<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
FOR
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
ALLMERICA SELECT SEPARATE ACCOUNT
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS FOR THE VARIABLE ACCOUNT DATED JULY 8, 1996
("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ALLMERICA INVESTMENTS,
INC., 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653, 800-366-1492.
DATED: JULY 8, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY . . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 7
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 9
GENERAL INFORMATION AND HISTORY
Allmerica Select Separate Account ("Variable Account") is a separate investment
account of Allmerica Financial Life Insurance and Annuity Company ("Company")
authorized by vote of the Board of Directors on March 5, 1992. 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 indirectly wholly-owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company 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.
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Currently, 11 Sub-Account(s) of the Variable Account are available under the
Contracts. Each Sub-Account invests in a corresponding investment portfolio of
Allmerica Investment Trust ("Trust"), Variable Insurance Products Fund ("VIP")
or T. Rowe Price International Series, Inc. ("T. Rowe Price").
The Trust, VIP and T. Rowe Price are open-end, diversified, management
investment companies. Seven different funds of the Trust are available under
the Contracts: Select International Equity Fund, Select Aggressive Growth Fund,
Select Capital Appreciation Fund, Select Growth Fund, Select Growth and Income
Fund, Select Income Fund and Money Market Fund. Three of the portfolios of VIP
are available under the Contracts: the Fidelity VIP High Income Portfolio,
Fidelity VIP Equity-Income Portfolio and Fidelity VIP Growth Portfolio. One
portfolio of T. Rowe Price is available under the Contracts: the T. Rowe Price
International Stock Portfolio. Each Fund, Portfolio and Series available under
the Contracts has its own investment objectives and certain attendant risks.
TAXATION OF THE CONTRACT, VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
Contract, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any
other taxes that may become payable in the future in connection with the
Contracts or the Variable Account.
The Variable Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Internal Revenue Code (the "Code") and files a consolidated
tax return with its parent and affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Contracts or the Variable Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Contract Owners. The Variable Account
presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Variable Account. Trust shares owned by the Sub-Account(s) are held on an open
account basis. A Sub-Account's ownership of Trust shares is reflected on the
records of the Trust 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 Allmerica
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Select Separate Account 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
Contracts.
UNDERWRITERS
Allmerica Investments, Inc. ("Allmerica Investments"), a registered broker-
dealer under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. (NASD), serves as principal underwriter
for the Contracts pursuant to a contract with the Company and the Variable
Account. Allmerica Investments distributes the Contracts 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 an indirectly wholly-owned subsidiary of First Allmerica.
The Contracts 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
contracts.
All persons selling contracts are required to be licensed by their respective
state insurance authorities for the sale of variable annuity contracts. The
Company pays commissions not to exceed 6.0% of purchase payments to entities
which sell the Contracts. To the extent permitted by NASD rules, promotional
incentives or payments may also be provided to such entities based on sales
volumes, the assumption of wholesaling functions, or other sales-related
criteria. Additional payments may be made for other services not directly
related to the sale of the Contracts, including the recruitment and training of
personnel, production of promotional literature, and similar services.
Commissions paid on the Contracts, including additional incentives or payments,
do not result in any additional charge to Contract Owners or to the Variable
Account.
The aggregate amount of commissions retained by Allmerica Investments, Inc. was
$0.00 in 1995, $0.00 in 1994 and $833,623.78 in 1993. The aggregate amount of
commissions paid to independent broker-dealers was $8,979,395.64 in 1995,
$7,542,837.54 in 1994 and $5,124,559.37 in 1993.
Commissions are paid by the Company and do not result in any charge to Contract
Owners or to the Variable 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, withdrawal, and/or annuitization charges, profits from the Company's
general account, including the investment earnings on amounts allocated to
accumulate on a fixed basis in excess of the
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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 Contract is determined is
described in detail under "COMPUTATION 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 Sub-Account at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit value at the end of the current Valuation Period would be
calculated as follows:
(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) . . . . 0.000039
(6) Net Investment Rate (4) - (5) . . . . . . . . . . . . . . . . 0.000296
(7) Net Investment Factor 1.000000 + (6) . . . . . . . . . . . . 1.000296
(8) Accumulation Unit Value - Current Period (1) x (7) . . . . $ 1.135336
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment unit value at the end of the Valuation Period would have
been $1.134576.
The method for determining the amount of annuity payments is described in detail
under "COMPUTATION OF CONTRACT 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 an
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Annuitant has 40,000 Accumulation Units in a Variable Account, and that the
value of an Accumulation Unit on the Valuation Date used to determine the amount
of the first variable annuity payment is $1.120000. Therefore, the Accumulation
Value of the Contract is $44,800 (40,000 x $1.120000). Assume also that the
Contract 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 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.
Method for Determining Variable Annuity Option V Redemption and Illustration
Using Hypothetical Example. As discussed in the Prospectus under "DESCRIPTION
OF VARIABLE ANNUITY OPTIONS," the Annuitant, or the beneficiary if the Annuitant
has died, may choose at any time to redeem the Contract and receive its commuted
value. Commuted value is the present value of remaining payments commuted at 3-
1/2% interest. However, if the annuitant elects the withdrawal, the remaining
payments are deemed to be the remaining payments that would have been payable
had the Surrender Value, rather than the Accumulation Value, been applied at the
Annuity Date. The determination of the commuted value upon redemption by an
Annuitant may be illustrated by the following hypothetical example.
Assume an annuity period of 10 years or longer is elected. The number of
Annuity Units each payment is based on would be calculated using the Accumulated
Value. Assume this results in 267.5818 Annuity Units. Assume the commuted
value is requested with 60 monthly payments remaining and a current Annuity Unit
Value of $1.200000. Based on these assumptions, the dollar amount of remaining
payments would be $321.10 a month for 60 months. If the commuted value was
requested by a beneficiary, the value would be based on the present value at 3-
1/2% interest of this stream of annuity payments. The commuted value would be
$17,725.49. However, if the commuted value is requested by an Annuitant, the
value is calculated as if the Surrender Value, not the Accumulated Value, had
been used to calculate the number of Annuity Units. Assume this results in 250
Annuity Units. Based
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on these assumptions, the dollar amount of remaining payments would be $300 a
month for 60 months. The present value at 3-1/2% of all remaining payments
would be $16,560.72.
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PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other material information on various
topics of interest to Contract Owners and prospective Contract 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 Contracts 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
Sub-Account and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Sub-Account(s) asset charge and any applicable contingent deferred sales
charge which would be assessed upon complete withdrawal of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission. The quotations are computed by
finding the average annual compounded rates of return over the specified periods
that would equate the initial amount invested to the ending redeemable values,
according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment to the Variable Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end of the
specified period
The calculation of Total Return includes the annual charges against the asset of
the Sub-Account. 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,
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<PAGE>
according to the following schedule:
YEARS FROM DATE OF PURCHASE CHARGE AS PERCENTAGE
PAYMENT TO DATE OF OF NEW PURCHASE PAYMENTS
WITHDRAWAL WITHDRAWN*
0-1 6.5%
2 6.0%
3 5.0%
4 4.0%
5 3.0%
6 2.0%
7 1.0%
more than 7 0%
*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 10% of the
Accumulated Value under the Contract is not subject to the contingent deferred
sales charge.
The calculations of Total Return include the deduction of the $30 Annual
Contract fee.
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 Sub-Account and of the changes of
value of the principal invested (due to realized and unrealized capital gains or
losses) for a specified period reduced by the Sub-Account(s) asset charges.
However, it is assumed that the investment is NOT withdrawn at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
P(1 + T)n = EV
Where: P = a hypothetical initial payment to the Variable Account of $1,000
T = average annual total return
n = number of years
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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 Sub-Account(s). The ending value assumes that the
policy is NOT withdrawn 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 withdrawn at the end of the period.
The calculations of Supplemental Total Return include the deduction of the $30
Annual Contract fee.
YIELD AND EFFECTIVE YIELD - MONEY MARKET SUB-ACCOUNT
Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven-day period ended December 31, 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 Sub-Account 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.
The Money Market Sub-Account 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
Contract fee.
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Allmerica Select Separate Account.
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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
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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
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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
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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
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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>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SELECT SELECT SELECT
AGGRESSIVE GROWTH GROWTH GROWTH & INCOME
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust . . . . . $ 90,179,681 $ 69,778,642 $ 85,590,561
Receivable from Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . . . . . __ __ __
------------ ------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . 90,179,681 69,778,642 85,590,561
------------ ------------ ------------
LIABILITIES:
Payable to Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . . . . . 22,193 13,707 2,867
------------ ------------ ------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . $ 90,157,488 $ 69,764,935 $ 85,587,694
------------ ------------ ------------
------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity policies. . . . . . . . . . . $ 30,576,898 $ 23,055,246 $ 28,487,604
Non-qualified variable annuity policies. . . . . . . . . 59,580,590 46,709,689 57,100,090
Value of investment by Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . . . . __ __ __
------------ ------------ ------------
$ 90,157,488 $ 69,764,935 $ 85,587,694
------------ ------------ ------------
------------ ------------ ------------
Qualified units outstanding, December 31, 1995 . . . . . . . 17,298,813 17,539,122 20,617,196
Net asset value per qualified unit, December 31, 1995. . . . $ 1.767572 $ 1.314504 $ 1.381740
Non-qualified units outstanding, December 31, 1995 . . . . . 33,707,589 35,534,079 41,324,772
Net asset value per non-qualified unit, December 31, 1995. . $ 1.767572 $ 1.314504 $ 1.381740
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SELECT MONEY SELECT
INCOME MARKET INTERNATIONAL EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust . . . . $ 55,525,691 $ 49,617,538 $ 40,036,502
Receivable from Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . . . . 43,768 124,159 82,218
------------ ------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . 55,569,459 49,741,697 40,118,720
------------ ------------ ------------
LIABILITIES:
Payable to Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . . . . __ __ __
------------ ------------ ------------
Net assets . . . . . . . . . . . . . . . . . . . . . . $ 55,569,459 $ 49,741,697 $ 40,118,720
------------ ------------ ------------
------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity policies. . . . . . . . . . $ 21,550,225 $ 19,865,736 $ 14,382,603
Non-qualified variable annuity policies. . . . . . . . 34,019,234 29,875,961 25,736,004
Value of investment by Allmerica Financial Life
Insurance and Annuity Company (Sponsor). . . . . . . . __ __ 113
----------- ------------ ------------
$ 55,569,459 $ 49,741,697 $ 40,118,720
------------ ------------ ------------
------------ ------------ ------------
Qualified units outstanding, December 31, 1995 . . . . . . 18,166,666 18,207,372 12,747,506
Net asset value per qualified unit, December 31, 1995. . . $ 1.186251 $ 1.091082 $ 1.128268
Non-qualified units outstanding, December 31, 1995 . . . . 28,677,939 27,381,958 22,810,287
Net asset value per non-qualified unit, December 31, 1995. $ 1.186251 $ 1.091082 $ 1.128268
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SELECT VIPF VIPF
CAPITAL APPRECIATION HIGH INCOME EQUITY INCOME
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust . . . . . $ 7,488,854 __ __
Investment in shares of Fidelity Variable
Insurance Products Fund. . . . . . . . . . . . . . . . . __ $ 7,343,650 $ 10,951,313
Investment in shares of T. Rowe Price International
Series, Inc. . . . . . . . . . . . . . . . . . . . . . . __ __ __
Receivable from Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . . . . . 12,512 17,910 21,660
------------ ------------ ------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . $ 7,501,366 $ 7,361,560 $ 10,972,973
------------ ------------ ------------
------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity policies. . . . . . . . . . . $ 2,353,931 $ 3,215,161 $ 3,533,336
Non-qualified variable annuity policies. . . . . . . . . 5,147,158 4,146,179 7,439,399
Value of investment by Allmerica Financial Life
Insurance and Annuity Company (Sponsor). . . . . . . . 277 220 238
------------ ------------ ------------
$ 7,501,366 $ 7,361,560 $ 10,972,973
------------ ------------ ------------
------------ ------------ ------------
Qualified units outstanding, December 31, 1995 . . . . . . . 1,702,182 2,932,608 2,966,627
Net asset value per qualified unit, December 31, 1995. . . . $ 1.382890 $ 1.096349 $ 1.191028
Non-qualified units outstanding, December 31, 1995 . . . . . 3,722,230 3,782,006 6,246,400
Net asset value per non-qualified unit, December 31, 1995. . $ 1.382890 $ 1.096349 $ 1.191028
<CAPTION>
- -------------------------------------------------------------------------------------------------------
VIPF T. ROWE
GROWTH INTERNATIONAL STOCK
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust . . . . __ __
Investment in shares of Fidelity Variable
Insurance Products Fund. . . . . . . . . . . . . . . . $ 8,216,256 --
Investment in shares of T. Rowe Price International
Series, Inc. . . . . . . . . . . . . . . . . . . . . . -- $ 4,314,108
Receivable from Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . . . . 28,817 14,344
----------- -----------
Net assets . . . . . . . . . . . . . . . . . . . . . . $ 8,245,073 $ 4,328,452
----------- -----------
----------- -----------
Net asset distribution by category:
Qualified variable annuity policies. . . . . . . . . . $ 2,339,970 $ 1,196,096
Non-qualified variable annuity policies. . . . . . . . 5,904,856 3,132,143
Value of investment by Allmerica Financial Life
Insurance and Annuity Company (Sponsor). . . . . . . 247 213
----------- -----------
$ 8,245,073 $ 4,328,452
----------- -----------
----------- -----------
Qualified units outstanding, December 31, 1995 . . . . . . 1,894,900 1,123,593
Net asset value per qualified unit, December 31, 1995. . . $ 1.234878 $ 1.064528
Non-qualified units outstanding, December 31, 1995 . . . . 4,781,933 2,942,483
Net asset value per non-qualified unit, December 31, 1995. $ 1.234878 $ 1.064528
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
- -------------------------------------------------------------------------------
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SELECT AGGRESSIVE SELECT SELECT
GROWTH GROWTH GROWTH & INCOME
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
12/31/95 12/31/95 12/31/95
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . -- $ 10,193 $ 4,311,354
------------ ------------ ------------
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . $ 884,777 724,041 821,416
Administrative expense charges . . . . . . . . . . . 106,173 86,885 98,570
------------ ------------ ------------
Total expenses . . . . . . . . . . . . . . . . . . . 990,950 810,926 919,986
------------ ------------ ------------
Net investment income (loss) . . . . . . . . . . . . (990,950) (800,733) 3,391,368
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . 972,280 322,290 438,606
Net unrealized gain. . . . . . . . . . . . . . . . . 18,705,267 11,406,894 12,799,013
------------ ------------ ------------
Net realized and unrealized gain on investments. . . 19,677,547 11,729,184 13,237,619
------------ ------------ ------------
Net increase in net assets from operations . . . . . $ 18,686,597 $ 10,928,451 $ 16,628,987
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SELECT MONEY SELECT
INCOME MARKET INTERNATIONAL EQUITY
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
12/31/95 12/31/95 12/31/95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . $ 2,838,118 $ 2,278,075 $ 542,555
------------ ------------ ------------
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . 555,719 498,819 361,240
Administrative expense charges . . . . . . . . . . . 66,687 59,858 43,349
------------ ------------ ------------
Total expenses . . . . . . . . . . . . . . . . . . . 622,406 558,677 404,589
------------ ------------ ------------
Net investment income (loss) . . . . . . . . . . . . 2,215,712 1,719,398 137,966
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . (14,940) -- 147,088
Net unrealized gain. . . . . . . . . . . . . . . . . 4,029,082 -- 4,467,679
------------ ------------ ------------
Net realized and unrealized gain on investments. . . 4,014,142 -- 4,614,767
------------ ------------ ------------
Net increase in net assets from operations . . . . . $ 6,229,854 $ 1,719,398 $ 4,752,733
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
10
<PAGE>
- -------------------------------------------------------------------------------
ALLMERICA SELECT SEPARATE ACCOUNT
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SELECT VIPF VIPF
CAPITAL APPRECIATION HIGH INCOME EQUITY INCOME
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
4/28/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . $ 142,737 -- $ 88,411
--------- --------- ---------
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . . 25,098 $ 25,982 38,049
Administrative expense charges . . . . . . . . . . . . . . 3,012 3,118 4,566
--------- --------- ---------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 28,110 29,100 42,615
--------- --------- ---------
Net investment income (loss) . . . . . . . . . . . . . . . 114,627 (29,100) 45,796
--------- --------- ---------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain . . . . . . . . . . . . . . . . . . . . 5,420 7,896 4,036
Net unrealized gain. . . . . . . . . . . . . . . . . . . . 623,287 248,739 725,086
--------- --------- ---------
Net realized and unrealized gain on investments. . . . . . 628,707 256,635 729,122
--------- --------- ---------
Net increase (decrease) in net assets from operations. . . $ 743,334 $ 227,535 $ 774,918
--------- --------- ---------
--------- --------- ---------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
VIPF T. ROWE
GROWTH INTERNATIONAL STOCK
FOR THE PERIOD FOR THE PERIOD
5/1/95* TO 12/31/95 5/1/95* TO 12/31/95
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . -- --
--------- ---------
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . . $ 29,707 $ 13,476
Administrative expense charges . . . . . . . . . . . . . . 3,565 1,617
--------- ---------
Total expenses . . . . . . . . . . . . . . . . . . . . . . 33,272 15,093
--------- ---------
Net investment income (loss) . . . . . . . . . . . . . . . (33,272) (15,093)
--------- ---------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain . . . . . . . . . . . . . . . . . . . . 2,603 359
Net unrealized gain. . . . . . . . . . . . . . . . . . . . 16,058 137,855
--------- ---------
Net realized and unrealized gain on investments. . . . . . 18,661 138,214
--------- ---------
Net increase (decrease) in net assets from operations. . . $ (14,611) $ 123,121
--------- ---------
--------- ---------
</TABLE>
* Date of initial investment
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SELECT AGGRESSIVE GROWTH SELECT GROWTH
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). . . . . . . . . . . . . . . . . $ (990,950) $ (531,128) $ (800,733) $ (319,433)
Net realized gain (loss) from security transactions . . . . . 972,280 207,996 322,290 19,589
Net unrealized gain (loss) on investments . . . . . . . . . . 18,705,267 (1,312,608) 11,406,894 (667,555)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from operations . . . . 18,686,597 (1,635,740) 10,928,451 (967,399)
----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . . 16,597,983 11,026,474 13,140,808 9,817,670
Terminations . . . . . . . . . . . . . . . . . . . . . . . . (2,613,864) (1,258,707) (2,081,833) (1,075,950)
Annuity benefits . . . . . . . . . . . . . . . . . . . . . . (836,246) (201,782) (552,400) (66,496)
Other transfers from (to) the General Account of
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . 9,109,723 16,623,836 6,876,212 11,321,922
Net increase in net assets resulting from
investment by Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . -- -- -- --
----------- ----------- ----------- -----------
Net increase in net assets from capital transactions. . . . . 22,257,596 26,189,821 17,382,787 19,997,146
----------- ----------- ----------- -----------
Net increase in net assets. . . . . . . . . . . . . . . . . . 40,944,193 24,554,081 28,311,238 19,029,747
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . . . . . 49,213,295 24,659,214 41,453,697 22,423,950
----------- ----------- ----------- -----------
End of period . . . . . . . . . . . . . . . . . . . . . . . . . $90,157,488 $49,213,295 $69,764,935 $41,453,697
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SELECT GROWTH & INCOME SELECT INCOME
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . . $ 3,391,368 $ 1,465,642 $ 2,215,712 $ 1,299,465
Net realized gain (loss) from security transactions . . . . . 438,606 1,454 (14,940) (147,474)
Net unrealized gain (loss) on investments . . . . . . . . . . 12,799,013 (1,845,613) 4,029,082 (2,781,132)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from operations . . . . 16,628,987 (378,517) 6,229,854 (1,629,141)
----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . . 15,849,889 10,185,183 9,619,527 7,881,724
Terminations . . . . . . . . . . . . . . . . . . . . . . . . (2,802,823) (1,229,097) (1,690,048) (1,318,815)
Annuity benefits . . . . . . . . . . . . . . . . . . . . . . (709,581) (298,294) (335,773) (303,752)
Other transfers from (to) the General Account of
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . 10,087,538 15,548,998 7,991,041 9,055,027
Net increase in net assets resulting from
investment by Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . -- -- -- --
----------- ----------- ----------- -----------
Net increase in net assets from capital transactions. . . . . 22,425,023 24,206,790 15,584,747 15,314,184
----------- ----------- ----------- -----------
Net increase in net assets. . . . . . . . . . . . . . . . . . 39,054,010 23,828,273 21,814,601 13,685,043
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . . . . 46,533,684 22,705,411 33,754,858 20,069,815
----------- ----------- ----------- -----------
End of period . . . . . . . . . . . . . . . . . . . . . . . . $85,587,694 $46,533,684 $55,569,459 $33,754,858
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET SELECT INTERNATIONAL EQUITY
YEAR ENDED DECEMBER 31, YEAR ENDED PERIOD FROM
1995 1994 12/31/955/2/94* to 12/31/94
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . . $ 1,719,398 $ 640,953 $ 137,966 $ (97,445)
Net realized gain (loss) from security transactions . . . . . -- -- 147,088 (6,755)
Net unrealized gain (loss) on investments . . . . . . . . . . -- -- 4,467,679 (687,448)
----------- ------------ ----------- -----------
Net increase (decrease) in net assets from operations . . . . 1,719,398 640,953 4,752,733 (791,648)
----------- ------------ ----------- -----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . . 76,385,322 83,357,219 11,188,585 6,893,849
Terminations . . . . . . . . . . . . . . . . . . . . . . . . (3,185,528) (1,724,705) (1,112,904) (422,797)
Annuity benefits . . . . . . . . . . . . . . . . . . . . . . (94,146) (536,208) (115,695) (39,074)
Other transfers from (to) the General Account of
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . (58,361,911) (68,653,676) 4,192,682 15,572,889
Net increase in net assets resulting from
investment by Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . -- -- -- 100
----------- ------------ ----------- -----------
Net increase in net assets from capital transactions. . . . . 14,743,737 12,442,630 14,152,668 22,004,967
----------- ------------ ----------- -----------
Net increase in net assets. . . . . . . . . . . . . . . . . . 16,463,135 13,083,583 18,905,401 21,213,319
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . . . . 33,278,562 20,194,979 21,213,319 --
----------- ------------ ----------- -----------
End of period . . . . . . . . . . . . . . . . . . . . . . . . $49,741,697 $33,278,562 $40,118,720 $21,213,319
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
* Date of initial investment
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SELECT CAPITAL APPRECIATION VIPF HIGH INCOME
PERIOD FROM PERIOD FROM
4/28/95* TO 12/31/95 5/1/95* TO 12/31/95
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . $ 114,627 $ (29,100)
Net realized gain from security transactions. . . . . . . 5,420 7,896
Net unrealized gain on investments. . . . . . . . . . . . 623,287 248,739
---------- ----------
Net increase (decrease) in net assets from operations . . 743,334 227,535
---------- ----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 2,854,303 3,454,999
Terminations . . . . . . . . . . . . . . . . . . . . . . (17,489) (48,800)
Annuity benefits . . . . . . . . . . . . . . . . . . . . -- --
Other transfers from the General Account of
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . 3,921,018 3,727,626
Net increase in net assets resulting from
investment by Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . 200 200
---------- ----------
Net increase in net assets from capital transactions. . . 6,758,032 7,134,025
---------- ----------
Net increase in net assets. . . . . . . . . . . . . . . . 7,501,366 7,361,560
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . -- --
---------- ----------
End of period . . . . . . . . . . . . . . . . . . . . . . $7,501,366 $7,361,560
---------- ----------
---------- ----------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
VIPF EQUITY INCOME VIPF GROWTH T. ROWE INTERNATIONAL STOCK
PERIOD FROM PERIOD FROM PERIOD FROM
5/1/95* TO 12/31/95 5/1/95* TO 12/31/95 5/1/95* TO 12/31/95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . $ 45,796 $ (33,272) $ (15,093)
Net realized gain from security transactions. . . . . . . 4,036 2,603 359
Net unrealized gain on investments. . . . . . . . . . . . 725,086 16,058 137,855
----------- ---------- ----------
Net increase (decrease) in net assets from operations . . 774,918 (14,611) 123,121
----------- ---------- ----------
FROM CAPITAL TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . 4,818,777 4,017,744 2,240,134
Terminations . . . . . . . . . . . . . . . . . . . . . . (121,736) (75,349) (7,735)
Annuity benefits . . . . . . . . . . . . . . . . . . . . -- -- --
Other transfers from the General Account of
Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . 5,500,814 4,317,089 1,972,732
Net increase in net assets resulting from
investment by Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . 200 200 200
Net increase in net assets from capital transactions. . . ----------- ---------- ----------
10,198,055 8,259,684 4,205,331
Net increase in net assets. . . . . . . . . . . . . . . . ----------- ---------- ----------
10,972,973 8,245,073 4,328,452
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . -- -- --
----------- ---------- ----------
End of year . . . . . . . . . . . . . . . . . . . . . . . $10,972,973 $8,245,073 $4,328,452
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
* Date of initial investment
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1995
NOTE 1 - ORGANIZATION
Allmerica Select Separate Account (Allmerica Select) is a separate
investment account of the Allmerica Financial Life Insurance and Annuity Company
(formerly named SMA Life Assurance Company)(the Company), established on March
5, 1992 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 Allmerica Select are clearly identified and distinguished
from the other assets and liabilities of the company. Allmerica Select cannot
be charged with liabilities arising out of any other business of the Company.
Allmerica Select is registered as a unit investment trust under the
investment Company Act of 1940, as amended (the 1940 Act). Allmerica Select
currently offers eleven sub-Account. Each Sub-Account invests exclusively in a
corresponding investment portfolio of the Allmerica Investment Trust (the Trust)
managed by Allmerica Investment Management Company, Inc. a wholly-owned
subsidiary of First Allmerica or of the Variable Insurance Products Fund (VIPF)
managed by Fidelity Management and Research Company (Fidelity Management), or of
the T. Rowe Price International Series, Inc. (T. Rowe) managed by Price-Fleming.
The Trust, VIPF, and T. Rowe (the Funds) are open-end, diversified series
management investment companies registered under the 1940 Act.
Allmerica Select 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 and 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 ACCOUNT POLICIES
Investments - Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Trust, VIPF, or T. Rowe, 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 reinvested in additional shares of the respective investment
portfolio of the Trust, VIPF, or T. Rowe 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 arising from the operations of Allmerica Select. Therefore, no
provision for income taxes has been charged against Allmerica Select.
14
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - DECEMBER 17, 1995, CONTINUED
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share
of each Sub-Account's investment in the Trust, VIPF, and T. Rowe at December 31,
1995, were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
INVESTMENT NUMBER OF AGGREGATE NET ASSET
PORTFOLIO SHARES COST VALUE PER SHARE
<S> <C> <C>
Allmerica Investment Trust 48,798,529 $ 70,200,936 $ 1.848
Select Aggressive Growth 50,970,520 58,113,474 1.369
Select Growth 67,500,442 74,153,065 1.268
Select Growth & Income 54,224,308 54,372,790 1.021
Select Income 49,617,538 49,617,538 1.000
Money Market 35,243,399 36,256,271 1.136
Select International Equity 5,470,310 6,865,567 1.369
Select Capital Appreciation
Fidelity Variable Insurance Products Fund
High Income 609,432 7,094,911 12.050
Equity Income 568,309 10,226,227 19.270
Growth 281,379 8,200,198 29.200
T. Rowe Price International Series, Inc.
International Stock 383,136 4,176,253 11.200
</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 contract fee is a currently deducted on the policy anniversary date and
upon full surrender of the policy. The contract fee is $30. For the year ended
December 31, 1995, contract fees deducted from accumulated value in Allmerica
Select amounted to $166,380.
Allmerica Investments, Inc. (Allmerica Investments) a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of Allmerica Select, and does not receive any compensation for sales of the
Allmerica select 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 dales
charge, no deduction is made for sales charges at the time of the sale. For the
year ended December 31, 1995, the Company received $239,498 for contingent
deferred sales charges applicable to Allmerica Select.
15
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - DECEMBER 17, 1995, CONTINUED
NOTE 5 - POLICYOWNERS AND SPONSOR TRANSACTIONS
Transactions from policyowners and sponsor were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31
1995 1994
Units Amount Units Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Select Aggressive Growth
Issuance of Units. . . . . 27,885,292 $ 36,453,013 27,423,000 $ 37,965,912
Redemption of Units . . . (13,209,041) (14,195,417) (8,631,521) (11,776,091)
------------ ------------ ----------- ------------
Net Increase . . . . . . . 14,676,251 $ 22,257,596 18,791,479 $ 26,189,821
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Select Growth
Issuance of Units. . . . . 20,985,931 $ 25,739,518 24,898,964 $ 27,008,384
Redemption of Units. . . . (6,664,607) (8,356,731) (6,512,593) (7,011,238)
------------ ------------ ---------- ------------
Net Increase . . . . . . . 14,321,324 $ 17,382,787 18,386,371 $ 19,997,146
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
Select Growth and Income
Issuance of Units. . . . . 26,558,603 $ 32,243,795 27,804,581 $ 30,134,264
Redemption of Units. . . . (7,909,099) (9,818,772) (5,495,408) (5,927,474)
------------ ------------ ---------- ------------
Net Increase . . . . . . . 18,649,504 $ 22,425,023 22,309,173 $ 24,206,790
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
Select Income
Issuance of Units. . . . . 19,564,608 $ 22,062,605 23,000,672 $ 23,944,394
Redemptions of Units . . . (5,546,112) (6,477,858) (8,494,763) (8,630,210)
------------ ------------ ---------- ------------
Net Increase . . . . . . . 14,018,496 $ 15,584,747 14,505,909 $ 15,314,184
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
Money Market
Issuance of Units. . . . . 88,899,486 $ 94,478,706 94,156,251 $ 96,953,841
Redemption of Units. . . . (75,146,408) (79,734,969) (82,122,357) (84,511,211)
------------ ------------ ---------- ------------
Net Increase . . . . . . . 13,753,078 $ 14,743,737 12,033,894 $ 12,442,630
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
Select International Equity
Issuance of Units. . . . . 23,113,341 $ 24,160,631 23,987,394 $ 23,788,465
Redemption of Units. . . . (9,739,294) (10,007,963) (1,803,648) (1,783,498)
------------ ------------ ---------- ------------
Net Increase . . . . . . . 13,374,047 $ 14,152,668 22,183,746 $ 22,004,967
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
Select Capital Appreciation
Issuance of Units. . . . . 5,639,364 $ 7,074,898 -- --
Redemptions of Units . . . (214,952) (316,866) -- --
------------ ------------ ---------- ------------
Net Increase . . . . . . . 5,424,412 $ 6,758,032 -- --
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
VIPF High Income
Issuance of Units . . . . 7,278,279 $ 7,756,553 -- --
Redemptions of Units . . . (563,665) (622,528) -- --
------------ ------------ ---------- ------------
Net Increase . . . . . . . 6,714,614 $ 7,134,025 -- --
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
VIPF Equity Income
Issuance of Units. . . . . 9,478,263 $ 10,649,874 -- --
Redemption of Units. . . . (265,236) (451,819) -- --
------------ ------------ ---------- ------------
Net Increase . . . . . . . 9,213,027 $ 10,198,055 -- --
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
VIPF Growth
Issuance of Units. . . . . 7,033,084 $ 8,792,633 -- --
Redemption of Units. . . . (356,251) (532,949) -- --
------------ ------------ ---------- ------------
Net Increase . . . . . . . 6,676,833 $ 8,259,684 -- --
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
T. Rowe International Stock
Issuance of Units. . . . . 4,247,897 $ 4,420,439 -- --
Redemption of Units. . . . (181,821) (215,108) -- --
------------ ------------ ---------- ------------
Net Increase . . . . . . . 4,066,076 $ 4,205,331 -- --
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
</TABLE>
16
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - DECEMBER 17, 1995, CONTINUED
NOTE 6 - DIVERSIFICATION REQUIREMENTS
Under the provisions of section B17(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 B17(h) of
the Code. The Company believes that Allmerica Select satisfies the current
requirements of the regulations, and it intends that Allmerica Select will
continue to meet such requirements.
NOTE 7 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust, VIPF, and T Rowe
shares by Allmerica Select during the year ended December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
<S> <C> <C>
Allmerica Investment Trust
Select Aggressive Growth $ 27,149,413 $ 5,828,604
Select Growth 18,933,468 2,194,740
Select Growth & Income 29,989,549 4,025,583
Select Income 19,385,083 1,523,105
Money Market 50,053,180 34,207,080
Select International Equity 19,619,460 5,276,025
Select Capital Appreciation 6,940,907 80,760
Fidelity Variable Insurance Products Fund 7,396,945 309,931
High Income 10,305,032 82,841
Equity Income 8,311,457 113,862
Growth
T. Rowe Price International Series. Inc.
International Stock 4,340,400 164,506
------------ -----------
Totals $202,424,894 $ 53,807,037
------------ ------------
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance
and Annuity Company and Policyowners of Allmerica Select Separate
Account II 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 (Money Market, Select Aggressive Growth, Select Growth, Select Growth
and Income, Select Income, Select International Equity, Select Capital
Appreciation, VIPF High Income, VIPF Equity Income, VIPF Growth, and T. Rowe
International Stock) constituting the Allmerica Select Separate Account of
Allmerica Financial Life Insurance and Annuity Company at December 31, 1995, the
results of each of their operations and the changes in each of their net assets
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Allmerica
Financial Life Insurance and Annuity Company's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments owned at December 31, 1995 by
correspondence with the Funds, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 23, 1996
18
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