin on the 16th day after the issue date.
/ / I wish to use Electronic Funds Transfer. I authorize the Company to
electronically correct any overpayments or erroneous credits made to
my account.
A VOIDED CHECK MUST BE ATTACHED.
_______________________________________________________________________________
11. OPTIONAL BILLING REMINDERS
/ / I wish to receive periodic reminders that I can include with future
remittances.
PAYMENT REMINDER REQUEST (FORM SML-1203) MUST BE ATTACHED.
_______________________________________________________________________________
12. REMARKS
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
13. SIGNATURES
I/We represent to the best of my/our knowledge and belief that the
statements made in this application are true and complete. I/We agree to
all terms and conditions as shown on the front and back. It is indicated
and agreed that the only statements which are to be construed as the basis
of the contract are those contained in this application. I/We acknowledge
receipt of a current prospectus describing the contract applied for. I/WE
UNDERSTAND THAT ALL PAYMENTS AND VALUES BASED ON THE VARIABLE ACCOUNTS MAY
FLUCTUATE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT; AND ALL PAYMENTS AND
VALUES BASED ON THE GUARANTEE PERIOD ACCOUNTS ARE SUBJECT TO A MARKET
VALUE ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN EITHER AN
UPWARD OR DOWNWARD ADJUSTMENT. I/We understand that unless I/we elect
otherwise, the Annuity Date will be the earlier of the date, if any,
selected by the Owner, or the later of the Annuitant's 85th birthday or
the birthday following the tenth contract anniversary, not to exceed
age 90.
____________________________________ ___________________________________
Signature of Owner Signed at (City and State) Date
____________________________________
Signature of Joint Owner
_______________________________________________________________________________
14. REGISTERED REPRESENTATIVE/DEALER INFORMATION
Does the contract applied for replace an existing annuity or life
insurance policy?
/ / Yes / / No If yes, attach replacement form as required.
I CERTIFY THAT (1) THE INFORMATION PROVIDED BY THE OWNER HAS BEEN ACCURATELY
RECORDED; (2) A CURRENT PROSPECTUS WAS DELIVERED; (3) NO WRITTEN SALES
MATERIALS OTHER THAN THOSE APPROVED BY THE PRINCIPAL OFFICE WERE USED;
AND (4) I HAVE REASONABLE GROUNDS TO BELIEVE THE PURCHASE OF THE CONTRACT
APPLIED FOR IS SUITABLE FOR THE OWNER.
<TABLE>
<S> <C> <C> <C> <C> <C>
Date Signature of Registered Representative % TR Print Full Name Code Agency
_________________________________________________________________________________________________________________________
Date Signature of Registered Representative % TR Print Full Name Code Agency
_________________________________________________________________________________________________________________________
Date Signature of Registered Representative % TR Print Full Name Code Agency
_________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
EXHIBIT 9
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
May 6, 1996
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of Allmerica Financial Life Insurance and Annuity
Company (the "Company"), I have participated in the preparation of the
Post-Effective Amendments to the Registration Statements for Separate
Account VA-K on Form N-4 under the Securities Act of 1933 and the Investment
Company Act of 1940, with respect to the Company's qualified and
non-qualified variable annuity contracts.
I am of the following opinion:
1. Separate Account VA-K is a separate account of the Company validly existing
pursuant to the Delaware Insurance Code and the regulations issued
thereunder.
2. The assets held in Separate Account VA-K are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The individual qualified and non-qualified variable annuity contracts, when
issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable local law, will be legal and
binding obligations of the Company in accordance with their terms and when
sold will be legally issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendments to the Registration Statements on Form N-4 under the
Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<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. 11 to the Registration
Statement on Form N-4 of our report dated February 5, 1996, relating to the
financial statements of Allmerica Financial Life Insurance and Annuity
Company and our report dated February 23, 1996, relating to the financial
statements of Separate Account VA-K Delaware Medallion of Allmerica Financial
Life Insurance and Annuity Company, both of which appear in such Statement of
Additional Information. We also consent to the reference to us under the
heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
May 8, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 74
<NAME> SMAD201
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 63111192
<INVESTMENTS-AT-VALUE> 76463303
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76463303
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49346
<TOTAL-LIABILITIES> 49346
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 48305358
<SHARES-COMMON-PRIOR> 25066105
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<NET-ASSETS> 76413957
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<OTHER-INCOME> 0
<EXPENSES-NET> 820358
<NET-INVESTMENT-INCOME> 1892291
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<APPREC-INCREASE-CURRENT> 14864268
<NET-CHANGE-FROM-OPS> 17107790
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 30947026
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<GROSS-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 1.197
<PER-SHARE-NII> .043
<PER-SHARE-GAIN-APPREC> .342
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<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
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<SERIES>
<NUMBER> 75
<NAME> SMAD202
<S> <C>
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<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 51242233
<INVESTMENTS-AT-VALUE> 49835924
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<ASSETS-OTHER> 0
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<OTHER-ITEMS-LIABILITIES> 107415
<TOTAL-LIABILITIES> 107415
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<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 37817628
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1406309)
<NET-ASSETS> 50136379
<DIVIDEND-INCOME> 4457302
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 628661
<NET-INVESTMENT-INCOME> 3828641
<REALIZED-GAINS-CURRENT> (333660)
<APPREC-INCREASE-CURRENT> 2308842
<NET-CHANGE-FROM-OPS> 5803823
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 13203416
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 58597000
<PER-SHARE-NAV-BEGIN> 1.197
<PER-SHARE-NII> .043
<PER-SHARE-GAIN-APPREC> .342
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.582
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 76
<NAME> SMAD203
<S> <C>
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<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 24091782
<INVESTMENTS-AT-VALUE> 23877321
<RECEIVABLES> 127602
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24004923
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35114
<TOTAL-LIABILITIES> 35114
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 19818276
<SHARES-COMMON-PRIOR> 16753005
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