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File No. 33-47216
811-6632
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 8
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10
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Allmerica Select Separate Account of Allmerica Financial Life Insurance and
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Annuity Company
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(Exact Name of Trust)
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
(508) 855-1000
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(Registrant's telephone number including area code)
Abigail M. Armstrong, Secretary and Counsel
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
(Name and complete address of agent for service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on April 30, 1996 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a) (1)
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on (date) pursuant to paragraph (a) (1)
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on (date) pursuant to paragraph (a) (2) of Rule 485
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VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is being
registered under the Securities Act of 1933. The Rule 24f-2 Notice for the
issuer's fiscal year ended December 31, 1995 was filed on February 29,1996.
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CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
1. . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . "Special Terms"
3. . . . . . . . . . . . . . "Summary"; "Annual and Transaction Expenses"
4. . . . . . . . . . . . . . Omitted
5. . . . . . . . . . . . . . "Description of Allmerica Financial, the
Separate Account and the Trust, VIP and T. Rowe
Price"
6. . . . . . . . . . . . . . "Charges and Deductions"
7. . . . . . . . . . . . . . "Description of the Contract"
8. . . . . . . . . . . . . . Omitted
9. . . . . . . . . . . . . . "Payment on Death"
10 . . . . . . . . . . . . . "Purchase Payments"; "Computation of Contract
Values and Annuity Payments"
11 . . . . . . . . . . . . . "Surrender"; "Partial Redemption"
12 . . . . . . . . . . . . . "Federal Tax Considerations"
13 . . . . . . . . . . . . . "Legal Matters"
14 . . . . . . . . . . . . . "Table of Contents of the Statement of
Additional Information"
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ----------------- ----------------------------------------------
15 . . . . . . . . . . . . . "Cover Page"
16 . . . . . . . . . . . . . "Table of Contents"
17 . . . . . . . . . . . . . "General Information and History"
18 . . . . . . . . . . . . . "Services"
19 . . . . . . . . . . . . . "Underwriters"
20 . . . . . . . . . . . . . "Underwriters"
21 . . . . . . . . . . . . . "Performance Information"
22 . . . . . . . . . . . . . "Annuity Payments"
23 . . . . . . . . . . . . . "Financial Statements"
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INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS
FUNDED THROUGH
ALLMERICA SELECT SEPARATE ACCOUNT
This Prospectus describes individual variable annuity contracts and group
variable annuity contracts including certificates issued thereunder
("Contracts") offered by Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial"),formerly named SMA Life Assurance Company, an indirect
wholly-owned subsidiary of First Allmerica Financial Life Insurance Company
("First Allmerica") (formerly named State Mutual Life Assurance Company of
America). The Contracts are funded through Allmerica Financial's Allmerica
Select Separate Account, which invests in shares of Allmerica Investment Trust,
Variable Insurance Products Fund and T. Rowe Price International Series, Inc.
The following investment portfolios are available under the Contracts:
SELECT INTERNATIONAL EQUITY FUND
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
SELECT AGGRESSIVE GROWTH FUND
SELECT CAPITAL APPRECIATION FUND
SELECT GROWTH FUND
FIDELITY'S GROWTH PORTFOLIO
SELECT GROWTH AND INCOME FUND
FIDELITY'S EQUITY-INCOME PORTFOLIO
FIDELITY'S HIGH INCOME PORTFOLIO
SELECT INCOME FUND
MONEY MARKET FUND
The "SUMMARY" that follows provides basic information about the Contracts. More
detailed information can be found under the captions in the Prospectus. This
Prospectus generally describes only variable accumulation and variable annuity
features of the Contracts, except where fixed values or fixed annuity payments
are specifically mentioned. ALLOCATIONS TO AND TRANSFERS TO AND FROM THE FIXED
ACCOUNT DESCRIBED IN APPENDIX A ARE NOT PERMITTED IN CERTAIN STATES.
Additional information is contained in a Statement of Additional Information
dated April 30, 1996 ("SAI"), filed with the Securities and Exchange Commission
and incorporated herein by reference. The Table of Contents of the SAI is on
page 32 of this Prospectus. The SAI is available upon request and without
charge through Allmerica Investments, Inc., 440 Lincoln Street, Worcester,
Massachusetts 01653, 508-855-3590.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND AND T. ROWE PRICE
INTERNATIONAL SERIES, INC. FIDELITY'S HIGH INCOME PORTFOLIO INVESTS IN HIGHER
YIELDING, LOWER RATED DEBT SECURITIES (SEE "INVESTMENT OBJECTIVES AND POLICIES"
IN THIS PROSPECTUS). INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR
FUTURE REFERENCE.
THE ALLMERICA SELECT VARIABLE ANNUITY CONTRACTS ("CONTRACTS") ARE OBLIGATIONS OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY AND ARE DISTRIBUTED BY
ITS AFFILIATE, ALLMERICA INVESTMENTS INC. THE CONTRACTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT UNION. THE
CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT THE FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE CONTRACTS
ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
April 30, 1996
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SUMMARY
WHAT IS THE ALLMERICA SELECT VARIABLE ANNUITY?
The Allmerica Select variable annuity contract ("Contract") is designed to help
you accumulate assets for your retirement or other important financial goals on
a tax-deferred basis. The Contract combines the concept of professional money
management with the attributes of an annuity contract. Features available
through the Contract include:
- A customized investment portfolio
- Experienced professional investment advisers
- Tax deferral on earnings
- Guarantees that can protect your family during the accumulation phase
- Income that can be guaranteed for life
The Contract has two phases, an accumulation phase and an annuity phase. During
the accumulation phase, your initial purchase payment and any additional
purchase payments you choose to make are allocated to the combination of
portfolios of securities ("Funds") you have selected under your Contract. Your
Contract's accumulated value is based on the investment performance of the
Funds. No income taxes are paid on any earnings under the Contract unless and
until accumulated values are withdrawn.
During the annuity phase, the Annuitant can receive income based on several
annuity plans. These plans include payment over a period of years or for the
rest of the Annuitant's life.
THE ACCUMULATION PHASE
During the accumulation phase, you select the Funds most appropriate for your
investment needs. Each Fund is professionally advised by an investment adviser
with experience managing the types of investments in the Fund. All investment
gains or losses will be reflected in the accumulated value under your Contract.
The accumulation phase provides certain protection and guarantees for the
beneficiary if the Annuitant should die before the annuity phase begins. See
discussion below under "What happens upon death during the accumulation phase?"
THE ANNUITY PHASE
You choose the annuity plan and the date for the annuity phase to begin.
Annuity payments may be on a variable basis (dependent upon the performance of
the Funds) or on a fixed basis (with payment amounts guaranteed). Among the
income options available during the annuity phase are:
- Lump sum
- At regular intervals over a specified number of years; or
- At regular intervals for the rest of the Annuitant's life, regardless
of how long he or she lives.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you and us - Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Financial"). Each Contract has a Contract Owner, an
Annuitant and a beneficiary. As Contract Owner, you make purchase payments,
choose investment allocations and select the Annuitant and beneficiary. The
Annuitant is the individual to receive annuity payments under the Contract. The
beneficiary is the person who receives any payment on death of the Contract
Owner or Annuitant.
CAN I EXAMINE THE CONTRACT?
Yes. Your Contract will be delivered to you after your purchase. If you return
the Contract to Allmerica Financial during the first 10 days from the date you
received it, the Contract will be cancelled. (There is a 20-day right-to-
examine period in North Dakota and a 30-day right-to-examine period applicable
to California senior citizens age 60 years or older.) If your Contract was
issued as an individual retirement annuity or provides for a full refund of the
initial purchase payment under
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its "Right to Examine" provision, you will incur no fees to cancel within the
right-to-examine period and will receive the greater of (1) your entire purchase
payment, or (2) the accumulated value of the Contract plus any amounts deducted
under the Contract or by the Funds for taxes, charges or fees. If your Contract
does not provide for a full refund of the initial purchase payment, you will
receive upon cancellation the sum of (1) the difference between the purchase
payment paid, including fees, and any amount allocated to the Separate Account
and (2) the Accumulated Value of the Policy (on the date the cancellation
request is received by the Company) attributable to any amount allocated to a
Sub-Account. See "RIGHT TO REVOKE CONTRACT."
WHAT ARE MY INVESTMENT CHOICES?
You have a choice of eleven Funds:
- Select International Equity Fund
Managed by Bank of Ireland Asset Management Limited
- T. Rowe Price International Stock Portfolio
Managed by Rowe Price-Fleming International, Inc.
- Select Aggressive Growth Fund
Managed by Nicholas-Applegate Capital Management
- Select Capital Appreciation Fund
Managed by Janus Capital Corporation
- Select Growth Fund
Managed by United Asset Management Corporation
- Fidelity's Growth Portfolio
Managed by Fidelity Management & Research Company
- Select Growth and Income Fund
Managed by John A. Levin & Co., Inc.
- Fidelity's Equity-Income Portfolio
Managed by Fidelity Management & Research Company
- Fidelity's High Income Portfolio
Managed by Fidelity Management & Research Company
- Select Income Fund
Managed by Standish, Ayer & Wood, Inc.
- Money Market Fund
Managed by Allmerica Asset Management, Inc.
This range of investment choices enables you to allocate your money among the
Funds to meet your particular investment needs. If your Contract was issued as
an individual retirement annuity or provides for a full refund of the initial
purchase payment under its "Right to Examine" provision (see "RIGHT TO REVOKE
CONTRACT"), for the first 14 days following the date of issue, all Fund
investments will be allocated to the Money Market Fund. (For California senior
citizens age 60 and older, all Fund investments will be allocated to the Money
Market Fund for 34 days following the date of issue because of an extended
"Right to Examine" provision applicable to these individuals.) Thereafter, all
amounts will be allocated according to your investment choices. For a more
detailed description of the Funds, see "ALLMERICA INVESTMENT TRUST, VARIABLE
INSURANCE PRODUCTS FUND AND T. ROWE PRICE INTERNATIONAL SERIES, INC." and
"INVESTMENT OBJECTIVES AND POLICIES."
Allmerica Financial also offers a guaranteed account ("Fixed Account"), where
available. The Fixed Account is part of the General Account of Allmerica
Financial and provides guarantees of principal and a fixed interest rate. See
APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
WHO ARE THE INVESTMENT ADVISERS AND HOW ARE THEY SELECTED?
Allmerica Investment Management Company, Inc. ("Manager") is the investment
manager of Allmerica Investment Trust and handles the day-to-day affairs of the
Trust. The Manager has entered into agreements with experienced investment
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advisers ("Sub-Advisers"), who will manage the investments of the Funds. The
Sub-Advisers for the Funds, except for the Money Market Fund, are independent
and have been selected by the Manager in consultation with Rogers, Casey &
Associates, a leading pension consulting firm. Rogers, Casey & Associates
provides consulting services to pension plans representing over $___billion in
total assets and, in its consulting capacity, monitors the investment
performance of over 1,000 investment advisers. Each independent Sub-Adviser was
selected by the Manager on the basis of strict objective and qualitative
criteria, with special emphasis on the Sub-Adviser's record in managing similar
portfolios. For the Money Market Fund, the Sub-Adviser is Allmerica Asset
Management, Inc. See "INVESTMENT ADVISORY SERVICES TO THE TRUST."
Fidelity Management & Research Company ("Fidelity Management") is the investment
manager of VIP. Fidelity Management, a registered investment adviser under the
Investment Advisers Act of 1940, is one of America's largest investment
management organizations and has its principal business address at 82 Devonshire
Street, Boston MA. It is composed of a number of different companies, which
provide a variety of financial services and products. Fidelity Management is
the original Fidelity company, founded in 1946. It provides a number of mutual
funds and other clients with investment research and portfolio management
services.
Rowe Price-Fleming International, Inc. ("Price-Fleming") is the investment
manager of T. Rowe. Price-Fleming, founded in 1979 as a joint venture between
T. Rowe Price Associates, Inc. and Robert Fleming Holdings, Limited, is one of
America's largest international mutual fund asset managers with approximately
$20 billion under management in its offices in Baltimore, London, Tokyo and Hong
Kong.
CAN I MAKE TRANSFERS AMONG THE FUNDS?
Yes. You may transfer among the Funds, subject to certain limits. You will
incur no current taxes on transfers while your money remains in the Contract.
See "TRANSFER PRIVILEGE."
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your purchase payments are flexible, subject to the
minimum and maximum purchase payments stated in "PURCHASE PAYMENTS."
WHAT IF I NEED MY MONEY BEFORE MY ANNUITY PHASE BEGINS?
You may surrender your Contract or make partial withdrawals any time before your
annuity phase begins, subject to the restrictions discussed in "SURRENDER" and
"PARTIAL REDEMPTION." Certain charges may apply, see "CHARGES AND DEDUCTIONS,"
and there may be a tax-penalty assessed under the Internal Revenue Code. See
"FEDERAL TAX CONSEQUENCES."
WHAT HAPPENS UPON DEATH DURING MY ACCUMULATION PHASE?
If the Annuitant dies during the accumulation phase and the Contract is not
continued (see "THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY"), the
beneficiary will receive the greatest of:
- Your total purchase payments under the Contract less any withdrawals
you may have made;
- The then current value of your Contract; or
- The amount that would have been payable on death of the Annuitant at
the most recent fifth Contract anniversary, adjusted to reflect new
purchase payments or withdrawals since that date.
If the Contract Owner dies before the Annuitant, the beneficiary will receive
the accumulated value of the Contract. See "PAYMENT ON DEATH."
WHAT ARE MY ANNUITY OPTIONS UNDER THE CONTRACT?
You may choose variable annuity payments based on the investment performance of
certain Funds, fixed-amount annuity payments, or a combination of fixed-amount
and variable annuity payments. Fixed-amount payments are guaranteed by
Allmerica Financial. See "DESCRIPTION OF THE CONTRACT" for information about
annuity payment options, selecting the Annuity Date, and how annuity payments
are calculated.
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WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
At each Contract anniversary and upon surrender, Allmerica Financial will deduct
a $30 Contract Fee from your Contract. Allmerica Financial reserves the right to
waive the Contract Fee for Contracts issued to a Trustee of a 401(k) plan or
qualifying under Section 403(b) of the Internal Revenue Code.
Should you decide to surrender your Contract, make partial withdrawals, or
receive payments under certain annuity options, you may be subject to a
contingent deferred sales charge. This charge will be between 1% and 6.5% of
purchase payments withdrawn, based on when the purchase payments were made.
A deduction for state and local premium taxes, if any, may be made as described
under "PREMIUM TAXES."
Currently, the first twelve transfers you make in a Contract year among Fund or
Fixed Account allocations will be free. There will be a charge of $25 for
additional transfers. Allmerica Financial may limit the number of free
transfers and the number of total transfers in a Contract year to six.
Allmerica Financial will deduct a daily Mortality and Expense Risk Charge and
Administrative Expense Charge equal to 1.25% and 0.15%, respectively, of the
average daily net assets invested in each Fund.
The Funds will incur certain management fees and expenses which are more fully
described in "OTHER CHARGES" and in the prospectus of the Funds, which
accompanies this Prospectus.
For more information, see "CHARGES AND DEDUCTIONS."
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
There are several changes you can make after receiving your Contract:
- You may assign your ownership to someone else, except under certain
qualified plans.
- You may change the beneficiary, unless you have designated a
beneficiary irrevocably.
- You may change the allocation of purchase payments, with no tax
consequences under current law.
- You may make transfers of Contract value among your current
investments, subject to then current rules.
- You may cancel your Contract within 10 days of delivery, as discussed
above.
- You may select the form and timing of annuity payments.
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TABLE OF CONTENTS
SPECIAL TERMS ............................................................. 7
ANNUAL AND TRANSACTION EXPENSES ........................................... 8
CONDENSED FINANCIAL INFORMATION ........................................... 10
RIGHT TO REVOKE CONTRACT .................................................. 11
DESCRIPTION OF ALLMERICA FINANCIAL, THE SEPARATE ACCOUNT AND THE TRUST .... 11
ALLMERICA FINANCIAL ................................................... 11
ALLMERICA SELECT SEPARATE ACCOUNT ..................................... 11
ALLMERICA INVESTMENT TRUST ............................................ 12
INVESTMENT OBJECTIVES AND POLICIES .................................... 12
INVESTMENT ADVISORY SERVICES TO THE TRUST ............................. 13
CHARGES AND DEDUCTIONS .................................................... 15
CONTINGENT DEFERRED SALES CHARGE ...................................... 15
CONTRACT FEE .......................................................... 17
ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ............................... 17
TRANSFER CHARGE ....................................................... 17
PREMIUM TAXES ......................................................... 17
OTHER CHARGES ......................................................... 18
DESCRIPTION OF THE CONTRACT ............................................... 18
PURCHASE PAYMENTS ..................................................... 18
TRANSFER PRIVILEGE .................................................... 18
SURRENDER ............................................................. 19
PARTIAL REDEMPTION .................................................... 20
LIFE EXPECTANCY DISTRIBUTION .......................................... 20
PAYMENT ON DEATH ...................................................... 20
THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY ....................... 21
ASSIGNMENT ............................................................ 21
ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE ..................... 21
DESCRIPTION OF VARIABLE ANNUITY OPTIONS ............................... 22
COMPUTATION OF CONTRACT VALUES AND ANNUITY PAYMENTS ................... 23
FEDERAL TAX CONSIDERATIONS ................................................ 24
VOTING RIGHTS ............................................................. 28
DISTRIBUTION .............................................................. 28
REPORTS ................................................................... 29
PERFORMANCE INFORMATION ................................................... 29
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT .............................. 30
LEGAL MATTERS ............................................................. 30
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS ......................... 30
FURTHER INFORMATION ....................................................... 31
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION .............. 31
APPENDIX A - MORE INFORMATION ABOUT THE FIXED ACCOUNT ..................... 32
APPENDIX B - EXCHANGE OFFER ............................................... 32
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SPECIAL TERMS
CONTRACT OWNER: the person who may exercise all rights under the Contract,
subject to the consent of any irrevocable beneficiary. "You" in this Prospectus
refers to the Contract Owner. After the Annuity Date, the Annuitant will be the
Contract Owner.
ANNUITANT: the individual (1) to receive annuity payments under your Contract,
(2) on whose life the continuation of annuity payments may depend, and (3) on
whose death prior to the Annuity Date the beneficiary may receive payment.
FUNDS: the following investment portfolios of Allmerica Investment Trust: the
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; the following investment portfolios of
Variable Insurance Products Fund: Growth Portfolio, Equity-Income Portfolio and
High Income Portfolio; and the International Stock Portfolio of T. Rowe Price
International Series, Inc. Allmerica Financial may designate additional
eligible mutual fund investments as Funds.
SEPARATE ACCOUNT: Allmerica Select Separate Account, a separate investment
account of Allmerica Financial.
SUB-ACCOUNT: a subdivision of the Separate Account investing exclusively in the
shares of a given Fund.
GENERAL ACCOUNT: all the assets of Allmerica Financial other than those held in
a separate investment account.
ACCUMULATED VALUE: the total value of your Contract, including your interest in
the Separate Account and in the Fixed Account, before annuity payments begin.
SURRENDER VALUE: the Accumulated Value of the Contract minus the Contract Fee
and any applicable contingent deferred sales charge.
ACCUMULATION UNIT: a measure of your interest in a Sub-Account before annuity
payments begin.
ANNUITY UNIT: a measure of the value of variable annuity payments under the
Contract.
ANNUITY DATE: the date on which annuity payments are to start.
VARIABLE ANNUITY: an annuity providing for payments that vary in amount with
the investment experience of certain Funds.
FIXED ANNUITY: an annuity providing for annuity payments that remain fixed in
amount.
VALUATION DATE: any day on which the net asset value of the shares of any Funds
and Accumulation Unit and Annuity Unit values of any Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no purchase payment, partial withdrawal, or surrender of a Contract
was received) when there is a sufficient degree of trading in a Fund's portfolio
securities such that the current net asset value of the Sub-Accounts may be
materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
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ANNUAL AND TRANSACTION EXPENSES
The following tables show charges under your Contract, expenses of the Sub-
Accounts, and expenses of the Funds. In addition to the charges and expenses
described below, premium taxes are applicable in some states and deducted as
described under "PREMIUM TAXES."
<TABLE>
<CAPTION>
CONTRACT CHARGES YEARS FROM
DATE OF PAYMENT CHARGE
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<S> <C> <C>
-Contingent Deferred Sales Charge:
This charge may be assessed 0-1 6.5%
upon surrender, redemption or, 2 6.0%
in some cases, annuitization 3 5.0%
under a period certain option. 4 4.0%
The charge is a percentage of 5 3.0%
purchase payments applied to 6 2.0%
the amount surrendered (in 7 1.0%
excess of any amount that is
free of charge) within the
indicated time
periods.
- -Transfer Charge:
This charge is currently
imposed for transfers in excess
of twelve transfers in a
Contract year. $25
(Allmerica Financial may limit
the number of free transfers in a
Contract year to six.)
- -Contract Fee:
The Fee is deducted annually and upon
surrender, prior to the annuity date. $30
SUB-ACCOUNT EXPENSES
(on annual basis as percentage of average
daily net assets)
- -Mortality and Expense Risk Charge: 1.25%
- -Administrative Expense Charge: 0.15%
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Total Asset Charge: 1.40%
</TABLE>
FUND EXPENSES
(on annual basis as percentage of
average daily net assets)
<TABLE>
<CAPTION>
FUND MANAGEMENT OTHER FUND TOTAL FUND
FEE EXPENSES EXPENSES
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<S> <C> <C> <C>
Select International Equity Fund................. 1.00% 0.24% 1.24%*
T. Rowe Price International Stock Portfolio...... 1.05% 0.00% 1.05%
Select Aggressive Growth Fund.................... 1.00% 0.09% 1.09%*
Select Capital Appreciation Fund................. 0.93% 0.42% 1.35%*
Select Growth Fund............................... 0.85% 0.12% 0.97%*
Fidelity's Growth Fund........................... 0.61% 0.09% 0.70%+
Select Growth and Income Fund.................... 0.75% 0.10% 0.85%*
Fidelity's Equity-Income Portfolio............... 0.51% 0.10% 0.61%+
Fidelity's High Income Portfolio................. 0.60% 0.11% 0.71%+
Select Income Fund............................... 0.59% 0.20% 0.79%*
Money Market Fund................................ 0.29% 0.07% 0.36%*
</TABLE>
*Under the Management Agreement with Allmerica Investment Trust, Allmerica
Investment Management Company, Inc. ("Manager") has declared a voluntary expense
limitation of 1.50% of average net assets for the Select International Equity
Fund, 1.35% for the Select Aggressive Growth Fund and the Select Capital
Appreciation Fund, 1.20% for the Select Growth Fund, 1.10% for the Select Growth
and Income Fund, 1.00% for the Select Income Fund, and 0.60% for the Money
Market Fund. Without the effect of the expense limitation, in 1995 the total
operation expenses of the Select Capital Appreciation Fund would have been
1.42%.
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+A portion of the brokerage commissions the Portfolio paid was used to reduce
the expenses. Without this reduction, total operating expenses would have been
0.60% for the Equity-Income Portfolio and 0.70% for the Growth Portfolio.
The following examples demonstrate the cumulative expenses which would be paid
by the Contract Owner at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-
Account and a 5% annual return on assets, as required by rules of the Securities
and Exchange Commission. Because the expenses of the Funds differ, separate
examples are used to illustrate the expenses incurred by a Contract Owner on an
investment in the various Sub-Accounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
(a) If, at the end of the applicable period, you surrender your Contract or
annuitize* under a variable period certain option of less than ten years or any
fixed period certain option, you would pay the following expenses on a $1,000
investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
Select International Equity Fund................ $89 $137 $183 $329
T. Rowe Price International Stock Portfolio..... $84 $124 $161 $286
Select Aggressive Growth Fund................... $85 $127 $167 $297
Select Capital Appreciation Fund................ $87 $133 $176 $315
Select Growth Fund.............................. $84 $123 $160 $284
Fidelity's Growth Fund.......................... $81 $113 $144 $250
Select Growth and Income Fund................... $83 $120 $154 $272
Fidelity's Equity-Income Portfolio.............. $80 $110 $138 $239
Fidelity's High Income Portfolio................ $81 $114 $145 $252
Select Income Fund.............................. $82 $117 $151 $265
Money Market Fund............................... $78 $106 $131 $226
</TABLE>
(b) If, at the end of the applicable time period, you annuitize* under a life
option or a variable period certain option of ten years or longer, or if you do
not surrender or annuitize your Contract, you would pay the following expenses
on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Select International Equity Fund................ $30 $92 $157 $329
T. Rowe Price International Stock Portfolio..... $26 $79 $135 $286
Select Aggressive Growth Fund................... $27 $82 $140 $297
Select Capital Appreciation Fund................ $29 $88 $149 $315
Select Growth Fund.............................. $26 $78 $134 $284
Fidelity's Growth Fund.......................... $22 $68 $117 $250
Select Growth and Income Fund................... $24 $75 $128 $272
Fidelity's Equity-Income Portfolio.............. $21 $65 $111 $239
Fidelity's High Income Portfolio................ $22 $69 $118 $252
Select Income Fund.............................. $24 $72 $124 $265
Money Market Fund............................... $20 $61 $105 $226
</TABLE>
- -----------------
As required in rules promulgated under the 1940 Act, the Contract Fee is
reflected in the examples by a method to show the "average" impact on an
investment in the Separate Account. The total Contract Fees collected are
divided by the total average net assets attributable to the Contracts. The
resulting percentage is 0.075%, and the amount of the Contract Fee is assumed to
be $.75 in the examples.
* The Contract Fee is not deducted after annuitization. No contingent
deferred sales charge is assessed at the time of annuitization under an
option including a life contingency or under a variable period certain
option of ten years or longer.
-9-
<PAGE>
CONDENSED FINANCIAL INFORMATION
Allmerica Financial Life Insurance And Annuity Company
Allmerica Select Separate Account
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Select Aggressive Growth
Unit Value:
Beginning of Period 1.354 1,405 1.192
End of Period 1.768 1.354 1.405
Number of Units Outstanding at End of
Period (in thousands) 51,006 36,330 17,538
Select Growth
Unit Value:
Beginning of Period 1.069 1.101 1.104
End of Period 1.315 1.069 1.101
Number of Units Outstanding at End of
Period (in thousands) 53,073 38,752 20,366
Select Growth & Income
Unit Value:
Beginning of Period 1.074 1.082 0.994
End of Period 1.382 1.074 1.082
Number of Units Outstanding at End of
Period (in thousands) 61,942 43,292 20,983
Select Income
Unit Value:
Beginning of Period 1.028 1.095 1.001
End of Period 1.186 1.028 1.095
Number of Units Outstanding at End of
Period (in thousands) 46,845 32,823 18,320
Money Market
Unit Value:
Beginning of Period 1.045 1.019 1.003
End of Period 1.091 1.045 1.019
Number of Units Outstanding at End of
Period (in thousands) 45,589 31,836 19,802
Select International Equity
Unit Value:
Beginning of Period 0.956 1.000 ---
End of Period 1.128 0.956 ---
Number of Units Outstanding at End of
Period (in thousands) 35,558 22,183 ---
</TABLE>
-10-
<PAGE>
RIGHT TO REVOKE CONTRACT
The Contract may be revoked at any time between the date of the application and
the date 10 days (or longer if required under state law) after receipt of the
Contract. In order to revoke the Contract, the Contract Owner must mail or
deliver the Contract (if it has already been received), to the principal office
of Allmerica Financial at 440 Lincoln Street, Worcester, Massachusetts 01653, or
to an Allmerica Financial agent. Mailing or delivery must occur on or before 10
days after receipt of the Contract for revocation to be effective.
If your Contract was issued as an individual retirement annuity or provides for
a full refund of the initial purchase payment under its "Right to Examine"
provision, you will incur no fees to cancel within the right-to-examine period
and will receive the greater of (1) your entire purchase payment, or (2) the
accumulated value of the Contract plus any amounts deducted under the Contract
or by the Funds for taxes, charges or fees. The liability of the Separate
Account under this provision is limited to the Contract Owner's Accumulated
Value in the Separate Account on the date of cancellation. Any additional
amounts refunded to the Contract Owner will be paid by Allmerica Financial.
If your Contract does not provide for a full refund of the initial purchase
payment, you will receive upon cancellation the sum of (1) the difference
between the purchase payment paid, including fees, and any amount allocated to
the Separate Account and (2) the Accumulated Value of the Policy (on the date
the cancellation request is received by the Company) attributable to any amount
allocated to a Sub-Account.
The refund of any purchase payment made by check may be delayed until the check
has cleared the Contract Owner's bank.
DESCRIPTION OF ALLMERICA FINANCIAL, THE SEPARATE ACCOUNT,
THE TRUST, VIP AND T. ROWE PRICE
ALLMERICA FINANCIAL. The Company is a life insurance company organized under the
laws of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, Telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1995, the
Company had over $5 billion in assets and over $18 billion of life insurance in
force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirect wholly-owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995 and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1995 First Allmerica and its subsidiaries
(including the Company) had over $11 billion in combined assets and over
$35.2 billion in life insurance in force.
ALLMERICA SELECT SEPARATE ACCOUNT. Allmerica Select Separate Account ("Separate
Account") is a separate investment account of Allmerica Financial with eleven
Sub-Accounts. The assets used to fund the variable portions of the Contracts
are set aside in Sub-Accounts kept separate from the general assets of Allmerica
Financial. Each Sub-Account is administered and accounted for as part of the
general business of Allmerica Financial. However, the income, capital gains, or
capital losses of each Sub-Account are allocated to each Sub-Account, without
regard to any other income, capital gains, or capital losses of Allmerica
Financial. Under Delaware law, the assets of the Separate Account may not be
charged with any liabilities arising out of any other business of Allmerica
Financial.
The Separate Account was authorized by vote of the Board of Directors of
Allmerica Financial on March 5, 1992. The Separate Account meets the definition
of "separate account" under federal securities laws and is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). This registration does not involve
the supervision of management or investment practices or policies of the
Separate Account or Allmerica Financial by the SEC.
Allmerica Financial reserves the right, subject to compliance with applicable
law, to change the names of the Separate Account and the Sub-Accounts.
-11-
<PAGE>
THE TRUST. The Trust is an open-end, diversified management investment company
registered with the SEC under the 1940 Act. This registration does not involve
supervision by the SEC of the investments or investment policy of the Trust or
its separate investment Funds.
The Trust was established as a Massachusetts business trust on October 11,
1984, for the purpose of providing a vehicle for the investment of assets of
various separate accounts established by Allmerica Financial or other
affiliated insurance companies. Shares of the Trust are not offered to the
general public but solely to such separate accounts. Seven different
investment portfolios of the Trust are available under the Contracts, each
issuing a series of shares: the 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
("Funds"). The assets of each Fund are held separate from the assets of the
other Funds. Each Fund operates as a separate investment vehicle and the
income or losses of one Fund have no effect on the investment performance of
another Fund. Dividends or capital gains distributions received from a Fund
are reinvested in additional shares of that Fund, which are retained as
assets of the corresponding Sub-Account.
Allmerica Investment Management Company, Inc. ("Manager") serves as investment
manager of the Trust. The Manager has entered into sub-advisory agreements with
other investment managers ("Sub-Advisers"), who manage the investments of the
Funds. See "INVESTMENT ADVISORY SERVICES TO THE TRUST."
VIP. VIP, managed by Fidelity Management & Research Company ("Fidelity
Management"), is an open-end, diversified, management investment company
organized as a Massachusetts business trust on November 13, 1981 and registered
with the Commission under the 1940 Act. Three of its investment portfolios are
available under the Contracts: Growth Portfolio, Equity-Income Portfolio and
High Income Portfolio.
T. ROWE PRICE. T. Rowe Price, managed by Rowe Price-Fleming International, Inc.
("Price-Fleming"), is an open-end, diversified, management investment company
organized as a Maryland corporation in 1994 and registered with the Commission
under the 1940 Act. One of its investment portfolios is available under the
Contracts: the International Stock Portfolio.
INVESTMENT OBJECTIVES AND POLICIES. A summary of investment objectives of each
of the Funds is set forth below. MORE DETAILED INFORMATION REGARDING THE
INVESTMENT OBJECTIVES, RESTRICTIONS AND RISKS, EXPENSES PAID BY THE FUNDS, AND
OTHER RELEVANT INFORMATION REGARDING THE FUNDS MAY BE FOUND IN THE PROSPECTUSES
OF THE TRUST, VIP AND T. ROWE PRICE WHICH ACCOMPANY THIS PROSPECTUS AND SHOULD
BE READ CAREFULLY BEFORE INVESTING. Also, the Statements of Additional
Information of the Funds are available upon request. There can be no assurance
that the investment objectives of the Funds can be achieved or that the value of
a Contract will equal or exceed the aggregate amount of the purchase payments
made under the Contract.
SELECT INTERNATIONAL EQUITY FUND seeks maximum long-term total return (capital
appreciation and income). The Fund will invest primarily in common stocks of
established non-U.S. companies. The Sub-Adviser for the Select International
Equity Fund is Bank of Ireland Asset Management Limited.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies.
SELECT AGGRESSIVE GROWTH FUND seeks above-average capital appreciation by
investing primarily in common stocks of companies which are believed to have
significant potential for capital appreciation. The Sub-Adviser for the Select
Aggressive Growth Fund is Nicholas-Applegate Capital Management.
SELECT CAPITAL APPRECIATION FUND seeks long-term growth of capital in a manner
consistent with the preservation of capital. Realization of income is not a
significant investment consideration and any income realized on the Fund's
investments will be incidental to its primary objective. The Fund will invest
primarily in common stock of industries and companies which are experiencing
favorable demand for their products and services, and which operate in a
favorable competitive environment and regulatory climate. The Sub-Adviser for
the Select Capital Appreciation Fund is Janus Capital Corporation.
SELECT GROWTH FUND seeks to achieve growth of capital by investing in a
diversified portfolio consisting primarily of common stocks selected on the
basis of their long-term growth potential. The Sub-Adviser for the Select
Growth Fund is United Asset Management Corporation.
FIDELITY'S GROWTH PORTFOLIO seeks to achieve capital appreciation. The
Portfolio normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
SELECT GROWTH AND INCOME FUND seeks a combination of long-term growth of capital
and current income. The Fund will invest primarily in dividend-paying common
stocks and securities convertible into common stocks. The Sub-Adviser for the
Select Growth and Income Fund is John A. Levin & Co., Inc.
-12-
<PAGE>
FIDELITY'S EQUITY-INCOME PORTFOLIO seeks reasonable income by investing
primarily in income-producing equity securities. In choosing these securities,
the Portfolio will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield on the
securities comprising the Standard & Poor's 500 Composite Stock Price Index. The
Portfolio may invest in high yielding, lower-rated securities (commonly referred
to as "junk bonds") which are subject to greater risk than investments in
higher-rated securities. For a further discussion of lower-rated securities,
please see "Risks of Lower-Rated Debt Securities" in the VIP prospectus.
FIDELITY'S HIGH INCOME PORTFOLIO seeks to obtain a high level of current income
by investing primarily in high-yielding, lower-rated fixed-income securities
(commonly referred to as "junk bonds"), while also considering growth of
capital. These securities are often considered to be speculative and involve
greater risk of default or price changes than securities assigned a high quality
rating. For more information about these lower-rated securities, see "Risks of
Lower-Rated Debt Securities" in the VIP prospectus.
SELECT INCOME FUND seeks a high level of current income. The Fund will invest
primarily in investment grade, fixed-income securities. The Sub-Adviser for the
Select Income Fund is Standish, Ayer & Wood, Inc.
MONEY MARKET FUND seeks to obtain maximum current income consistent with the
preservation of capital and liquidity. Allmerica Asset Management, Inc. is the
Sub-Adviser of the Money Market Fund.
If there is a material change in the investment policy of a Fund, the Contract
Owner will be notified of the change. If the Contract Owner has Accumulated
Value allocated to that Fund, he or she may have the Accumulated Value
reallocated without charge to another Fund or to the Fixed Account, where
available, on written request received by Allmerica Financial within sixty (60)
days of the later of (1) the effective date of such change in the investment
policy or (2) the receipt of the notice of the Contract Owner's right to
transfer.
INVESTMENT ADVISORY SERVICES TO THE TRUST. The overall responsibility for the
supervision of the affairs of the Trust vests in the Trustees. The Trust has
entered into a Management Agreement with Allmerica Investment Management
Company, Inc. ("Manager"), an indirectly wholly-owned subsidiary of First
Allmerica, to handle the day-to-day affairs of the Trust. The Manager, subject
to review by the Trustees, is responsible for the general management of the
Funds. The Manager is also obligated to perform certain administrative and
management services for the Trust, furnishes to the Trust all necessary office
space, facilities and equipment, and pays the compensation, if any, of officers
and Trustees who are affiliated with the Manager.
Other than the expenses specifically assumed by the Manager under the Management
Agreement, all expenses incurred in the operation of the Trust are borne by it,
including fees and expenses associated with the registration and qualification
of the Trust's shares under the Securities Act of 1933, other fees payable to
the SEC, independent public accountant, legal and custodian fees, association
membership dues, taxes, interest, insurance premiums, brokerage commission, fees
and expenses of the Trustees who are not affiliated with the Manager, expenses
for proxies, prospectuses, reports to shareholders and other expenses.
Pursuant to the Management Agreement with the Trust, the Manager has entered
into agreements ("Sub-Adviser Agreements") with other investment advisers ("Sub-
Advisers") under which each Sub-Adviser manages the investments of one or more
of the Funds. Under the Sub-Adviser Agreement, the Sub-Adviser is authorized to
engage in portfolio transactions on behalf of the applicable Fund, subject to
such general or specific instructions as may be given by the Trustees. The
terms of a Sub-Adviser Agreement cannot be materially changed without the
approval of a majority in interest of the shareholders of the affected Fund.
Allmerica Asset Management, Inc., an indirect wholly-owned subsidiary of First
Allmerica, is the Sub-Adviser for the Money Market Fund. For the Select
International Equity Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Growth Fund, Select Growth and Income Fund, and Select
Income Fund, the Sub-Advisers are independent and have been selected by the
Manager in consultation with Rogers, Casey & Associates, a leading pension
consulting firm. The cost of such consultation is borne by the Manager. Rogers,
Casey & Associates provides consulting services to pension plans representing
over $300 billion in total assets and, in its consulting capacity, monitors the
investment performance of over 1,000 investment advisers. Each independent Sub-
Adviser was selected by the Manager on the basis of strict objective and
qualitative criteria, with special emphasis on the Sub-Adviser's record in
managing similar portfolios. On-going performance of the independent Sub-
Advisers is monitored and evaluated by a committee which includes members who
may be affiliated or unaffiliated with Allmerica Financial.
For providing its services under the Management Agreement, the Manager will
receive a fee, computed daily at an annual rate based on the average daily net
asset value of each Fund as follows: 1.00% for the Select International Equity
Fund and Select Aggressive Growth Fund, 0.85% for the Select Growth Fund, 0.75%
for the Select Growth and Income Fund, and 0.60% for the Select Income Fund. For
the Money Market Fund, the fee will be 0.35% on net asset value up to
$50,000,000; 0.25% on the next $200,000,000; and 0.20% on the remainder. The
fee computed for each Fund will be paid from the assets of such Fund.
-13-
<PAGE>
The Manager is solely responsible for the payment of all fees for investment
management services to the Sub-Advisers, who will receive from the Manager a
fee, computed daily at an annual rate based on the average daily net asset value
of each Fund as follows:
<TABLE>
<CAPTION>
Sub-Adviser Fund Net Asset Value Rate
----------- ---- --------------- ----
<S> <C> <C> <C>
Bank of Ireland Asset Management Limited Select Int'l. Equity First $50 million 0.45%
Next $50 million 0.40%
Over $100 million 0.30%
Janus Capital Corporation Select Capital Appreciation First $100 million 0.60%
Over $100 million 0.55%
Nicholas-Applegate Capital Management Select Aggressive Growth * 0.60%
United Asset Management Corporation Select Growth First $50 million 0.50%
$50-150 million 0.45%
$150-250 million 0.35%
$250-350 million 0.30%
Over $350 million 0.25%
John A. Levin & Co., Inc. Select Growth and Income First $100 million 0.40%
Next $200 million 0.25%
Over $300 million 0.30%
Standish, Ayer & Wood, Inc. Select Income * 0.20%
Allmerica Asset Management, Inc. Money Market * 0.10%
</TABLE>
* For the Select Aggressive Growth Fund, Select Income Fund and Money Market
Fund, each rate does not vary according to the level of assets in the Fund.
INVESTMENT ADVISORY SERVICES TO VIP: For managing investments and business
affairs, each Portfolio pays a monthly fee to Fidelity Management. The
Prospectus of VIP contains additional information concerning the Portfolios,
including information concerning additional expenses paid by the Portfolios, and
should be read in conjunction with this Prospectus.
The High Income Portfolio pays a monthly fee to Fidelity Management at an annual
fee rate made up of the sum of two components:
1. A group fee rate based on the monthly average net assets of all the mutual
funds advised by Fidelity Management. On an annual basis this rate cannot
rise above 0.37%, and drops as total assets in all these funds rise.
2. An individual fund fee rate of 0.45% of the High Income Portfolio's average
net assets throughout the month. One-twelfth of the annual management fee
rate is applied to net assets averaged over the most recent month,
resulting in a dollar amount which is the management fee for that month.
The Growth and Equity-Income Portfolios' fee rates are each made of two
components:
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by Fidelity Management. On an annual basis, this rate
cannot rise above 0.52%, and drops as total assets in all these mutual
funds rise.
2. An individual Portfolio fee rate of 0.30% for the Growth Portfolio and
0.20% for the Equity-Income Portfolio.
One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
Thus, the High Income Portfolio may have a fee as high as 0.82%. The Growth
Portfolio may have a fee of as high as 0.82% of its average net assets. The
Equity-Income Portfolio may have a fee as high as 0.72% of its average net
assets.
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE. To cover investment management
and operating expenses, the T. Rowe Price International Stock Portfolio pays
Price-Fleming a single, all-inclusive fee of 1.05% of its average daily net
assets.
-14-
<PAGE>
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the Sub-
Accounts are described below. Other deductions and expenses paid out of the
assets of the Funds are described in the Prospectuses and Statements of
Additional Information of the Trust, VIP and T. Rowe Price.
CONTINGENT DEFERRED SALES CHARGE. No charge for sales expenses is deducted from
purchase payments at the time the purchase payments are made. For surrenders,
partial redemptions, variable annuity payments under Option V for periods of
less than ten years or any fixed period certain option, a contingent deferred
sales charge may be deducted from the Accumulated Value of the Contract.
However, the charge does not apply to (1) purchase payments redeemed more than
seven years from the date of receipt, (2) annuitization under an option
involving a life contingency (Options I, II, III, IV-A, IV-B or the comparable
fixed annuity options) or under Option V for periods of ten years or more, or
(3) amounts discussed under "Free Withdrawal Amounts," below.
For purposes of determining the contingent deferred sales charge, the Contract
value is divided into three categories: (1) New Purchase Payments - purchase
payments received by Allmerica Financial during the seven years preceding the
date of the surrender; (2) Old Purchase Payments - purchase payments not defined
as New Purchase Payments; and (3) Earnings - the amount of Contract value in
excess of all purchase payments that have not been previously surrendered. For
purposes of determining the amount of any contingent deferred sales charge,
surrenders will be deemed to be taken first from Old Purchase Payments, then
from New Purchase Payments, and then from Earnings. Old Purchase Payments may
be withdrawn from the Contract at any time without the imposition of a
contingent deferred sales charge. If a withdrawal is attributable all or in
part to New Purchase Payments, a contingent deferred sales charge may apply.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charge is modified to effect an exchange of one Contract for
another Contract as provided in APPENDIX B, "EXCHANGE OFFER."
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Contract is surrendered, or
if New Purchase Payments are redeemed, while the Contract is in force and before
the Annuity Date, a contingent deferred sales charge may be imposed. (For a
discussion of charges applicable on the Annuity Date, see "Charge at the Time
Annuity Payments Begin," below.) The charge does not apply to Old Purchase
Payments, nor to certain amounts discussed under "Free Withdrawal Amounts,"
below. The amount of the charge will depend upon the number of years that the
New Purchase Payments, if any, to which the withdrawal is attributed have
remained credited under the Contract. Amounts withdrawn are deducted first from
Old Purchase Payments. Then, for the purpose of calculating surrender charges
for New Purchase Payments, all amounts withdrawn are assumed to be deducted
first from the earliest New Purchase Payment and then from the next earliest New
Purchase Payment and so on, until all New Purchase Payments have been exhausted
pursuant to the FIFO (first in, first out) method of accounting. (In New Jersey,
the 10% Free Withdrawal Amount described below is deducted first from New
Purchase Payments on a LIFO basis.) Subsequent withdrawals will be deducted from
Earnings. (But see "TAXATION OF THE CONTRACTS IN GENERAL" for a discussion of
how withdrawals are treated for income tax purposes. For tax purposes, certain
partial redemptions will be deemed to come first from earnings.)
The contingent deferred sales charge is applied as follows:
-15-
<PAGE>
Years from date of Charge as Percentage
Purchase Payment to date of of New Purchase
Withdrawal Payments 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 0.0%
The amount redeemed equals the amount requested by the Contract Owner plus the
charge, if any, which is applied against the amount requested. For example, if
the applicable charge is 6.5% and the Contract Owner has requested $200, the
Contract Owner will receive $200 and the charge will be $13 (assuming no Free
Withdrawal Amount, discussed below) for a total withdrawal of $213. The charge
is applied as a percentage of the New Purchase Payments redeemed, but in no
event will the total contingent deferred sales charge exceed a maximum limit of
6.5% of total gross New Purchase Payments. Such total charge equals the
aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
FREE WITHDRAWAL AMOUNTS. In each calendar year, Allmerica Financial will waive
the contingent deferred sales charge, if any, on an amount equal to a percentage
of the Accumulated Value ("Free Withdrawal Amount"). If the Contract Owner and
Annuitant are different individuals, the Free Withdrawal Amount is equal to 10%
of the Accumulated Value as of December 31 of the previous calendar year ("Year-
End Accumulated Value") or, if the Contract is in its first calendar year, 10%
of the total gross payments. If the Contract Owner and Annuitant are the same
individual, the Free Withdrawal Amount will be greater of (1) the amount
calculated above, or (2) the amount calculated under Allmerica Financial's life
expectancy distribution (see "LIFE EXPECTANCY DISTRIBUTION"), whether or not the
withdrawal was part of such distribution.
For example, an 81-year-old Contract Owner who is also the Annuitant would
receive 10.2% of the Year-End Accumulated Value under the life expectancy
distribution. The Free Withdrawal Amount in that year would be 10.2%, rather
than 10%, of the Year-End Accumulated Value.
Old Purchase Payments will be included in calculating the Free Withdrawal
Amount. If more than one partial withdrawal is made during the year, on each
subsequent withdrawal Allmerica Financial will waive the contingent deferred
sales charge, if any, until the entire Free Withdrawal Amount has been redeemed.
In the event that a redemption of New Purchase Payments is made in excess of the
amount which may be redeemed free of charge, only the excess will be subject to
a contingent deferred sales charge.
SURRENDERS. In the case of a complete surrender, the amount received by the
Contract Owner is equal to the entire Accumulated Value under the Contract, net
of the applicable contingent deferred sales charge on New Purchase Payments, the
Contract Fee, any tax withholding, and any premium tax deducted as described
under "PREMIUM TAXES." Subject to the same rules that are applicable to partial
redemptions, Allmerica Financial will not assess a contingent deferred sales
charge on a Free Withdrawal Amount.
Where a Contract Owner who is trustee under a pension plan surrenders, in whole
or in part, a Contract on a terminating employee, the trustee will be permitted
to reallocate all or a part of the total Accumulated Value under the Contract to
other contracts issued by Allmerica Financial and owned by the trustee, with no
deduction for any otherwise applicable contingent deferred sales charge. Any
such reallocation will be at the unit values for the Sub-Accounts as of the
Valuation Date on which a written, signed request is received at the Principal
Office.
For further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining under the Contract in the case of
partial redemption, and important tax considerations, see "SURRENDER," "PARTIAL
REDEMPTION," and FEDERAL TAX CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY PAYMENTS BEGIN. No contingent deferred sales charge
is imposed at the time of annuitization under any option involving a life
contingency (Options I, II, III, IV-A, IV-B or the comparable fixed annuity
options) or under a variable period certain option (Option V) involving a period
of ten years or longer. If the annuity option chosen is Option V for a period
of less than ten years or any fixed period option, a contingent deferred sales
charge will be deducted from the Accumulated Value of the Contract if the
Annuity Date occurs at any time during the surrender charge period. Such charge
is the same as that which would apply had the Contract been surrendered on the
Annuity Date.
-16-
<PAGE>
CHARGE FOR COMMUTATION UNDER VARIABLE ANNUITY OPTION V. If the Annuitant elects
to receive the commuted value of a period certain variable annuity (Option V),
see "DESCRIPTION OF VARIABLE ANNUITY OPTIONS," the basis for calculating the
commuted value will assume that the Surrender Value, rather than the Accumulated
Value, had applied at the Annuity Date. The method of computation of the
commuted value is shown under "Annuity Payments" in the Statement of Additional
Information.
CONTRACT FEE. A Contract Fee will be deducted annually on the Contract
anniversary date and upon full surrender of the Contract. The Contract Fee is
$30. Allmerica Financial reserves the right to waive the Contract Fee for
Contracts issued to a trustee of a 401(k) plan or qualifying under Section
403(b) of the Internal Revenue Code.
Where Contract value has been allocated to more than one Sub-Account or to the
Fixed Account and one or more Sub-Accounts, a percentage of the total Contract
Fee will be deducted from the Contract value in each account. The portion of
the charge deducted from each account will be equal to the percentage which the
Contract value in that account represents of the total Accumulated Value under
the Contract. The deduction of the Contract Fee will result in cancellation of
a number of Accumulation Units equal in value to the percentage of the charge
deducted from that account.
ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS. The following annual charges
are deducted against the assets of the Separate Account:
MORTALITY AND EXPENSE RISK CHARGE. Allmerica Financial assesses each Sub-
Account a daily charge, based on the average daily net assets of the Sub-
Account, of 1.25% on an annual basis. This charge covers the mortality and
expense risk which Allmerica Financial assumes for the variable interests in the
Contracts. The mortality risk arises from the Contract's guarantees respecting
payment on death and Allmerica Financial's guarantee that it will make annuity
payments according to annuity rate provisions established at the time the
Contract is issued for the life of the Annuitant (or in accordance with the
annuity option selected), no matter how long the Annuitant lives and no
matter how long all annuitants as a class live. The expense risk arises
from Allmerica Financial's guarantee that charges will not be increased beyond
the limits specified in the contract, regardless of actual costs of operations.
The charge is imposed during both the accumulation phase and the annuity phase
(if a variable annuity option has been selected). The mortality charge is
deducted for variable annuity options that do not involve a life contingency,
even though Allmerica Financial does not bear direct mortality risk for such
annuity options.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, Allmerica Financial will absorb the losses.
If expenses are less than the amounts provided to Allmerica Financial by the
charge, the difference will be a profit to Allmerica Financial. To the extent
this charge results in a profit to Allmerica Financial, such profit will be
available for use by Allmerica Financial for, among other things, the payment of
distribution, sales and other expenses.
ADMINISTRATIVE EXPENSE CHARGE. Allmerica Financial assesses each Sub-Account a
daily charge, based on the average daily net assets of the Sub-Account, of 0.15%
on an annual basis. The charge is imposed during both the accumulation period
and the annuity period (if a variable annuity option is selected). The
Administrative Expense Charge reimburses Allmerica Financial for expenses
incurred in the administration of the Sub-Accounts. Both the Contract Fee and
the Administrative Expense Charge are designed to recover actual administrative
costs.
The administrative functions and expense assumed by Allmerica Financial in
connection with the Separate Account and the Contracts include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
TRANSFER CHARGE. Currently, the first twelve transfers in a Contract year will
be free of charge. For the thirteenth and each subsequent transfer in a
Contract year, Allmerica Financial will impose a charge of $25 to reimburse
Allmerica Financial for the costs of processing the transfer. Allmerica
Financial reserves the right to limit the number of free transfers and the
number of total transfers in a Contract year to six.
PREMIUM TAXES. Some states and municipalities impose a premium tax on variable
annuity policies. State premium taxes currently range up to 3.5%. Allmerica
Financial pays state and municipal premium taxes, when applicable, and deducts
the amount paid as a premium tax charge. The current practice of Allmerica
Financial is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by Allmerica Financial when purchase payments
were received, to the extent permitted in your Contract the premium tax
charge is deducted on a pro rata basis when partial withdrawals are made,
upon surrender of the Contract, or when annuity payments begin (Allmerica
Financial reserves the right instead to deduct the premium tax charge for
these Contracts at the time the purchase payments are received); or
(2) the premium tax charge is deducted when annuity payments begin.
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OTHER CHARGES. Because the Sub-Accounts purchase shares of the Funds, the value
of the net assets of the Sub-Accounts will reflect the investment advisory fee
and other operating expenses incurred by the Funds. The Prospectuses and
Statements of Additional Information of the Trust, VIP andT.Rowe Price contain
additional information concerning expenses of the Funds.
DESCRIPTION OF THE CONTRACT
The Contracts are designed for sale to individuals and for use with several
types of retirement plans. The right to benefits in Contracts issued under
retirement plans may be subject to the terms and conditions of the plans,
regardless of the terms and conditions of the Contracts.
PURCHASE PAYMENTS. Your initial purchase payment will be credited to the
Contract as of the date that the properly completed application which
accompanies the purchase payment is received by Allmerica Financial at its
Principal Office. If an application is incomplete, the initial purchase payment
will be returned within five business days, unless the Contract Owner consents
to Allmerica Financial's retention of the purchase payment until the application
is made complete. After a Contract is issued, Accumulation Units will be
credited to the Contract at the unit value computed as of the Valuation Date
that a purchase payment is received at the Principal Office.
Purchase payments are not limited as to frequency and number. The initial
purchase payment must be at least $10,000 or such smaller amount as meets
Allmerica Financial's then current minimum requirements. Subsequent purchase
payments must be at least $50.
Under a monthly automatic payment plan or a payroll deduction plan, the initial
purchase payment must be at least $500 and subsequent purchase payments must be
at least $50.
Under employer-sponsored retirement plans, Allmerica Financial may issue a
Contract on an employee-participant with a minimum annual contribution of $300,
if the plan's average annual contribution per eligible plan participant is at
least $1,000.
Allmerica Financial reserves the right to set maximum limits on the aggregate
purchase payments made under the Contract. Total purchase payments may not
exceed the maximum limit specified in the Contract. In addition, the Internal
Revenue Code ("Code") imposes maximum limits on contributions under qualified
annuity plans.
Purchase payments will be allocated among the Sub-Accounts and the Fixed
Account, where available, according to the Contract Owner's instructions.
However, if your Contract was issued as an individual retirement annuity or
provides for a full refund of the initial purchase payment under its "Right to
Examine" provision (see "RIGHT TO REVOKE CONTRACT"), for the first 14 days
following the date of issue, all Fund investments will be allocated to the Money
Market Fund. Thereafter, all amounts will be allocated according to your
investment choices.
The amount of any purchase payment allocated to the Fixed Account must be at
least $500. Amounts less than $500 will be applied instead to the Money Market
Sub-Account. Purchase payments less than $50 that are allocable to any Sub-
Account may be applied instead to another Sub-Account according to Allmerica
Financial's rules and procedures.
The Contract Owner may change allocation instructions for purchase payments or
transfers, as discussed below, by telephone or written notice to Allmerica
Financial at its Principal Office. The privilege to initiate transactions by
telephone is made available to Contract Owners automatically unless they elect
not to have the privilege by checking a box on the application. The policy of
Allmerica Financial and its agents and affiliates is that they will not be
responsible for losses resulting from acting upon telephone requests reasonably
believed to be genuine. Allmerica Financial will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine; otherwise,
Allmerica Financial may be liable for any losses due to unauthorized or
fraudulent instructions. The procedures Allmerica Financial follows for
transactions initiated by telephone include requirements that callers on behalf
of a Contract Owner identify themselves by name and identify the Annuitant by
name, date of birth and social security number. All transfer instructions by
telephone are tape recorded.
TRANSFER PRIVILEGE. Subject to Allmerica Financial's then current rules, a
Contract Owner may have amounts transferred among the Sub-Accounts or between a
Sub-Account and the Fixed Account, where available. Currently, the first twelve
transfers in a Contract year are free of any charge. For the thirteenth and
each subsequent transfer in a Contract year, Allmerica Financial will impose a
charge of $25 to reimburse it for the expense of processing transfers. Allmerica
Financial reserves the right to limit to six the number of permitted transfers
or free transfers in any Contract year and to establish other reasonable
transfer limitation rules. In determining the number of permitted or free
transfers, Allmerica Financial will count the transfer of amounts from any
number of Sub-Accounts or the Fixed Account to any number of other Sub-Accounts
or the Fixed Account in the same day as only one transfer. Any transfer from
the Money Market Sub-Account to any other Sub-Account will not be deemed a
transfer.
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The transfer privilege is subject to the following current limitations:
(1) Transfers from a Sub-Account
(a)must involve a minimum of $500 (except for systematic transfers, discussed
below), or the entire amount in the Sub-Account, if less,
(b)must not reduce the value of the Sub-Account from which the transfer is to be
made to less than $500 (in any request where the remaining value would be less
than $500, Allmerica Financial reserves the right to include such remaining
value in the amount transferred), and
(c)after the Annuity Date, may be made only among the Select Growth and Income
Sub-Account, Select Income Sub-Account, and Money Market Sub-Account.
(2) Transfers from the Fixed Account
(a)may not be made prior to the maturity date applicable to such amount (the
"maturity date" is the end of a guaranteed period as described in APPENDIX A,
"MORE INFORMATION ABOUT THE FIXED ACCOUNT"),
(b)may not be made after the Annuity Date,
(c)must leave a balance with respect to the amount subject to maturity of at
least $500, unless the entire amount is transferred.
A transfer to the Fixed Account must involve an amount of at least $500. Any
amount less than $500 will be transferred instead to the Money Market Sub-
Account.
Transfers from a Sub-Account are effected at the value next computed after
receipt of the transfer order. Transfers from the Fixed Account to a Sub-
Account are effected at the value next computed after the maturity date. For
any period between the maturity date and the next Valuation Date for the Sub-
Account, the amount to be transferred will remain in the Fixed Account at the
then current rate.
Subject to Allmerica Financial's then-current rules, the Contract Owner may
apply for systematic transfers (1) from the Money Market Sub-Account to one or
more of the other Sub-Accounts on a monthly, quarterly or semiannual schedule,
or (2) to reallocate Contract value among the Sub-Accounts on a quarterly,
semiannual or annual schedule. Each systematic transfer must be at least $100.
SURRENDER. At any time prior to the Annuity Date, a Contract Owner may
surrender the Contract and receive its Surrender Value, less any applicable tax
withholding or premium tax deduction described under "PREMIUM TAXES." The
Contract Owner must return the Contract and a signed, written request for
surrender, satisfactory to Allmerica Financial, to the Principal Office. The
Surrender Value will be based on the Accumulated Value of the Contract as of the
Valuation Date on which the request and the Contract are received at the
Principal Office.
A contingent deferred sales charge may be deducted when a Contract is
surrendered if purchase payments have been credited to the Contract during the
last seven full Contract years. See "CHARGES AND DEDUCTIONS." The Contract Fee
will be deducted upon surrender of the Contract.
Any amount surrendered is normally payable within seven days following Allmerica
Financial's receipt of the surrender request. Allmerica Financial reserves the
right to defer surrenders and partial redemptions of amounts in each Sub-Account
in any period during which (1) trading on the New York Stock Exchange is
restricted as determined by the SEC or such Exchange is closed for other than
weekends and holidays, (2) the SEC has by order permitted such suspension, or
(3) an emergency, as determined by or in accordance with rules of the SEC,
exists such that disposal of portfolio securities or valuation of the assets of
the Separate Account is not reasonably practicable.
The right is reserved by Allmerica Financial to defer surrenders and partial
redemptions of amounts allocated to the Fixed Account for a period not to exceed
six months.
The surrender rights of Contract Owners who are participants under Section
403(b) plans or the Texas Optional Retirement Program ("Texas ORP") are
restricted. See "PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS"
and "TEXAS OPTIONAL RETIREMENT PROGRAM."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
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PARTIAL REDEMPTION. At any time prior to the Annuity Date, a Contract Owner may
redeem a portion of the Accumulated Value of his or her Contract, subject to the
limits stated below. The Contract Owner must file a signed, written request for
redemption, satisfactory to Allmerica Financial, at the Principal Office. The
written request must indicate the dollar amount the Contract Owner wishes to
receive and the Sub-Account from which such amount is to be redeemed. Where
allocations have been made to more than one Sub-Account, a percentage of the
partial redemption may be allocated to each such account. Amounts must first be
withdrawn from all allocations to Sub-Accounts before amounts allocated to the
Fixed Account may be withdrawn.
In a partial redemption, the amount redeemed equals the amount requested by the
Contract Owner plus any applicable contingent deferred sales charge, as
described under "CHARGES AND DEDUCTIONS." A partial redemption from a Sub-
Account will result in cancellation of a number of units equivalent in value to
the amount redeemed, computed as of the Valuation Date that the request is
received at the Principal Office.
Each partial redemption must be in a minimum amount of $100. No partial
redemption will be permitted if the Accumulated Value remaining under the
Contract would be reduced to less than $1,000. Partial redemptions will be paid
in accordance with the time limitations described under "SURRENDER."
For important restrictions on withdrawals which are applicable to participants
under Section 403(b) plans or the Texas ORP, see "PUBLIC SCHOOL SYSTEMS AND
CERTAIN TAX-EXEMPT ORGANIZATIONS" and "TEXAS OPTIONAL RETIREMENT PROGRAM."
For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
LIFE EXPECTANCY DISTRIBUTION. A Contract Owner who is also the Annuitant may
make a revocable election to take a series of systematic withdrawals from the
Contract according to a life expectancy distribution ("LED") by returning a
signed LED request form to the Principal Office. (For information on how the
Free Withdrawal Amount is calculated under the LED, see "Free Withdrawal
Amounts" under "CONTINGENT DEFERRED SALES CHARGE") The LED permits the Contract
Owner to make systematic withdrawals from the Contract over his or her lifetime.
The amount withdrawn from the Contract changes each year because life expectancy
changes each year that a person lives. For example, actuarial tables indicate
that a person age 70 has a life expectancy of 16 years, but a person who attains
age 86 has a life expectancy of another 6.5 years.
If a Contract Owner elects the LED, a fraction of the Year-End Accumulated Value
is withdrawn from the Contract in each Contract year based on the Contract
Owner's then life expectancy. The numerator of the fraction is 1 (one) and the
denominator of the fraction is the remaining life expectancy of the Contract
Owner, as determined annually by Allmerica Financial. The resulting fraction,
expressed as a percentage, is applied to the Year-End Accumulated Value to
determine the amount to be distributed during the year. The Contract Owner may
elect monthly, bimonthly, quarterly, semiannual or annual distributions, and may
terminate the LED at any time. The Contract Owner may also elect to receive
distributions under an LED which is determined on the joint life expectancy of
the Contract Owner and a beneficiary. Allmerica Financial may also offer other
systematic withdrawal options.
If a Contract Owner makes withdrawals under the LED prior to age 59 1/2, the
withdrawals may be treated by the IRS as premature distributions from the
Contract. The payments would then be taxed on an "income first" basis, and be
subject to a 10% federal tax penalty. See "TAXATION OF THE CONTRACTS IN
GENERAL."
PAYMENT ON DEATH. If the Annuitant dies (or the Contract Owner predeceases the
Annuitant) prior to the Annuity Date while the Contract is in force, Allmerica
Financial will pay the beneficiary, except where the Contract continues as
provided in "THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY," as follows:
Upon death of the Annuitant (including a Contract Owner who is also the
Annuitant), Allmerica Financial will pay the beneficiary the greatest of (a) the
Accumulated Value under the Contract next determined following receipt of due
proof of death at the Principal Office, (b) the total amount of gross purchase
payments made under the Contract minus the amounts of all prior partial
withdrawals, or (c) the amount that would have been paid on death of the
Annuitant at the most recent fifth year contract anniversary, adjusted for
subsequent purchase payments and withdrawals after that date. Upon death of a
Contract Owner who is not the Annuitant, Allmerica Financial will pay the
beneficiary the Accumulated Value of the Contract next determined following
receipt of due proof of death at the Principal Office.
Payment will be made to the beneficiary in one sum, except that the beneficiary
may, by written request, elect one of the following options:
1.The payment of the one sum may be delayed for a period not to exceed five
years from the date of death.
2.The payment may be made in installments. The first installment must
begin within one year from the date of death. Installments are payable over a
period certain not extended beyond the life expectancy of the beneficiary.
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3.All or a portion of the payment may be used to provide a life annuity for
the beneficiary. Annuity payments must begin within one year from the date of
death and are payable over a period not extended beyond the life expectancy of
the beneficiary. Any annuity payments will be provided in accordance with the
annuity options of the Contract.
If there is more than one beneficiary, the payment on death will be paid to such
beneficiaries in one sum unless Allmerica Financial consents to pay an annuity
option chosen by the beneficiaries.
With respect to any payment on death, the Accumulated Value under the Contract
shall be based on the unit values next computed after due proof of death has
been received at the Principal Office. If the beneficiary elects to receive the
payment in one sum, the payment will be paid within seven business days. If the
beneficiary has not elected an annuity option within one year from the date
notice of death is received by Allmerica Financial, the payment will be made in
one sum. The payment will reflect any earnings or losses experienced during the
period and any withdrawals.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed annuity payments, any unpaid amounts or
installments will be paid to the beneficiary. Allmerica Financial must pay the
remaining payments at least as rapidly as under the payment option in effect on
the date of the Annuitant's death. If there is more than one beneficiary, the
commuted value of the payments, computed on the basis of the assumed interest
rate incorporated in the annuity option table on which such payments are based,
shall be paid to the beneficiaries in one sum.
THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY. The Contract Owner's spouse,
if named as the beneficiary, may by written request continue the Contract in
lieu of receiving the amount payable upon death of the Contract Owner. Upon
such election, the spouse will become the new Contract Owner (and, if the
deceased Owner was also the Annuitant, the new Annuitant). All other rights and
benefits provided in the Contract will continue, except that any subsequent
spouse of such new Contract Owner will not be entitled to continue the Contract
upon such new Contract Owner's death.
ASSIGNMENT. The Contracts, other than those sold in connection with certain
qualified plans (see "FEDERAL TAX CONSIDERATIONS"), may be assigned by the
Contract Owner at any time prior to the Annuity Date and while the Annuitant is
alive. Allmerica Financial will not be deemed to have knowledge of an
assignment unless it is made in writing and filed at the Principal Office.
Allmerica Financial will not assume responsibility for determining the validity
of any assignment. If an assignment of the Contract is in effect on the Annuity
Date, Allmerica Financial reserves the right to pay to the assignee, in one sum,
that portion of the Surrender Value of the Contract to which the assignee
appears to be entitled. Allmerica Financial will pay the balance, if any, in
one sum to the Contract Owner in full settlement of all liability under the
Contract. The interest of the Contract Owner and of any beneficiary will be
subject to any assignment.
ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE. Subject to certain
restrictions described below, the Contract Owner has the right to (1) select the
annuity option under which annuity payments are to be made, and (2) determine
whether payments are to be made on a fixed basis, a variable basis, or a
combination fixed and variable basis, and (3) reallocate variable annuity option
investments among the available Funds, subject to certain restrictions.
Annuity payments are determined according to the annuity tables in the Contract,
by the annuity option selected, and by the investment performance of the
applicable Sub-Accounts, if variable annuity payments are selected.
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Sub-Account(s) is made each month. Since the value of an
Annuity Unit in a Sub-Account will reflect the investment performance of the
Sub-Account, the amount of each payment will vary.
If a fixed annuity is selected, Accumulated Value will be transferred to the
General Account of Allmerica Financial, and annuity payments will be fixed in
amount. For information about the General Account, see APPENDIX A, "MORE
INFORMATION ABOUT THE FIXED ACCOUNT."
The annuity option selected must produce an initial payment at least equivalent
to $50 a month. If a combination of fixed and variable payments is selected,
the initial payment on each basis must be at least equivalent to $50 a month.
Allmerica Financial reserves the right to increase these initial minimum amounts
to an amount no higher than the equivalent of $500 a month. If the annuity
option selected does not produce initial payments which meet this minimum,
Allmerica Financial will pay the Surrender Value or guaranteed payment on death,
as the case may be, in one sum. Once Allmerica Financial begins making annuity
payments, the Contract Owner cannot make partial redemptions or surrender the
annuity benefit. Only beneficiaries entitled to receive remaining payments for
a "period certain" may elect to instead receive a lump sum settlement.
The Annuity Date is selected by the Contract Owner. To the extent permitted in
your state, the Annuity Date may be the first day of any month (a) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Contract is 75 or under, or (b) within 10 years from the date of issue of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of issue is between 76 and 90. The Contract Owner may elect to change the
Annuity Date by sending a written request to the Principal Office at least one
month before the new Annuity Date. The new Annuity Date must be the first day
of any month occurring before the Annuitant's 90th birthday. The new Annuity
Date must be within the life expectancy of the
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Annuitant. Allmerica Financial will determine life expectancy at the time the
Annuity Date is requested. The Internal Revenue Code imposes limitations on the
age at which distributions may commence. See "FEDERAL TAX CONSIDERATIONS."
If the Contract Owner does not elect otherwise, annuity payments will be made in
accordance with Option I, a variable life annuity with ten years guaranteed.
Changes in either the Annuity Date or annuity option can be made up to one month
prior to the Annuity Date.
DESCRIPTION OF VARIABLE ANNUITY OPTIONS. Allmerica Financial offers the
variable annuity options described below and provides fixed amount annuity
options which are comparable to the variable annuity options. Other annuity
options may be offered by Allmerica Financial.
Variable annuity options provide payments that vary according to investment
experience. The variable annuity options offered under the Contracts may be
funded through the Select Growth and Income Sub-Account, Select Income
Sub-Account, and Money Market Sub-Account.
Regardless of how purchase payments were allocated during the accumulation
period, the Contract Owner may choose any one of the variable annuity options
offered, a comparable fixed-amount option, or a variable annuity option in
combination with a comparable fixed-amount annuity option. Each annuity option
may be paid on a monthly, quarterly, semiannual or annual basis.
Under a variable life annuity option, payments are based on how long the payee
is expected to live and how the net investment results of the chosen Fund(s)
compare to an assumed rate of return (See "Determination of First and Subsequent
Annuity Payments"). If the payee outlives his or her life expectancy, payments
will continue for the life of the payee. If the payee dies, regardless of when
the death occurs in relation to the payee's life expectancy, payments will cease
with the last payment due prior to the payee's death. Therefore, under a life
annuity, it is possible for the payee to receive only one annuity payment if the
payee dies prior to the due date of the second annuity payment, two annuity
payments if the payee dies before the due date of the third annuity payment, and
so on. However, payments will continue during the lifetime of the payee, no
matter how long the payee lives.
OPTION I - VARIABLE LIFE ANNUITY WITH TEN YEARS GUARANTEED
Variable payments will be made during the lifetime of the payee. If the payee
dies before a guaranteed payment period of ten years, the annuity payments are
guaranteed to continue to the beneficiary until the end of the ten-year
guarantee period.
OPTION II - VARIABLE LIFE ANNUITY
Variable payments will be made for the life of the payee. Payments will cease
with the last payment due prior to the payee's death.
OPTION III - UNIT REFUND VARIABLE LIFE ANNUITY
Variable payments will be made during the lifetime of the payee. Upon death of
the payee, payments will continue to the beneficiary until the total number of
payments equals the dollar amount of the annuity value applied, divided by the
first annuity payment.
OPTION IV-A - JOINT AND SURVIVOR VARIABLE LIFE ANNUITY
A variable annuity payable jointly to two payees during their joint lifetime,
and then continuing during the lifetime of the survivor. The amount of each
payment to the survivor is based on the same number of Annuity Units which
applied during the joint lifetime of the two payees. One of the payees must be
either the Annuitant or the beneficiary. There is no minimum number of payments
under this option.
OPTION IV-B - JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY
A variable annuity payable jointly to two payees during their joint lifetime,
and then continuing thereafter during the lifetime of the survivor. However,
the amount of each payment to the survivor is based upon two-thirds of the
number of Annuity Units which applied during the joint lifetime of the two
payees. One of the payees must be the Annuitant or the beneficiary. There is
no minimum number of payments under this option.
OPTION V - PERIOD CERTAIN VARIABLE ANNUITY
A variable annuity payable for a stipulated number of from one to thirty years.
It should be noted that Option V does not involve a life contingency. Although
not contractually required to do so, Allmerica
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Financial currently follows a practice of permitting persons receiving payments
under Option V to elect to convert to a variable annuity involving a life
contingency. Allmerica Financial may discontinue or change this practice at any
time, but not with respect to Contract Owners who have elected Option V prior to
the date of any change in this practice.
If the Annuitant dies before the completion of the period stipulated under
Option V, payments will continue to be paid to the beneficiary. The Annuitant
or the beneficiary may choose at any time to redeem the Contract and receive its
commuted value. The method of computation of the commuted value is shown under
"Annuity Payments" in the Statement of Additional Information. If the Annuitant
makes this election, the commuted value will be based on the remaining payments
that would have been payable had the Surrender Value, rather than the
Accumulated Value, been applied at the Annuity Date. See "Charge for
Commutation under Variable Annuity Option V" under "CONTINGENT DEFERRED SALES
CHARGE."
In the computation of the payments under this option (see "Determination of
First and Subsequent Annuity Payments"), the charge for annuity rate guarantees,
which includes a factor for mortality risks, is made.
See "FEDERAL TAX CONSIDERATIONS" for a discussion of the possible adverse tax
consequences of selecting Option V.
COMPUTATION OF CONTRACT VALUES AND ANNUITY PAYMENTS. Contract values and annuity
payments are computed as follows:
THE ACCUMULATION UNIT. Each purchase payment is allocated to the Sub-Accounts
or Fixed Account, as selected by the Contract Owner. Allocations to the
Sub-Accounts are credited to the Contract in the form of Accumulation Units.
Accumulation Units are credited separately for each Sub-Account. The number of
Accumulation Units of each Sub-Account credited to the Contract is equal to the
portion of the purchase payment allocated to the Sub-Account, divided by the
dollar value of the applicable Accumulation Unit as of the Valuation Date the
purchase payment is received at the Principal Office. A subsequent transfer,
partial redemption, surrender or split of Accumulation Unit value will change
the number of Accumulation Units. The number of Accumulation Units will not
change as a result of investment experience. The dollar value of an
Accumulation Unit of each Sub-Account varies from Valuation Date to Valuation
Date based on the investment experience of that Sub-Account and will reflect the
investment performance, expenses and charges of its Funds. On the first
Valuation Date, the value of an Accumulation Unit was set at $1.00 for each
Sub-Account. Allocations to the Fixed Account are not converted into
Accumulation Units, but are credited interest at a rate periodically set by
Allmerica Financial. See APPENDIX A, "MORE INFORMATION ABOUT THE FIXED
ACCOUNT."
The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the dollar value of an
Accumulation Unit of that Sub-Account on the Valuation Date, (2) adding the
products, and (3) adding the amount of the accumulations in the Fixed Account,
if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Sub-Account for the Valuation Period then ended is
determined from the investment performance of that Sub-Account. Such rate is
(1) the investment income of that Sub-Account for the Valuation Period, plus
capital gains and minus capital losses of that Sub-Account for the Valuation
Period, whether realized or unrealized, adjusted for provisions made for taxes,
if any, divided by (2) the amount of that Sub-Account's assets at the beginning
of the Valuation Period. The adjusted gross investment rate may be either
positive or negative.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR. The net investment rate for a
Sub-Account's variable accumulations for any Valuation Period is equal to the
adjusted gross investment rate of the Sub-Account for such Valuation Period
decreased by the equivalent for such period of a charge equal to 1.40% per
annum. This charge cannot be increased.
The net investment factor is l.000000 plus the applicable net investment rate.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example, see "Annuity Payments" in the Statement of Additional Information.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a measure
of the value of the Annuitant's annuity payments under a variable annuity
option. The value of an Annuity Unit in each Sub-Account initially was set at
$1.00. The value of an Annuity Unit under a Sub-Account on any Valuation Date
thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the product of (1) the net investment factor of
the Sub-Account for the current Valuation Period, and (2) a factor to adjust
benefits to neutralize the assumed interest rate. The assumed interest rate,
discussed below, is incorporated in the variable annuity options offered in the
Contract.
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<PAGE>
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY PAYMENTS. The amount of the
first annuity payment is based on the annuity value applied and the annuity
option selected. The annuity value applied under an annuity option is the
amount described below, minus any applicable premium tax charge: (1) if
Option V is chosen with a period of 10 or more years - the Accumulated Value;
(2) if Option V is chosen with a period of less than 10 years - the Surrender
Value; (3) if any annuity option offered by Allmerica Financial involving a life
contingency is chosen - the Accumulated Value; and (4) if a death benefit
annuity is payable at any time - the amount of the death benefit.
Annuity values will be based on a Valuation Date applied uniformly not more than
four weeks preceding the Annuity Date. Currently, the Valuation Date for
annuity values is the 15th date of the month preceding the Annuity Date, and
variable annuity payments are made on the first of the month based on unit
values as of the 15th day of the preceding month.
The Contract provides annuity rates which determine the dollar amount of the
first payment under each form of annuity for each $1,000 of applied annuity
value. Guaranteed variable life annuity rates in the Contract are based on a
modification of the 1983 Table "a" rates and are unisex except where not allowed
by state law, in which case sex-distinct rates will apply. Rates for Contracts
subject to the United States Supreme Court decision in Arizona Governing
Committee v. Norris are unisex in all jurisdictions. The Norris decision
generally applies to employer-sponsored plans.
The amount of the first payment depends upon the form of annuity selected, the
sex (only if sex-distinct rates apply) and age of the Annuitant and the value of
the amount applied under the annuity option. The variable annuity options
offered by Allmerica Financial are based on a 3 1/2% assumed interest rate.
Variable payments are affected by the assumed interest rate used in calculating
the annuity option rates. Variable annuity payments will increase over periods
when the actual net investment result of the Sub-Account(s) funding the annuity
exceeds the equivalent of the assumed interest rate for the period. Variable
Annuity Payments will decrease over periods when the actual net investment
result of the respective Sub-Account is less than the equivalent of the assumed
interest rate for the period.
The dollar amount of the first annuity payment under a life contingency option
or a variable period certain option for 10 years or more is determined by
multiplying (1) the Accumulated Value applied under that option (after deduction
for premium tax charge, if any) divided by $1,000, by (2) the applicable amount
of the first payment per $1,000 of value. If a variable period certain option
for less than 10 years or any fixed period certain option is chosen, the
surrender value less any premium tax will be applied. The dollar amount of the
first variable annuity payment is then divided by the value of an Annuity Unit
of the selected Sub-Account(s) to determine the number of Annuity Units
represented by the first payment. In each subsequent annuity payment, the
dollar amount of the variable annuity payment is determined by multiplying this
fixed number of Annuity Units by the value of an Annuity Unit on the applicable
Valuation Date.
After the first payment, the dollar amount of each variable annuity payment will
vary with subsequent variations in the value of the Annuity Unit of the selected
Sub-Account(s). The dollar amount of each fixed amount annuity payment is fixed
and will not change, except under the joint and two-thirds survivor annuity
option.
Allmerica Financial may from time to time offer its Contract Owners both fixed
and variable annuity rates more favorable than those contained in the Contract.
Any such rates will be applied uniformly to all Contract Owners of the same
class.
For an illustration of variable annuity payment calculation using a hypothetical
example, see "Annuity Payments" in the Statement of Additional Information.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Contract, on redemptions or
surrenders, on annuity payments, and on the economic benefit to the Annuitant or
beneficiary depends upon a variety of factors. The following discussion is
based upon Allmerica Financial's understanding of current federal income tax
laws as they are interpreted as of the date of this Prospectus. No
representation is made regarding the likelihood of continuation of current
federal income tax laws or of current interpretations by the Internal Revenue
Service.
It should be recognized that the following discussion of federal income tax
aspects of amounts received under variable annuity contracts is not exhaustive,
does not purport to cover all situations and is not intended as tax advice. A
qualified tax adviser should always be consulted with regard to the application
of law to individual circumstances.
Allmerica Financial intends to make a charge for any effect which the income,
assets, or existence of the Contracts, the Separate Account or Sub-Accounts may
have upon Allmerica Financial's tax. The Separate Account presently is not
subject to tax, but Allmerica Financial reserves the right to assess a charge
for taxes should the Separate Account at any time become subject to tax. Any
charge for taxes will be assessed on a fair and equitable basis in order to
preserve equity among classes of Contract Owners and with respect to each
Separate Account as though that Separate Account were a separate taxable entity.
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<PAGE>
The Separate Account is considered to be a part of and taxed with the operations
of Allmerica Financial. Allmerica Financial is taxed as a life insurance
company under subchapter L of the Code. Allmerica Financial files a
consolidated tax return with its parent, First Allmerica, and other affiliates.
The Internal Revenue Service has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
policies under Section 817(h) of the Code. The regulations provide that the
investments of a segregated asset account underlying a variable annuity contract
are adequately diversified if no more than 55% of the value of its assets is
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. If the investments are not adequately diversified, the income on a
contract, for any taxable year of the contract owner, would be treated as
ordinary income received or accrued by the contract owner. It is anticipated
that the Funds of the Trust, VIP andT.Rowe Price will comply with the
diversification requirements.
QUALIFIED AND NON-QUALIFIED CONTRACTS. From a federal tax viewpoint there are
two types of variable annuity contracts, "qualified" contracts and
"non-qualified" contracts. A qualified contract is one that is purchased in
connection with a retirement plan which meets the requirements of Sections 401,
403, 408, or 457 of the Code, while a non-qualified contract is one that is not
purchased in connection with one of the indicated retirement plans. The tax
treatment for certain partial redemptions or surrenders will vary according to
whether they are made from a qualified contract or a non-qualified contract.
For more information on the tax provisions applicable to specific types of
qualified contracts, see the discussions under the applicable headings, below.
TAXATION OF THE CONTRACTS IN GENERAL. Allmerica Financial believes that the
Contracts described in this Prospectus will, with certain exceptions discussed
in "SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES," be
considered annuities under Section 72 of Code. This section provides for the
taxation of annuities. The following discussion concerns annuities subject to
Section 72. All non-qualified deferred annuity contracts issued by the same
insurance company to the same contract owner during the same calendar year will
be treated as a single contract in determining taxable distributions under
Section 72(e).
Any increase in the Accumulated Value of the Contract is not taxable to the
Contract Owner until it is withdrawn, except in cases of assignment or certain
non-individual Contract Owners, as discussed below. If the Contract is
surrendered or amounts are withdrawn prior to the Annuity Date, to the extent of
the amount withdrawn any investment gain in value over the cost basis of the
Contract would be taxed as ordinary income. Under the current provisions of the
Code, amounts received under a non-qualified Contract prior to the Annuity Date
(including payments made upon the death of the Annuitant or Contract Owner), or
as non-periodic payments after the Annuity Date, are generally first
attributable to any investment gains credited to the Contract over the
taxpayer's basis (if any) in the Contract. Such amounts will be treated as
income subject to federal income taxation.
The tax treatment of partial redemptions or surrenders of non-qualified
Contracts offered by this Prospectus may vary according to whether the amount
redeemed or surrendered is allocable to an investment in the Contract made
before or after certain dates.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59 1/2. The penalty tax will not be imposed
after age 59 1/2, or if the withdrawal follows the death of the Contract Owner
(or, if the Contract Owner is not an individual, the death of the primary
Annuitant as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Contract Owner. Furthermore, under Section 72 of
the Code, this penalty tax will not be imposed, irrespective of age, if the
amount received is one of a series of "substantially equal" periodic payments
made at least annually for the life or life expectancy of the payee. This
requirement is met when the Contract Owner elects to have distributions made
over his or her life expectancy, or over the joint life expectancy of the
Contract Owner and beneficiary. The requirement that the amount be paid out as
one of a series of "substantially equal" periodic payments is met when the
number of units withdrawn to make each distribution is substantially the same.
In a private letter ruling, the Internal Revenue Service took the position that
where distributions from a variable annuity contract were determined by
amortizing the accumulated value of the contract over the taxpayer's remaining
life expectancy (such as under the Contract's LED (see "LIFE EXPECTANCY
DISTRIBUTION"), and could be changed or terminated at any time, the
distributions failed to qualify as part of a "series of substantially equal
payments" within the meaning of Section 72 of the Code. The distributions were
therefore subject to the 10% federal tax penalty. This private letter ruling
may be applicable to a Contract Owner who receives life expectancy distributions
prior to age 59 1/2. Subsequent private letter rulings, however, have treated
LED-type withdrawal programs as effectively avoiding the 10% penalty tax. The
position of the IRS on this issue is unclear.
If the Contract Owner transfers (assigns) the Contract to another individual as
a gift prior to the Annuity Date, the Code provides that the Contract Owner will
incur taxable income at the time of the transfer. An exception is provided for
certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the Surrender Value of the
Contract over the Contract Owner's cost basis at the time of the transfer. The
transfer is also subject to federal gift tax provisions. Where the Contract
Owner and Annuitant are different persons, the change of ownership of the
Contract to the
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Annuitant on the Annuity Date, as required under the Contract, is a gift and
will be taxable to the Owner as such. However, the Owner will not incur taxable
income. Rather the Annuitant will incur taxable income upon receipt of annuity
payments as discussed below.
When annuity payments are commenced under the Contract, generally a portion of
each payment may be excluded from gross income. The excludable portion is
generally determined by a formula that establishes the ratio that the cost basis
of the Contract bears to the expected return under the Contract. The portion of
the payment in excess of this excludable amount is taxable as ordinary income.
Once all cost basis in the Contract is recovered, the entire payment is taxable.
If the last payee dies before cost basis is recovered, a deduction for the
difference is allowed on the payee's final tax return.
TAX WITHHOLDING. The Code requires withholding with respect to payments or
distributions from annuities, unless a taxpayer elects not to have withholding.
In addition, the Code requires reporting to the Internal Revenue Service of the
amount of income received with respect to payment or distributions from
annuities.
PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS. The tax rules applicable to
qualified employer plans, as defined by the Code, vary according to the type of
plan and the terms and conditions of the plan itself. Therefore, the following
is general information about the use of the Contracts with various types of
qualified plans. The rights of any person to any benefits under such qualified
plans will be subject to the terms and conditions of the qualified plans
themselves regardless of the terms and conditions of the Contract.
A loan to a participant or beneficiary from plans qualified under Sections 401
and 403 or an assignment or pledge of an interest in such a plan is generally
treated as a distribution. This general rule does not apply to loans which
contain certain repayment terms and do not exceed a specified amount, as
required under Section 72(p).
QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS AND QUALIFIED ANNUITY
PLANS. When an employee (including a self-employed individual) or one or more
of the employee's beneficiaries receives a "lump sum" distribution (a
distribution from a qualified plan described in Code Section 401(a) within one
taxable year equal to the total amount payable with respect to such an employee)
the taxable portion of such distribution may qualify for special treatment under
a special five-year income averaging provision of the Code. The employee must
have had at least 5 years of participation under the plan, and the lump sum
distribution must be made after the employee has attained age 59 1/2 or on
account of his or her death, separation from the employer's service (in the case
of a common-law employee) or disability (in the case of a self-employed
individual). Such treatment can be elected for only one taxable year once the
individual has reached age 59 1/2. An employee who attained age 50 before
January 1, 1986 may elect to treat part of the taxable portion of the lump-sum
distribution as long-term capital gain and may also elect 10-year averaging
instead of five-year averaging.
Allmerica Financial can provide prototype plans for certain of the pension or
profit sharing plans for review by your legal counsel. For information, ask
your agent.
SELF-EMPLOYED INDIVIDUALS. The Self-Employed Individuals Tax Retirement Act of
1962, as amended, frequently referred to as "H.R. 10", allows self-employed
individuals and partners to establish qualified pension and profit sharing
trusts and annuity plans to provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements applicable
to corporate qualified plans, with some special restrictions imposed on
"owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
INDIVIDUAL RETIREMENT ACCOUNT PLANS. Any individual who earns "compensation"
(as defined in the Code and including alimony) from employment or
self-employment, whether or not he or she is covered by another qualified plan,
may establish an individual retirement account or annuity plan ("IRA") for the
accumulation of retirement savings on a tax-deferred basis. Income from
investments is not included in "compensation." The assets of an IRA may be
invested in, among other things, annuity contracts, including the Contracts
offered by this Prospectus.
Contributions to an IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the above-described
limit on each. An individual with an IRA may establish an additional IRA for a
non-working spouse (one with income of $250 or less) if they file a joint
return. Contributions to the two IRAs together are deductible up to the lesser
of $2,250 or 100% of compensation.
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No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be
deducted, taxes on their earnings are deferred until the earnings are
distributed. The maximum permissible non deductible contribution is $2,000 for
an individual taxpayer and $2,250 for a taxpayer and non working spouse. These
limits are reduced by the amount of any deductible contributions made by the
taxpayer.
Contributions may be made with respect to a particular year until the due date
of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, Allmerica Financial will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2 and must be made
in accordance with Section 401(a)(9) of the Code. Failure to make
distributions as so required may result in certain adverse tax consequences to
the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a
non deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's tax
return to enable the Internal Revenue Service to determine the proportion of the
IRA balance which represents non deductible contributions. If the required
information is provided, that part of the amount withdrawn which is
proportionate to the individual's aggregate non deductible contributions over
the aggregate balance of all of the individual's IRAs, is excludable from
income.
Distributions which are a return of a non deductible contribution are
non taxable, as they represent a return of basis. If the required information
is not provided to the Internal Revenue Service, distributions from an IRA to
which both deductible and nondeductible contributions have been made are
presumed to be fully taxable.
SIMPLIFIED EMPLOYEE PENSIONS. Simplified employee pensions ("SEPs") may be
established under Code Section 408(k) if certain requirements are met. A SEP is
an IRA to which the employer contributes under a written formula. Currently, a
SEP may accept employer contributions each year up to $30,000 or 15% of
compensation (as defined), whichever is less. To establish SEPs the employer
must make a contribution for every employee age 21 and over who has performed
services for the employer for at least three of the five immediately preceding
calendar years and who has earned at least $300 (as indexed for inflation) for
the year.
The employer's contribution is excluded from the employee's gross income for the
taxable year for which it was made up to the $30,000/ 15% limit. In addition to
the employer's contribution, the employee may contribute 100% of the employee's
earned income, up to $2,000, to the SEP, but such contributions will be subject
to the rules described above in "INDIVIDUAL RETIREMENT ACCOUNT PLANS."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX EXEMPT ORGANIZATIONS. Under the
provisions of Section 403(b) of the Code, purchase payments made for annuity
contracts purchased for employees under annuity plans adopted by public school
systems and certain organizations which are tax exempt under Section 501(c)(3)
of the Code are excludable from the gross income of such employees to the extent
that the aggregate purchase payments for such annuity contracts in any year do
not exceed the maximum contribution permitted under the Code.
A Contract qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Contract Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax. Also, there is a mandatory 20% income
tax withholding on any eligible rollover distribution, unless it is a direct
rollover to another qualified plan in accordance with IRS rules.
The distribution restrictions are effective for years beginning after December
31, 1988, but only with respect to amounts that were not held under the Contract
as of that date.
TEXAS OPTIONAL RETIREMENT PROGRAM. Under a Code Section 403(b) annuity contract
issued as a result of participation in the Texas Optional Retirement Program,
distributions may not be received except in the case of the participant's death,
retirement or termination of employment in the Texas public institutions of
higher education. These restrictions are imposed by reason of an opinion of the
Texas Attorney General interpreting the Texas laws governing the Optional
Retirement Program.
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SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES. Code Section
457 allows employees of a state, one of its political subdivisions, or certain
tax-exempt entities to participate in eligible government deferred compensation
plans. An eligible plan, by its terms, must not allow deferral of more than
$7,500 or 33-1/3% of a participant's includible compensation for the taxable
year, whichever is less. Includible compensation does not include amounts
excludable under the eligible deferred compensation plan or amounts paid into a
Code Section 403(b) annuity. The amount a participant may defer must be reduced
dollar-for-dollar by elective deferrals under a SEP, 401(k) plan or a deductible
employee contribution to a 501(c)(18) plan. Under eligible deferred
compensation plans the state, political subdivision, or tax-exempt entity will
be owner of the Contract.
If an employee also participates in another eligible plan or contributes to a
Code Section 403(b) annuity, a single limit of $7,500 will be applied for all
plans. Additionally, the employee must designate how much of the $7,500 or
33-1/3% limitation will be allocated among the various plans. Contributions to
an eligible plan will serve to reduce the maximum exclusion allowance for a Code
Section 403(b) annuity.
Amounts received by employees under such plans generally are includible in gross
income in the year of receipt.
NON-INDIVIDUAL OWNERS. Non-individual Owners (e.g., a corporation) of deferred
annuity contracts generally will be currently taxed on any increase in the cash
surrender value of the deferred annuity attributable to contributions made after
February 28, 1986. This rule does not apply to immediate annuities or to
deferred annuities held by a qualified pension plan, an IRA, a 403(b) plan,
estates, employers with respect to terminated pension plans, or a nominee or
agent holding a contract for the benefit of an individual. Corporate-owned
annuities may result in exposure to the alternative minimum tax, to the extent
that such corporate-owned annuities result in an increase in a corporation's
book income. For tax years beginning after 1989, corporate-owned annuities may
result in exposure to the alternative minimum tax, to the extent that income on
the annuities increases the corporation's adjusted current earnings.
VOTING RIGHTS
To the extent required by law, Allmerica Financial will vote Fund shares held by
each Sub-Account in accordance with instructions received from Contract Owners
and, after the Annuity Date, from the Annuitants. Each person having a voting
interest in a Sub-Account will be provided with proxy materials of the Fund
together with a form with which to give voting instructions to Allmerica
Financial. Shares for which no timely instructions are received will be voted
in proportion to the instructions which are received. Allmerica Financial will
vote in its discretion shares attributable to its investment in a Sub-Account.
If the 1940 Act or any rules thereunder should be amended or if the present
interpretation of the 1940 Act or such rules should change, and as a result
Allmerica Financial determines that it is permitted to vote shares in its own
right, whether or not such shares are attributable to the Contracts, Allmerica
Financial reserves the right to do so.
The number of votes which a Contract Owner or Annuitant may cast will be
determined by Allmerica Financial as of the record date established by the Fund.
During the accumulation period, the number of Fund shares attributable to each
Contract Owner will be determined by dividing the dollar value of the
Accumulation Units of the Sub-Account credited to the Contract by the net asset
value of one Fund share.
During the annuity period, the number of Fund shares attributable to each
Annuitant will be determined by dividing the reserve held in each Sub-Account
for the Annuitant's variable annuity by the net asset value of one Fund share.
Ordinarily, the Annuitant's voting interest in the Fund will decrease as the
reserve for the variable annuity is depleted.
DISTRIBUTION
The Contracts offered by the Prospectus may be purchased from certain
independent broker-dealers which are registered under the Securities Exchange
Act of 1934 and members of the National Association of Securities Dealers, Inc.
("NASD"). The Contracts are also offered through Allmerica Investments, Inc.,
which is the principal underwriter and distributor of the Contracts. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653, is a
registered broker-dealer, member of the NASD and an indirect wholly-owned
subsidiary of First Allmerica.
Allmerica Financial pays commissions not to exceed 5.5% of purchase payments to
broker-dealers which sell the Contracts. Alternative commission schedules are
available with lower initial commission amounts based on purchase payments, plus
ongoing annual compensation of up to 1% of contract value. To the extent
permitted by NASD rules, promotional incentives or payments may also be provided
to such broker-dealers based on sales volumes, the assumption of wholesaling
functions, or other sales-related criteria. Additional payments may be made for
other services not directly related to the sale of the Contracts, including the
recruitment and training of personnel, production of promotional literature, and
similar services.
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Allmerica Financial intends to recoup commissions and other sales expenses
through a combination of anticipated contingent deferred sales charges and
profits from Allmerica Financial's General Account. Commissions paid on the
Contracts, including additional incentives or payments, do not result in any
additional charge to Contract Owners or to the Separate Account. Any contingent
deferred sales charges assessed on a Contract will be retained by Allmerica
Financial.
Contract Owners may direct any inquiries to their financial adviser or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653,
508-855-3590.
REPORTS
A Contract Owner is sent a report semi-annually which states certain financial
information about the Funds. Allmerica Financial will also furnish an annual
report to the Contract Owner containing a statement of his or her account,
including unit values and other information required by applicable law, rules
and regulations.
PERFORMANCE INFORMATION
Allmerica Financial from time to time may advertise the "total return" of the
Sub-Accounts and the "yield" and "effective yield" of the Money Market
Sub-Account. Both the total return and yield figures are based on historical
earnings and are not intended to indicate future performance.
The "total return" of a Sub-Account refers to the total of the income generated
by an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Separate Account charges, and expressed as a
percentage of the investment.
The "yield" of the Money Market Sub-Account refers to the income generated by an
investment in the Sub-Account over a seven-day period (which period will be
specified in the advertisement). This income is then "annualized" by assuming
that the income generated in the specific week is generated over a 52-week
period. This annualized yield is shown as a percentage of the investment. The
"effective yield" calculation is similar, but when annualized, the income earned
by an investment in the Sub-Account is assumed to be reinvested. Thus the
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect the
Sub-Account's asset charges. The total return figures also reflect the $30
annual Contract Fee and the contingent deferred sales charge which would be
assessed if the investment were completely redeemed at the end of the specific
period.
Allmerica Financial may also advertise supplemental total return performance
information. Supplemental total return refers to the total of the income
generated by an investment in the Sub-Account and of the changes of value of the
principal invested (due to realized and unrealized capital gains or losses),
adjusted by the Sub-Account's annual asset charges, and expressed as a
percentage of the investment. Because it is assumed that the investment is NOT
redeemed at the end of the specified period, the withdrawal charge is NOT
included in the calculation of supplemental total return.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Sub-Account
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Sub-Account. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Sub-Account reflects only the performance of a
hypothetical investment in the Sub-Account during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the portfolio of the Fund in which the Sub-Account invests and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future.
ANNUAL AVERAGE TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(Assuming COMPLETE redemption of the investment)
<TABLE>
<CAPTION>
For year 10 years or
NAME OF FUND ended 3 Years 5 Years since
------------ 12/31/95 ------- ------- inception
-------- -----------
<S> <C> <C> <C> <C>
Money Market -2.06% 1.23% 2.55% 4.42%
Select Aggressive Growth 24.05% 12.73% N/A 17.67%
Select Growth 16.45% 4.50% N/A 7.47%
Select Growth and Income 22.11% 10.26% N/A 9.13%
Select Income 8.93% 4.32% N/A 4.13%
Select Int'l. Equity 11.55% N/A N/A 4.01%
Select Capital Appreciation N/A N/A N/A 31.72%
VIPF High Income 12.53% 9.70% 16.93% 9.90%
VIPF Equity-Income 26.70% 16.71% 19.32% 11.74%
VIPF Growth 26.96% 14.43% 18.79% 13.22%
T. Rowe Price Int'l Stock 3.21% N/A N/A 2.16%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(Assuming NO redemption of the investment)
<TABLE>
<CAPTION>
For year 10 years or
NAME OF FUND ended 3 Years 5 Years since
------------ 12/31/95 ------- ------- inception
-------- -----------
<S> <C> <C> <C> <C>
Money Market 4.38% 2.81% 3.08% 4.42%
Select Aggressive Growth 30.49% 14.01% N/A 18.48%
Select Growth 22.88% 5.99% N/A 8.46%
Select Growth and Income 28.55% 11.60% N/A 10.09%
Select Income 15.36% 5.81% N/A 5.20%
Select Int'l. Equity 17.99% N/A N/A 7.47%
Select Capital Appreciation N/A N/A N/A 38.22%
VIPF High Income 19.03% 11.07% 17.25% 9.90%
VIPF Equity-Income 33.20% 17.92% 19.62% 11.74%
VIPF Growth 33.46% 15.69% 19.09% 13.22%
T. Rowe Price Int'l Stock 9.62% N/A N/A 5.80%
</TABLE>
LOANS (QUALIFIED CONTRACTS ONLY). Loans will be permitted only for Contracts
issued to a plan qualified under Section 401(a), 401(k) or 403(b) of the Code.
Loans are permitted only from a Contract's accumulation value on a pro-rata
basis. The maximum loan amount is the amount determined under Allmerica
Financial's maximum loan formula for qualified plans. The minimum loan amount
is $1,000. Loans will be secured by a security interest in the Contract. Loans
are subject to applicable retirement legislation and their taxation is
determined under the Federal income tax laws. The amount borrowed
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will be transferred to a fixed, minimum guarantee loan assets account in
Allmerica Financial's General Account, where it will accrue interest at a
specified rate below the then current loan interest rate. Generally, loans must
be repaid within five (5) years. When repayments are received they will be
allocated in accordance with the Contract Owner's most recent allocation
instructions.
The amount of payment on death, the amount payable on a full surrender and the
amount applied to provide an annuity on the Annuity Date will be reduced to
reflect any outstanding loan balance (plus accrued interest thereon). Partial
withdrawals may be restricted by the maximum loan limitation.
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT
Allmerica Financial reserves the right, subject to compliance with applicable
law, to (1) transfer assets from the Separate Account or any Sub-Account to
another of Allmerica Financial's separate accounts or sub-accounts having assets
of the same class, (2) to operate the Separate Account or Sub-Accounts as a
management investment company under the 1940 Act or in any other form permitted
by law, (3) to deregister the Separate Account under the 1940 Act in accordance
with the requirements of the 1940 Act, and (4) to substitute the shares of any
other registered investment company for the Fund shares held by a Sub-Account,
in the event that Fund shares are unavailable for investment, or if Allmerica
Financial determines that further investment in such Fund shares is
inappropriate in view of the purpose of the Sub-Account. In no event will the
changes described above be made without notice to Contract Owners in accordance
with the 1940 Act.
Allmerica Financial reserves the right, subject to compliance with applicable
law, to change the names of the Separate Account or any Sub-Accounts.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Allmerica Financial reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Fund are no longer available for investment or if in Allmerica Financial's
judgment further investment in any Fund should become inappropriate in view of
the purposes of the Separate Account or the affected Sub-Account, Allmerica
Financial may redeem the shares of that Fund and substitute shares of another
registered open-end management company. Allmerica Financial will not substitute
any shares attributable to a Contract interest in a Sub-Account without notice
to the Contract Owner and prior approval of the SEC and state insurance
authorities, to the extent required by the 1940 Act or other applicable laws.
The Separate Account may, to the extent permitted by law, purchase other
securities for other contracts or permit a conversion between contracts upon
request by a Contract Owner.
Allmerica Financial also reserves the right to establish additional Sub-
Accounts, each of which would invest in shares corresponding to a new Fund or in
shares of another investment company having a specified investment objective.
Subject to applicable law and any required SEC approval, Allmerica Financial
may, in its sole discretion, establish new Sub-Accounts or eliminate one or more
Sub-Accounts if marketing needs, tax considerations or investment conditions
warrant. Any new Sub-Accounts may be made available to existing Contract Owners
on a basis to be determined by Allmerica Financial.
Shares of the Funds are also issued to separate accounts of Allmerica Financial
and its affiliates which issue variable life policies ("mixed funding") and
other variable annuities. It is conceivable that in the future such mixed
funding may be disadvantageous for variable life or variable annuity Contract
Owners. Although Allmerica Financial, the Trust, VIP and T.Rowe Price do not
currently foresee any such disadvantage to either variable life insurance or
variable annuity Contract Owners, Allmerica Financial and the Trustees of the
Trust, VIP and T. Rowe Price intend to monitor events in order to identify any
material conflicts and to determine what action, if any should be taken in
response thereto. If the Trustees of the Trust were to conclude that separate
funds should be established for variable life and variable annuity separate
accounts, Allmerica Financial will bear the attendant expenses.
If any of these substitutions or changes are made, Allmerica Financial may by
appropriate endorsement change the Contract to reflect the substitution or
change and will notify Contract Owners of all such changes. If Allmerica
Financial deems it to be in the best interest of Contract Owners, and subject to
any approvals that may be required under applicable law, the Separate Account or
any Sub-Account(s) may be operated as a management company under the 1940 Act,
may be deregistered under the 1940 Act if registration is no longer required, or
may be combined with other Sub-Accounts or other separate accounts of Allmerica
Financial.
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<PAGE>
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted from
this Prospectus pursuant to the rules and regulations of the SEC. The omitted
information may be obtained from the SEC's principal office in Washington, D.C.,
upon payment of the SEC's prescribed fees.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . 2
TAXATION OF THE SEPARATE ACCOUNT AND ALLMERICA FINANCIAL . . . . . 2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account, including the Fixed Account, are not subject
to regulation under the provisions of the Securities Act of 1933 or the
Investment Company Act of 1940. Disclosures regarding the fixed portion of the
Contract and the Fixed Account may be subject to the provisions of the
Securities Act of 1933 concerning the accuracy and completeness of statements
made in the Prospectus. The disclosures in this APPENDIX A have not been
reviewed by the Securities and Exchange Commission. ALLOCATIONS TO AND TRANSFERS
TO AND FROM THE FIXED ACCOUNT ARE NOT PERMITTED IN CERTAIN STATES.
The General Account of Allmerica Financial is made up of all of the general
assets of Allmerica Financial other than those allocated to any separate
account. Allocations to the Fixed Account become part of the assets of
Allmerica Financial and are used to support insurance and annuity obligations.
A portion or all of purchase payments may be allocated to accumulate at a fixed
rate of interest in the Fixed Account, where available. The amount of any
purchase payment allocated to the Fixed Account must be at least $500. Amounts
less than $500 will be applied instead to the Money Market Sub-Account. Amounts
allocated to the Fixed Account are guaranteed by Allmerica Financial as to
principal and a minimum rate of interest. Under the Contracts, the minimum
interest which may be credited on amounts allocated to the Fixed Account is 3.5%
compounded annually. Additional "excess interest" may or may not be credited at
the sole discretion of Allmerica Financial. Initial and subsequent interest
rates on amounts allocated to the Fixed Account, either as purchase payments,
transfers or amounts remaining in the Fixed Account after the end of a
guaranteed period ("maturity date"), will be guaranteed for periods of one year.
An amount may not be transferred from the Fixed Account to a Sub-Account prior
to its maturity date or after the Annuity Date. The transfer must leave a
balance with respect to the amount subject to maturity of at least $500, unless
the entire amount is transferred. A transfer to the Fixed Account must involve
an amount of at least $500. Any amount less than $500 will be transferred
instead to the Money Market Sub-Account.
Prior to the maturity date, Allmerica Financial will notify the Contract Owner
of the new interest rate applicable for the next one-year period applicable both
to new purchase payments and maturing amounts. Unless Allmerica Financial
receives in writing, at least five business days prior to the maturity date, a
request from the Contract Owner to apply the maturing amount to a new guaranteed
interest rate period of one year or to a Sub-Account, the amount will be
transferred after the maturity date to the Money Market Sub-Account.
Transfers from the Fixed Account to a Sub-Account will be effected at the value
next computed after the maturity date. For any period between the maturity date
and the next Valuation Date for the Sub-Account, the amount to be transferred
will remain in the Fixed Account at the then current rate.
If the Contract Owner makes partial withdrawals from his or her Contract,
amounts must first be withdrawn from all allocations to Sub-Accounts before
amounts allocated to the Fixed Account may be withdrawn. If a Contract is
surrendered, partially redeemed, or annuitized under any fixed period certain, a
contingent deferred sales charge is imposed if such event occurs before the
purchase payments attributable to the surrender, withdrawal or annuitization
have been credited to the Contract less than seven full Contract years. For the
purpose of calculating surrender charges, surrenders and redemptions are deemed
made pursuant to the FIFO ("first in, first out") method of accounting.
However, withdrawals from the Fixed Account will be made on a LIFO (last in,
first out) basis; i.e., withdrawals will be made first from amounts attributable
to the most recent purchase payment.
APPENDIX B
EXCHANGE OFFER
A. VARIABLE CONTRACT EXCHANGE OFFER.
The Company reserves the right to suspend this exchange offer at any time. This
exchange offer applies to all variable annuity contracts issued by Allmerica
Financial, except for variable annuity contract A3018-91 (and state variation
forms thereof). A variable annuity contract to which this exchange offer
applies may be exchanged at net asset value for the Contract described in this
Prospectus. To effect an exchange, Allmerica Financial should receive (1) a
completed application for the Contract, (2) written request for the exchange,
(3) the contract to be exchanged for the Contract, and (4) a signed Letter of
Awareness.
CONTINGENT DEFERRED SALES CHARGE COMPUTATION. No surrender charge applicable to
the contracts to be exchanged will apply to the surrender effecting the
exchange. Where a contract, other than a Contract or variable annuity contract
A3019-92 and state variations thereof ("contract A3019-92"), is exchanged for a
Contract, the contingent deferred sales charge under the
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<PAGE>
acquired Contract will be computed as if prior purchase payments for the
exchanged contract had been made for the acquired Contract on the date of issue
of the exchanged contract. Where another Contract or contract A3019-92 is
exchanged for a new Contract, the contingent deferred sales charge under the
acquired Contract will be computed as if prior purchase payments for the
exchanged Contract or contract A3019-92 had been made for the acquired Contract
at least as early as the date on which they were made for the exchanged Contract
or contract A3019-92.
For those exchanged contracts for which a front-end sales charge was deducted
from each purchase payment, the transferred accumulated values will be treated
as "Old Payments" under the Contract, so that no deferred sales charge will be
assessed on aggregate subsequent withdrawals from the Contract of up to the
amount of the transferred accumulated values. For additional purchase payments
made under the Contract after the transfer of accumulated value from the
exchanged contract, the contingent deferred sales charge will be computed based
on the number of years that the additional purchase payments to which the
withdrawal is attributed have been credited under the Contract, as provided in
this Prospectus.
SUMMARY OF DIFFERENCES BETWEEN THE ACQUIRED CONTRACT AND EXCHANGED CONTRACTS.
The Contract and the variable contracts to which this exchange offer applies, if
other than another Contract or contract A3019-92, differ substantially as
summarized below. There may be additional differences important to a person
considering an exchange, and the prospectuses of the Contract and the variable
contract to be exchanged should be reviewed carefully before the exchange is
made.
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under
the Contract, as described in this Prospectus, imposes higher charge percentages
against the excess amount redeemed and generally applies such percentages for a
greater number of years than the exchanged contracts. For certain classes of
exchanged contracts, new purchase payments, subject to the contingent deferred
sales charge under the Contract, would not have been subject to the charge under
the exchanged contract.
CONTRACT FEE AND ADMINISTRATIVE EXPENSE CHARGE. Under the Contract, Allmerica
Financial deducts a Contract Fee, at a maximum of $30, on each policy
anniversary date and upon full surrender, when the Accumulated Value is $50,000
or less, and assesses each Subaccount with a daily administrative expense charge
at an annual rate of 0.15% of the average daily net assets of the Subaccount.
Depending on the class of contracts to which this exchange offer is made, either
no policy fee is deducted or a policy fee of $9 is deducted twice a year. For
certain classes of contracts, a combined sales and administrative expense is
deducted from purchase payments. No administrative expense charge based on a
percentage of Subaccount assets is imposed under the contracts to which this
exchange offer is made.
TRANSFER CHARGE. No charges for transfers among the Subaccounts and the General
Account are imposed for contracts to which this exchange offer is made.
Currently, no such charge is imposed under the Contract and the first six
transfers in a Contract year are guaranteed to be free of any charge. However,
Allmerica Financial reserves the right to assess a charge, guaranteed never to
exceed $25, for the seventh and each subsequent transfer in a Contract year.
DEATH BENEFIT. The Contract offers a "stepped-up death benefit" which is not
offered under the exchanged contract; namely, the minimum death benefit that
would have been payable on the most recent fifth year Contract Anniversary,
adjusted for subsequent purchase payments and withdrawals after that date. Upon
exchange for the Contract, the accumulated value of the exchanged contract
becomes the "purchase payment" for the Contract. Therefore, the prior purchase
payments made for the exchanged contract would not become a basis for
determining the gross payment (less redemptions) guarantee under the Contract.
Consequently, whether the initial minimum death benefit under the Contract
acquired in an exchange is greater than, equal to, or less than the death
benefit of the exchanged contract depends upon whether the accumulated value
transferred to the Contract is greater than, equal to, or less than the gross
payments (less redemptions) under the exchanged contract.
ANNUITY TABLES. The contracts to which this exchange offer is made contain more
favorable annuity tables than the Contract for use in determining the amount of
the first variable annuity payment under the annuity options offered. The
contracts and the Contract each provide minimum guarantees.
INVESTMENTS. Accumulated Value and purchase payments under the Contract may be
allocated to several underlying funds in addition to those permitted under the
exchanged contracts.
SUMMARY OF DIFFERENCES BETWEEN THE ACQUIRED CONTRACT AND CONTRACT A3019-92. The
Contract and contract A3019-92 differ in the following material ways (the
prospectuses of the Contract and contract A3019-92 should be reviewed carefully
before any exchange):
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under
the Contract, as described in this Prospectus, imposes lower charge percentages
against the excess amount redeemed.
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<PAGE>
DEATH BENEFIT. The Contract offers a "stepped-up death benefit," which is the
minimum death benefit that would have been payable on the most recent fifth year
Contract Anniversary, adjusted for subsequent purchase payments and withdrawals
after that date. Under contract A3019-92, the stepped-up death benefit applies
to the most recent seventh year, rather than fifth year, contract anniversary.
Upon exchange for the Contract, the accumulated value of exchanged contract
A3019-92 becomes the "purchase payment" for the Contract. Therefore, the prior
purchase payments made for exchanged contract A3019-92 would not become a basis
for determining the gross payment (less redemptions) guarantee under the
Contract. Consequently, whether the initial minimum death benefit under the
Contract acquired in an exchange is greater than, equal to, or less than the
death benefit of exchanged contract A3019-92 depends upon whether the
accumulated value transferred to the Contract is greater than, equal to, or
less than the gross payments (less redemptions) under exchanged contract
A3019-92.
INVESTMENTS. Accumulated Value and purchase payments under the Contract and
contract A3019-92 are allocable to different underlying funds underlying
investment companies.
FIXED ACCOUNT. The Contract has a Fixed Account minimum guaranteed interest
rate of 3.5% compounded annually. Contract A3019-92 has a fixed account minimum
guaranteed interest rate of 5% compounded annually for the first five policy
years, 4% compounded annually for the next five policy years, and 3.5%
compounded annually thereafter. Under the Contract, amounts may not be
transferred from the Fixed Account to a Sub-Account prior to the end of the
applicable one-year guaranteed period.
B. FIXED ANNUITY EXCHANGE OFFER.
This exchange offer also applies to all fixed annuity contracts issued by
Allmerica Financial. A fixed annuity contract to which this exchange offer
applies may be exchanged at net asset value for the Contract described in this
Prospectus, subject to the same provisions for effecting the exchange and for
applying the Contract's contingent deferred sales charge as described above for
variable annuity contracts. This Prospectus should be read carefully before
making such exchange. Unlike a fixed annuity, the Contract's value is not
guaranteed and will vary depending on the investment performance of the
underlying funds to which it is allocated. The Contract has a different charge
structure than a fixed annuity contract, which includes not only a contingent
deferred sales charge that may vary from that of the class of contracts to which
the exchanged fixed contract belongs, but also Contract fees, mortality and
expense risk charges (for Allmerica Financial's assumption of certain mortality
and expense risks), administrative expense charges, transfer charges (for
transfers permitted among Subaccounts and the General Account), and expenses
incurred by the underlying funds. Additionally, the interest rates offered
under the General Account of the Contract and the Annuity Tables for determining
minimum annuity payments may be different from those offered under the exchanged
fixed contract.
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE.
Persons who, under the terms of this exchange offer, exchange their contract for
the Contract and subsequently revoke the Contract within the time permitted, as
described in the sections of this Prospectus captioned "RIGHT TO REVOKE
CONTRACT," will have their exchanged contract automatically reinstated as of the
date of revocation. The refunded amount will be applied as the new current
accumulated value under the reinstated contract, which may be more or less than
it would have been had no exchange and reinstatement occurred. The refunded
amount will be allocated initially among the general account and subaccounts of
the reinstated contract in the same proportion that the value in the general
account and the value in each subaccount bore to the transferred accumulated
value on the date of the exchange of the contract for the Contract. For
purposes of calculating any contingent deferred sales charge under the
reinstated contract, the reinstated contract will be deemed to have been issued
and to have received past purchase payments as if there had been no exchange.
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<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
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 SEPARATE ACCOUNT DATED MAY 1, 1996
("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ALLMERICA INVESTMENTS,
INC., 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653, (508) 855-3590.
DATED APRIL 30, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY . . . . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE CONTRACT, THE SEPARATE ACCOUNT AND THE
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
GENERAL INFORMATION AND HISTORY
Allmerica Select Separate Account ("Separate 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 indirect wholly-owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995 and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1995 First Allmerica and its subsidiaries
(including the Company) had over $11 billion in combined assets and over
$35.2 billion in life insurance in force.
Currently, 11 Subaccounts of the Separate Account are available under the
Contracts. Each Subaccount 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 series investment
companies. Seven different funds of the Trust are available under the Policies:
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 Policies: the High Income Portfolio, Equity-Income Portfolio and
Growth Portfolio. One portfolio of T. Rowe Price is available under the
Policies: 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.
-2-
<PAGE>
TAXATION OF THE CONTRACT, SEPARATE
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 Separate Account.
The Separate Account is considered to be a part of and taxed with the operations
of The Company. The Company is taxed as a life insurance company under
subchapter L of the Code and files a consolidated tax return with its parent and
affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Contracts or the Separate Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Contract Owners. The Separate Account
presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Separate Account. Trust shares owned by the Sub-Accounts 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 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., 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 Separate Account. Allmerica 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 indirect 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 5.5% 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 Separate
Account.
The aggregate amount of commissions retained by Allmerica Investments, Inc. was
____ in 1995, $0.00 in 1994 and $833,623.78 in 1993. The aggregate amount of
commissions paid to independent broker/dealers was ________ in 1995,
$7,477,332.00 in 1994 and $5,124,559.37 in 1993.
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<PAGE>
Commissions are paid by The Company and do not result in any charge to Contract
Owners or to the Separate Account in addition to the charges described under
"CHARGES AND DEDUCTIONS" in the Prospectus. The Company intends to recoup the
commission and other sales expense through a combination of anticipated
surrender, partial redemption, and/or annuitization charges, profits from The
Company's general account, including the investment earnings on amounts
allocated to accumulate on a fixed basis in excess of the interest credited on
fixed accumulations by The Company, and the profit, if any, from the mortality
and expense risk charge.
ANNUITY PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "COMPUTATION OF CONTRACT 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:
<TABLE>
<S> <C>
(1) Accumulation Unit Value - Previous Valuation Period .............. $ 1.135000
(2) Value of Assets - Beginning of Valuation Period .................. $5,000,000
(3) Excess of investment income and net gains over capital losses..... $1,675
(4) Adjusted Gross Investment Rate for the valuation period (3):(2) .. 0.000335
(5) Annual Charge (one day equivalent of 1.40% per annum) ............ 0.000038
(6) Net Investment Rate (4)-(5) ...................................... 0.000297
(7) Net Investment Factor 1.000000 + (6) ............................. 1.000297
(8) Accumulation Unit Value - Current Period (1)x(7) ................. $ 1.135337
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
accumulated unit value at the end of the Valuation Period would have been
$1.134577.
The method for determining the amount of annuity payments is described in detail
under "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 Annuitant has
40,000 Accumulation Units in a Separate Account, and that the value of an
Accumulation Unit on the Valuation Date used to determine the amount of the
first variable annuity payment is $1.120000. Therefore, the Accumulation Value
of the 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 value for the assumed rate of 3-1/2% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit values
because the former reflect the 3-1/2% assumed interest rate used in the annuity
rate calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined
-4-
<PAGE>
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 redemption, 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
$17,725.39. 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 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.
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 materials 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-Accounts asset charge and any applicable contingent deferred sales
charge which would be assessed upon complete redemption of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission. The quotations are computed by
finding the average annual compounded rates of return over the specified periods
that would equate the initial amount invested to the ending redeemable values,
according to the following formula:
P(1 + T)n = ERV
-5-
<PAGE>
Where: P = a hypothetical initial payment to the Separate 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, according to the following
schedule:
YEARS FROM DATE OF PURCHASE CHARGE AS PERCENTAGE
PAYMENT TO DATE OF WITHDRAWAL OF NEW PURCHASE PAYMENTS
REDEEMED*
0-1 6.5%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
*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 sales
load.
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 redeemed at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
P(1 + T)n = EV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of the
specified period
-6-
<PAGE>
The calculation of Supplemental Total Return reflects the 1.40% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
policy is NOT redeemed at the end of the specified period, and there is
therefore no adjustment for the contingent deferred sales charge that would be
applicable if the policy was redeemed at the end of the period.
The calculations of Supplemental Total Return includes the deduction of the $30
Annual Policy fee.
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
Policy fee.
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Allmerica Select Separate Account.
-7-
<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
<PAGE>
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<PAGE>
This page left blank intentionally.
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
(formerly SMA Life Assurance Company)
STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
December 31, 1995
Statutory Financial Statements
Report of Independent Accountants . . . . . . . . . . . . . . . . . 1
Statement of Assets, Liabilities, Surplus and Other Funds . . . . . 3
Statement of Operations and Changes in Capital and Surplus. . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Statutory Financial Statements . . . . . . . . . . . . . . 6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)
We have audited the accompanying statutory basis statement of assets,
liabilities, surplus and other funds of Allmerica Financial Life Insurance and
Annuity Company as of December 31, 1995 and 1994, and the related statutory
basis statements of operations and changes in capital and surplus, and of cash
flows for each of the three years ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, which practices
differ from generally accepted accounting principles. The effects on the
financial statements of the variances between the statutory basis of accounting
and generally accepted accounting principles, although not reasonably
determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Allmerica Financial Life Insurance and Annuity Company as of December 31,
1995 and 1994, or the results of its operations or its cash flows for each of
the three years ended December 31, 1995.
<PAGE>
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)
Page 2
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities, surplus and other funds of
Allmerica Financial Life Insurance and Annuity Company as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years ended December 31, 1995, on the basis of accounting described in
Note 1.
As discussed in Note 1 to the financial statements, the Company's parent, State
Mutual Life Assurance Company of America, converted from a Massachusetts mutual
life insurance company to a Massachusetts stock life insurance company on
October 16, 1995. In connection with this transaction, the Company changed its
name to Allmerica Financial Life Insurance and Annuity Company and its parent
became a wholly-owned subsidiary of Allmerica Financial Corporation.
/s/Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Boston, MA
February 5, 1996
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF ASSETS, LIABILITIES, SURPLUS AND
OTHER FUNDS
as of December 31,
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash $ 7,791 $ 7,248
Investments:
Bonds 1,659,575 1,595,275
Stocks 18,132 12,283
Mortgage loans 239,522 295,532
Policy loans 122,696 116,600
Real estate 40,967 51,288
Short term investments 3,500 45,239
Other invested assets 40,196 27,443
----------- -----------
Total cash and investments 2,132,379 2,150,908
Premiums deferred and uncollected (1,231) 5,452
Investment income due and accrued 38,413 39,442
Other assets 6,060 10,569
Assets held in separate accounts 2,978,409 1,869,695
----------- -----------
$ 5,154,030 $ 4,076,066
----------- -----------
----------- -----------
LIABILITIES, SURPLUS AND OTHER FUNDS
Liabilities:
Policy liabilities:
Life reserves $ 856,239 $ 890,880
Annuity and other fund reserves 865,216 928,325
Accident and health reserves 167,246 121,580
Claims payable 11,047 11,720
----------- -----------
Total policy liabilities 1,899,748 1,952,505
Expenses and taxes payable 20,824 17,484
Other liabilities 27,499 36,466
Asset valuation reserve 31,556 20,786
Obligations related to separate account business 2,967,547 1,859,502
----------- -----------
Total liabilities 4,947,174 3,886,743
----------- -----------
Surplus and Other Funds:
Common stock, $1,000 par value
Authorized - 10,000 shares
Issued and outstanding - 2,517 shares 2,517 2,517
Paid-in surplus 199,307 199,307
Unassigned surplus (deficit) 4,282 (13,621)
Special contingency reserves 750 1,120
----------- -----------
Total surplus and other funds 206,856 189,323
----------- -----------
$ 5,154,030 $ 4,076,066
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF OPERATIONS AND
CHANGES IN CAPITAL AND SURPLUS
for the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
REVENUE 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums and other considerations:
Life $ 156,864 $ 195,633 $ 189,285
Annuities 729,222 707,172 660,143
Accident and health 31,790 31,927 35,718
Reinsurance commissions and reserve adjustments 20,198 4,195 2,309
---------- ---------- ----------
Total premiums and other considerations 938,074 938,927 887,455
Net investment income 167,470 170,430 177,612
Realized capital losses, net of tax (2,295) (17,172) (7,225)
Other revenue 37,466 26,065 19,055
---------- ---------- ----------
Total revenue 1,140,715 1,118,250 1,076,897
---------- ---------- ----------
POLICY BENEFITS AND OPERATING EXPENSES
Policy benefits:
Claims, surrenders and other benefits 391,254 331,418 275,290
Increase (decrease) in policy reserves (22,669) 40,113 15,292
---------- ---------- ----------
Total policy benefits 368,585 371,531 290,582
Operating and selling expenses 150,215 164,175 160,928
Taxes, except capital gains tax 26,536 22,846 19,066
Net transfers to separate accounts 556,856 553,295 586,539
---------- ---------- ----------
Total policy benefits and operating expenses 1,102,192 1,111,847 1,057,115
---------- ---------- ----------
NET INCOME 38,523 6,403 19,782
CAPITAL AND SURPLUS, BEGINNING OF YEAR 189,323 182,216 171,941
Unrealized capital gains (losses) on investments 8,279 12,170 (9,052)
Transfer from (to) asset valuation reserve (10,770) (9,822) 1,974
Other adjustments (18,499) (1,644) (2,429)
---------- ---------- ----------
CAPITAL AND SURPLUS, END OF YEAR $ 206,856 $ 189,323 $ 182,216
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF CASH FLOWS
for the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums, deposits and other income $ 964,129 $ 962,147 $ 902,725
Allowances and reserve adjustments on
reinsurance ceded 20,693 3,279 22,185
Net investment income 170,949 173,294 182,843
Net increase in policy loans (6,096) (7,585) (7,812)
Benefits to policyholders and beneficiaries (393,472) (330,900) (298,612)
Operating and selling expenses and taxes (153,504) (193,796) (171,533)
Net transfers to separate accounts (608,480) (600,760) (634,021)
Federal income tax (excluding tax on capital gains) (6,771) (19,603) (4828)
Other sources (applications) (13,642) 19,868 7,757
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (26,194) 5,944 (1,296)
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sales and maturities of long term investments:
Bonds 572,640 478,512 386,414
Stocks 481 63 64
Real estate and other invested assets 13,008 3,008 11,094
Repayment of mortgage principal 55,202 65,334 79,844
Capital gains tax (400) (968) (3,296)
Acquisition of long term investments:
Bonds (640,339) (508,603) (466,086)
Stocks (44) - -
Real estate and other invested assets (11,929) (24,544) (2,392)
Mortgage loans (415) (364) (2,266)
Other investing activities (3,206) 18,934 (27,254)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (15,002) 31,372 (23,878)
---------- ---------- ----------
Net change in cash and short term investments (41,196) 37,316 (25,174)
CASH AND SHORT TERM INVESTMENTS
Beginning of the year 52,487 15,171 40,345
---------- ---------- ----------
End of the year $ 11,291 $ 52,487 $ 15,171
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTES TO STATUTORY FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Financial" or the "Company", formerly SMA Life
Assurance Company) is a wholly owned subsidiary of SMA Financial Corp., which is
wholly owned by First Allmerica Financial Life Insurance Company ("First
Allmerica", formerly, State Mutual Life Assurance Company of America), a stock
life insurance company. On October 16, 1995, First Allmerica converted from a
mutual life insurance company to a stock life insurance company. Concurrent
with this transaction, First Allmerica became a wholly owned subsidiary of
Allmerica Financial Corporation ("AFC").
The stockholder's equity of the Company is being maintained at a minimum level
of 5% of general account assets by First Allmerica in accordance with a policy
established by vote of First Allmerica's Board of Directors.
The Company's financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware and in conformity with practices prescribed by the National Association
of Insurance Commissioners (NAIC), which while common in the industry, vary in
some respects from generally accepted accounting principles. Significant
differences include:
- Bonds considered to be "available-for-sale" or "trading" are not
carried at fair value and changes in fair value are not recognized
through surplus or the statement of operations, respectively;
- The Asset Valuation Reserve, represents a reserve against possible
losses on investments and is recorded as a liability through a charge
to surplus. The Interest Maintenance Reserve is designed to include
deferred realized gains and losses (net of applicable federal income
taxes) due to interest rate changes and is also recorded as a
liability, however, the deferred net realized investment gains and
losses are amortized into future income generally over the original
period to maturity of the assets sold. These liabilities are not
required under generally accepted accounting principles;
- Total premiums, deposits and benefits on certain investment-type
contracts are reflected in the statement of operations, instead of
using the deposit method of accounting;
- Policy acquisition costs, such as commissions, premium taxes and other
items, are not deferred and amortized in relation to the revenue/gross
profit streams from the related contracts;
- Benefit reserves are determined using statutorily prescribed interest,
morbidity and mortality assumptions instead of using more realistic
expense, interest, morbidity, mortality and voluntary withdrawal
assumptions with provision made for adverse deviation;
- Amounts recoverable from reinsurers for unpaid losses are not recorded
as assets, but as offsets against the respective liabilities;
- Deferred federal income taxes are not provided for temporary
differences between amounts reported in the financial statements and
those included in the tax returns;
- Certain adjustments related to prior years are recorded as direct
charges or credits to surplus;
- Certain assets, designated as "non-admitted" assets (principally
agents' balances), are not recorded as assets, but are charged to
surplus; and,
- Costs related to other postretirement benefits are recognized only for
employees that are fully vested.
6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The preparation of financial statements in accordance with practices prescribed
or permitted by the Insurance Department of the State of Delaware and in
conformity with practices prescribed by the NAIC requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
VALUATION OF INVESTMENTS - Investments in bonds are carried principally at
amortized cost, in accordance with NAIC guidelines. Preferred stocks are
carried generally at cost and common stocks are carried at market value. Policy
loans are carried principally at unpaid principal balances.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts. Mortgage loans are reduced for losses expected by
management to be realized on transfers of mortgage loans to real estate (upon
foreclosure), on the disposition or settlement of mortgage loans and on mortgage
loans which management believes may not be collectible in full. In determining
the amount of the loss, management considers, among other things, the estimated
fair value of the underlying collateral. Investment real estate and real estate
acquired through foreclosure are carried at the lower of depreciated cost or
market value. Depreciation is generally calculated using the straight-line
method.
An asset valuation reserve (AVR) for bonds, mortgage loans, stocks, real estate,
and other invested assets is maintained by appropriations from surplus in
accordance with a formula specified by the NAIC and is classified as a
liability.
FINANCIAL INSTRUMENTS - In the normal course of business, the Company enters
into transactions involving various types of financial instruments including
investments such as bonds, stocks and mortgage loans and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuations. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
RECOGNITION OF PREMIUM INCOME AND ACQUISITION COSTS - In general, premiums are
recognized as revenue over the premium paying period of the policies;
commissions and other costs of acquiring the policies are charged to operations
when incurred.
SEPARATE ACCOUNTS - Separate account assets and liabilities represent segregated
funds administered and invested by the Company for the benefit of certain
variable annuity and variable life contract holders. Assets consist principally
of bonds, common stocks, mutual funds, and short term obligations at market
value. The investment income, gains, and losses of these accounts generally
accrue to the contract holders and therefore, are not included in the Company's
net income. Appreciation and depreciation of the Company's interest in the
separate accounts, including undistributed net investment income, is reflected
in capital and surplus.
INSURANCE RESERVES AND ANNUITY AND OTHER FUND RESERVES - Reserves for life
insurance, annuities, and accident and health insurance are established in
amounts adequate to meet the estimated future obligations of policies in
force. These liabilities are computed based upon mortality, morbidity and
interest rate assumptions applicable to these coverages, including provision
for adverse deviation. Reserves are computed using interest rates ranging
from 3% to 6% for individual life insurance policies, 3% to 5 1/2% for
accident and health policies and 3 1/2% to 9 1/2% for annuity contracts.
Mortality, morbidity and withdrawal assumptions for all policies are based on
the Company's own experience and industry standards. The assumptions vary by
plan, age at issue, year of issue and duration. Claims reserves are computed
based on historical experience modified for expected trends in frequency and
severity. Withdrawal characteristics of annuity and other fund reserves vary
by contract. At December 31, 1995 and 1994, approximately 84% and 77%,
respectively, of the contracts (included in both the general account and
separate accounts of the Company) were not subject to discretionary
withdrawal or were subject to withdrawal at book value less surrender charge.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, management
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
FEDERAL INCOME TAXES - AFC, its life insurance subsidiaries, First Allmerica and
Allmerica Financial and its non-insurance domestic subsidiaries file a
life-nonlife consolidated United States federal income tax return. Entities
included within the consolidated group are segregated into either a life
insurance or non-life insurance company subgroup. The consolidation of these
subgroups is subject to certain statutory restrictions on the percentage of
eligible non-life taxable operating losses that can be applied to offset life
company taxable income. Allmerica P&C and its subsidiaries file a separate
United States Federal income tax return.
The federal income tax allocation policies and procedures are subject to written
agreement between the companies. The federal income tax for all subsidiaries in
the consolidated return of AFC is calculated on a separate return basis. Any
current tax liability is paid to AFC. Tax benefits resulting from taxable
operating losses or credits of AFC's subsidiaries are not reimbursed to the
subsidiary until such losses or credits can be utilized by the subsidiary on a
separate return basis.
CAPITAL GAINS AND LOSSES - Realized capital gains and losses, net of applicable
capital gains tax or benefit, exclusive of those transferred to the interest
maintenance reserve ("IMR"), are included in the statement of operations.
Unrealized capital gains and losses are reflected as direct credits or charges
to capital and surplus. The IMR, which is included in other liabilities,
establishes a reserve for realized gains and losses, net of tax, resulting from
changes in interest rates on short and long term fixed income investments. Net
realized gains and losses charged to the IMR are amortized into net investment
income over the remaining life of the investment sold. The Company uses the
seriatim method of amortization for interest related gains and losses arising
from the sale of mortgages, and uses the group method to amortize interest
related gains and losses arising from all other fixed income investments.
NOTE 2 - INVESTMENTS
BONDS - The carrying value and fair value of investments in bonds are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 67,039 $ 3,063 $ - $ 70,102
State, local and government agency bonds 13,607 2,290 23 15,874
Foreign government bonds 12,121 772 249 12,644
Corporate securities 1,471,422 55,836 6,275 1,520,983
Mortgage-backed securities 95,385 951 - 96,336
---------- ---------- ---------- ----------
Total $1,659,574 $ 62,912 $ 6,457 $1,715,939
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
December 31, 1995
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
Federal government bonds $ 17,651 $ 8 $ 762 $ 16,897
State, local and government agency bonds 1,110 54 - 1,164
Foreign government bonds 31,863 83 3,735 28,211
Corporate securities 1,462,871 8,145 56,011 1,415,005
Mortgage-backed securities 81,780 268 1,737 80,311
---------- ---------- ---------- ----------
Total $1,595,275 $ 8,558 $ 62,245 $1,541,588
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The carrying value and fair value by contractual maturity at December 31, 1995,
are shown below. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties or the Company may have the right to put or
sell the obligation back to the issuer. Mortgage-backed securities are
classified based on expected maturities.
<TABLE>
<CAPTION>
Carrying Fair
(In thousands) Value Value
----- -----
<S> <C> <C>
Due in one year or less $ 250,578 $ 258,436
Due after one year through five years 736,003 763,179
Due after five years through ten years 538,897 558,445
Due after ten years 134,097 135,880
---------- ----------
Total $1,659,575 $1,715,940
---------- ----------
---------- ----------
</TABLE>
MORTGAGE LOANS AND REAL ESTATE - Mortgage loans and real estate investments, are
diversified by property type and location. Real estate investments have been
obtained primarily through foreclosure. Mortgage loans are collateralized by
the related properties and are generally no more than 75% of the property value
at the time the original loan is made. At December 31, 1995 and 1994, mortgage
loan and real estate investments were distributed by the following types and
geographic regions:
<TABLE>
<CAPTION>
(In thousands)
Property Type 1995 1994
- ------------- ---- ----
<S> <C> <C>
Office buildings $ 127,149 $ 140,292
Residential 59,934 57,061
Retail 29,578 72,787
Industrial/Warehouse 38,192 39,424
Other 25,636 37,256
----------- -----------
Total $ 280,489 $ 346,820
----------- -----------
----------- -----------
Geographic Region 1995 1994
- ----------------- ---- ----
South Atlantic $ 86,410 $ 92,934
East North Central 55,991 72,704
Middle Atlantic 38,666 48,688
Pacific 32,803 39,892
West North Central 21,486 27,377
Mountain 9,939 12,211
New England 24,886 26,613
East South Central 5,487 6,224
West South Central 4,821 20,177
---------- ----------
Total $ 280,489 $ 346,820
---------- ----------
---------- ----------
</TABLE>
Reserves for mortgage loans and real estate reflected in the above amounts were
$18.9 million and $21.0 million at December 31, 1995 and 1994, respectively.
9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NET INVESTMENT INCOME - The components of net investment income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 122,318 $ 123,495 $ 126,729
Stocks 1,653 1,799 953
Mortgage loans 26,356 31,945 40,823
Real estate 9,139 8,425 9,493
Policy loans 9,486 8,797 8,215
Other investments 3,951 1,651 674
Short term investments 2,252 1,378 840
---------- ---------- ----------
175,155 177,490 187,727
Less investment expenses 9,703 9,138 11,026
---------- ---------- ----------
Net investment income, before IMR amortization 165,452 168,352 176,701
IMR amortization 2,018 2,078 911
---------- ---------- ----------
Net investment income $ 167,470 $ 170,430 $ 177,612
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES - Realized capital gains (losses) on
investments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 727 $ 645 $ 10,133
Stocks (263) (62) 16
Mortgage loans (1,083) (17,142) (83)
Real estate (1,892) 605 (2,044)
--------- --------- ---------
(2,511) (15,954) 8,022
Less income tax 400 968 3,296
--------- --------- ---------
Net realized capital gains (losses) before transfer to IMR (2,911) (16,922) 4,726
Net realized capital gains transferred to IMR 616 (250) (11,951)
--------- --------- ---------
Net realized capital gains (losses) $ (2,295) $(17,172) $ (7,225)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from voluntary sales of investments in bonds during 1995, 1994 and 1993
were $22.4 million, $17.9 million, and $13.2 million, respectively. Gross gains
of $4.3 million, $3.0 million, and $4.5 million and gross losses of $5.2
million, $4.6 million, and $ .5 million, respectively, were realized on those
sales.
NOTE 3 - FAIR VALUE DISCLOSURES OF FINANCIAL INFORMATION
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value information
about certain financial instruments (insurance contracts, real estate, goodwill
and taxes are excluded) for which it is practicable to estimate such values,
whether or not these instruments are included in the balance sheet. The fair
values presented for certain financial instruments are estimates which, in many
cases, may differ significantly from the amounts which could be recognized upon
immediate liquidation. In cases where market prices are not available,
estimates of fair value are based on discounted cash flow analyses which utilize
current interest rates for similar financial instruments which have comparable
terms and credit quality.
10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
FINANCIAL ASSETS:
CASH AND SHORT TERM INVESTMENTS - The carrying amounts reported in the statement
of assets, liabilities, surplus and other funds approximate fair value.
BONDS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models using
discounted cash flow analyses.
STOCKS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models.
MORTGAGE LOANS - Fair values are estimated by discounting the future contractual
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings. The fair value of below investment grade
mortgage loans is limited to the lesser of the present value of the cash flows
or book value.
POLICY LOANS - The carrying amount reported in the statement of assets,
liabilities, surplus and other funds approximates fair value since policy loans
have no defined maturity dates and are inseparable from the insurance contracts.
FINANCIAL LIABILITIES:
ANNUITY AND OTHER FUND RESERVES (WITHOUT MORTALITY/MORBIDITY FEATURES) - Fair
values for the Company's liabilities under individual annuity contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments as of December 31 were as
follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 7,791 $ 7,791 $ 7,248 $ 7,248
Short term investments 3,500 3,500 45,239 45,239
Bonds 1,659,575 1,715,940 1,595,275 1,541,588
Stocks 18,132 18,414 12,283 12,590
Mortgage loans 239,522 250,196 295,532 291,704
Policy loans 122,696 122,696 116,600 116,600
Financial Liabilities:
Individual annuity contracts 803,099 797,024 869,230 862,662
Supplemental contracts without life
contingencies 16,796 16,796 16,673 16,673
Other contract deposit funds 632 632 1,105 1,105
</TABLE>
11
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTE 4 - FEDERAL INCOME TAXES
The federal income tax provisions for 1995, 1994 and 1993 were $17.4 million,
$13.1 million and $8.6 million, respectively, which include taxes applicable to
realized capital gains of $.4 million, $1.0 million and $3.3 million.
The effective federal income tax rates were 27%, 67% and 30% in 1995, 1994 and
1993, respectively. The differences between the federal statutory rate and the
Company's effective tax rates are primarily related to decreases in taxable
income for the write-offs of mortgage loans; and increases in taxable income for
differences in policyholder liabilities for federal income tax purposes and
financial reporting purposes and the deferral of policy acquisition costs for
federal tax purposes.
The consolidated federal income tax returns are routinely audited by the
Internal Revenue Service (IRS) and provisions are routinely made in the
financial statements in anticipation of the results of these audits. The IRS
has completed its examination of all of the consolidated federal income tax
returns through 1988. In management's opinion, adequate tax liabilities have
been established for all years. However, the amount of these liabilities could
be revised in the near term if estimates of the Company's ultimate liability are
revised.
NOTE 5 - REINSURANCE
The Company participates in reinsurance to reduce overall risks, including
exposure to large losses and to permit recovery of a portion of direct losses.
Reinsurance contracts do not relieve the Company from its obligation to its
policyholders. Reinsurance financial data for the years ended December 31, is
as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reinsurance premiums assumed $ 3,442 $ 3,788 $ 4,190
Reinsurance premiums ceded
42,914 17,430 14,798
Deduction from insurance
liability including
reinsurance recoverable on
unpaid claims 82,227 46,734 42,805
</TABLE>
Individual life premiums ceded to First Allmerica aggregated $6.8 million, $7.8
million and $9.0 million in 1995, 1994 and 1993, respectively. The Company has
also entered into various reinsurance agreements with First Allmerica under
which certain insurance risks related to individual accident and health
business, premium income and related expenses are assumed by the Company from
First Allmerica. Premiums assumed pursuant to these agreements aggregated $3.4
million, $3.8 million and $4.2 million in 1995, 1994 and 1993, respectively .
During the year Allmerica Financial entered into a coinsurance agreement to
reinsure substantially all of its yearly renewable term life insurance.
Premiums ceded and reinsurance credits taken under this agreement amounted to
$25.4 million and $20.7 million, respectively. At December 31, 1995, the
deduction from insurance liability, including reinsurance recoverable on unpaid
claims under this agreement was $12.7 million.
NOTE 6 - ACCIDENT AND HEALTH POLICY AND CLAIM LIABILITIES
The Company regularly updates its estimates of policy and claims liabilities as
new information becomes available and further events occur which may impact the
resolution of unsettled claims for its accident and health line of business.
Changes in prior estimates are generally reflected in results of operations in
the year such changes are determined to be needed and recorded.
The policy and claims liabilities related to the Company's accident and health
business were $169.7 million and $123.5 million at December 31, 1995 and 1994,
respectively. Accident and health policy and claims liabilities have been
re-estimated for all prior years and were increased by $42.5 million, $10.9
million and $13.2 million, in 1995, 1994 and 1993, respectively, including $21.9
million and $2.8 million recorded as an adjustment to surplus in 1995 and 1993,
respectively. The unfavorable development is primarily due to reserve
strengthening and adverse experience in the Company's individual accident and
health line of business.
12
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTE 7 - DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its statutory policyholder surplus as of the preceding
December 31 or (ii) the individual company's statutory net gain from operations
for the preceding calendar year (if such insurer is a life company) or its net
income (not including realized capital gains) for the preceding calendar year
(if such insurer is not a life company). Any dividends to be paid by an
insurer, whether or not in excess of the aforementioned threshold, from a source
other than statutory earned surplus would also require the prior approval of the
Delaware Commissioner of Insurance. At January 1, 1996, the Company could pay
dividends of $4.3 million to First Allmerica, without prior approval.
NOTE 8 - OTHER RELATED PARTY TRANSACTIONS
First Allmerica provides management, operating personnel and facilities on a
cost reimbursement basis to the Company. Expenses for services received from
First Allmerica were $ 85.8 million, $102.5 million and $98.9 million in 1995,
1994 and 1993, respectively. The net amounts payable to First Allmerica and
affiliates for accrued expenses and various other liabilities and receivables
were $12.6 million and $8.3 million at December 31, 1995 and 1994, respectively.
NOTE 9 - FUNDS ON DEPOSIT
In March 1994, the Company voluntarily withdrew from being licensed in New York.
In connection with the withdrawal First Allmerica, which is licensed in New
York, became qualified to sell the products previously sold by Allmerica
Financial in New York. The Company agreed with the New York Department of
Insurance to maintain, through a custodial account in New York, a security
deposit, the market value of which will at all times equal 102% of all
outstanding general account liabilities of the Company for New York
policyholders, claimants and creditors. As of December 31, 1995, the carrying
value and fair value of the assets or deposit was $295.0 million and $303.6
million, respectively, which is in excess of the required amount.
Additional securities with a carrying value of $4.2 million and $3.9 million
were on deposit with various other state and governmental authorities as of
December 31, 1995 and 1994, respectively.
NOTE 10 - LITIGATION
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the
advice of legal counsel, the ultimate resolution of these proceedings will not
have a material effect on the Company's financial statements.
13
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
FINANCIAL STATEMENTS INCLUDED IN PART A
None
FINANCIAL STATEMENTS INCLUDED IN PART B
Financial Statements for Allmerica Financial Life Insurance and Annuity
Company
Financial Statements for Allmerica Select Separate Account of Allmerica
Financial Life Insurance and Annuity Company
FINANCIAL STATEMENTS INCLUDED IN PART C
None
(b) EXHIBITS
Exhibit 1 - Vote of Board of Directors Authorizing Establishment of
Registrant dated March 5, 1992 was previously filed on April 15,
1992, and is incorporated herein by reference.
Exhibit 2 - Not Applicable. Pursuant to Rule 26a-2, the Insurance Company
may hold the assets of the Registrant NOT pursuant to a trust
indenture or other such instrument.
Exhibit 3 - Form of Underwriting and Administrative Services Agreement and
Broker's Agreement were previously filed on August 14, 1992 and
are incorporated herein by reference.
Exhibit 4 - NY Group Specimen Policy Form and Certificate and Generic Policy
Form were previously filed on April 15, 1992, and are
incorporated herein be reference.
Exhibit 5 - Specimen Generic Application Forms were previously filed on
August 14, 1992, and are incorporated herein by reference.
Exhibit 6 - The Depositor's Articles of Incorporation and Bylaws, as amended
to reflect its name change was filed with Post-Effective
Amendment No. 7 and is incorporated by reference herein.
Exhibit 7 - Not Applicable.
Exhibit 8(a)- AUV Calculation Services Agreement with The Shareholder Services
Group dated March 31, 1995 was previously filed, and is
incorporated by reference herein.
(b)- Fidelity Services Agreement filed herewith.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants.
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 13 - None.
Exhibit 14 - Not Applicable.
Exhibit 15- Participation Agreements with Variable Insurance Products Fund
and with T. Rowe Price International Series were previously
filed in Registration Statement No._____and are incorporated by
reference herein.
Exhibit 16- Consent of newly elected Directors.
Exhibit 27- Financial Data Schedules filed herewith.
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
The principal business address of all the following OFFICERS IS:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME AND POSITION PRINCIPAL OCCUPATION
----------------- --------------------
Bruce C. Anderson Director of First Allmerica Financial Life
Director and Vice President since 1996; Insurance Company Vice President,
First Allmerica Financial Life Insurance Company
Abigail M. Armstrong Secretary of First Allmerica Financial Life
Secretary and Counsel Insurance Company since 1996; Counsel, First
Allmerica Financial Life Insurance Company
Mark R. Colborn Vice President and Controller, First Allmerica
Vice President and Controller Insurance Company since 1996;
Kruno Huitzingh Director of First Allmerica Financial Life
Director, Vice President and Insurance Company since 1996, Vice President &
Chief Information Officer Chief Information Officer, First Allmerica
Financial Life Insurance Company since 1993;
Executive Vice President, Chicago Board Options
Exchange, 1985 to 1993
John F. Kelly Director of First Allmerica Financial Life
Director Insurance Company since 1996; Senior Vice
president, General Counsel and Assistant
Secretary, First Allmerica Financial Life
Insurance Company
John F. O'Brien Director, Chairman of the Board, President
Director and and Chief Executive Officer of First
Chairman of the Board Allmerica Financial Life Insurance Company
Edward J. Parry, III Vice President and Treasurer, First Allmerica
Vice President and Treasurer Financial Life Insurance Company since 1993;
Assistant, Vice President to 1992 to 1993;
Manager, Price Waterhouse, 1987 to 1992
Richard M. Reilly Director of First Allmerica Financial Life
Director and Vice President Insurance Company since 1996; Vice President,
First Allmerica Financial Life Insurance
Company; Director and President, Allmerica
Investments, Inc.; Director and President
Allmerica Investment Management Company, Inc.
since 1992, Director and Executive Vice
President, 1990 to 1992
Larry C. Renfro Director of First Allmerica Financial Life
Insurance Company since 1996; Vice President
First Allmerica Financial Life Insurance Company
Theodore J. Rupley Director of First Allmerica Financial Life
Director Insurance Company since 1996; President,
The Hanover Insurance Company since 1992;
President, Fountain Powerboats, 1992;
President; Metropolitan Property &
Casualty Company 1986-1992
Philip J. Soule Director of First Allmerica Financial Life
Director Insurance Company since 1996; Vice
President, First Allmerica Financial Life
Insurance Company
Eric Simonsen Director of First Allmerica Financial Life
Director, Vice President Insurance Company since 1996; Vice President
and Chief Financial Officer and Chief Financial Officer First Allmerica
Financial Life Insurance Company
Diane E. Wood Director of First Allmerica Financial Life
Director and Vice President Insurance Company since 1996; Vice President,
First Allmerica Financial Life Insurance Company
<PAGE>
Item 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT. See attached
organization chart.
<TABLE>
<CAPTION>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
NAME ADDRESS TYPE OF BUSINESS
- ---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
Allmerica Asset Management, Inc. 440 Lincoln Street Investment Advisory
Worcester MA 01653 Services
Allmerica Employees Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester, MA 01653
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Institutional 440 Lincoln Street Accounting, marketing
Services, Inc. Worcester MA 01653 and shareholder
<PAGE>
services for investment companies
Allmerica Investment Services 440 Lincoln Street Holding Company
Inc. -(formerly Allmerica Worcester, MA 01653
Financial Services, Inc.)
Allmerica Investment Management 440 Lincoln Street Investment Advisory
Company, Inc. Worcester MA 01653 Services
Allmerica Investments, Inc. 440 Lincoln Street Securities, Retail Broker-
Worcester MA 01653 Dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Property and Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Realty Advisors, Inc. 440 Lincoln Street Investment Advisory
Worcester MA 01653 Services
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services, Inc. 440 Lincoln Street Service Company
Worcester MA 01653
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national
Worcester MA 01653 trust company
AMGRO, Inc. 472 Lincoln Street Premium Financing
Worcester MA 01653
APC Funding Corp. 440 Lincoln Street Special purpose funding
Worcester MA 01653 vehicle for commercial paper
Beltsville Drive Limited 440 Lincoln Street Real estate
Partnership Worcester MA 01653 partnership
Citizens Corporation 440 Lincoln Street Holding Company
Worcester, MA 01653
Citizens Insurance Company 645 West Grand River Multi-line fire &
of America Howell MI 48843 casualty insurance
Citizens Insurance Company 645 West Grand River Multi-line fire &
of Ohio 8101 N. High Street casualty insurance
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
Greendale Special Placements 440 Lincoln Street Massachusetts Grantor
Fund Worcester MA 01653 Trust
The Hanover American Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty insurance
The Hanover Insurance Company 100 North Parkway Multi-line fire &
Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Road Incorporated Branch
Management Company, Inc. Richardson TX 75081 Office of The Hanover
Insurance Company
<PAGE>
Hanover Lloyd's Insurance 801 East Campbell Road Multi-line fire &
Company Richardson TX 75081 casualty insurance
Hollywood Center, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Linder Skokie Real Estate 440 Lincoln Street General business
Corporation Worcester MA 01653 corporation
Lloyds Credit Corporation 440 Lincoln Street Premium financing
Worcester MA 01653 service franchises
Logan Wells Water Company, Inc. 603 Heron Drive Water Company, serving
Bridgeport NJ 08014 land development investment
Massachusetts Bay Insurance 100 North Parkway Multi-line fire & Company
Worcester MA 01653 casualty
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Financial Life 440 Lincoln Street Life insurance, Insurance and
Annuity Company Worcester MA 01653 accident & health insurance,
annuities, variable life insurance
Somerset Square, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Sterling Risk Management 100 North Parkway Risk management
Services, Inc. Worcester MA 01605 services
</TABLE>
Item 27. NUMBER OF CONTRACT OWNERS.
As of December 31, 1995, there were 3,961 Contact holders of qualified
Contracts and 5,302 Contract holders of non-qualified Contracts.
Item 28. INDEMNIFICATION.
Article VIII of the Bylaws of Allmerica Financial Life Insurance and Annuity
Company (the Depositor) state: Each Director and each Officer of the
Corporation, whether or not in office, (and his executors or administrators),
shall be indemnified or reimbursed by the Corporation against all expenses
actually and necessarily incurred by him in the defense or reasonable settlement
of any action, suit, or proceeding in which he is made a party by reason of his
being or having been a Director or Officer of the Corporation, including any
sums paid in settlement or to discharge judgement, except in relation to matters
as to which he shall be finally adjudged in such action, suit or proceeding to
be liable for negligence or misconduct in the performance of his duties as such
Director or Officer; and the foregoing right of indemnification or
reimbursement shall not affect any other rights to which he may be entitled
under the Articles of Incorporation, any statute, bylaw, agreement, vote of
stockholders, or otherwise.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, Separate Accounts VA-A, VA-B, VA-C, VA-G,
VA-H, VA-K and VA-P of Allmerica Financial Life Insurance and
Annuity Company
- Separate Account I, Separate Accounts VA-K and VA-P, Inheiritage
Account, Allmerica Select Separate
and VEL II Account of First Allmerica
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
<PAGE>
NAME POSITION OR OFFICE WITH
UNDERWRITER
Abigail M. Armstrong Secretary and Counsel
Philip J. Coffey Vice President
John F. Kelly Director
John F. O'Brien Director
Stephen Parker President and CEO
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Ronald K. Smith Vice President
Mark Steinberg Senior Vice President
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester, Massachusetts or on
behalf of the Company by First Data Investor Services Group, 4400 Computer
Drive, Westboro, Ma 01581.
Item 31. MANAGEMENT SERVICES.
Effective March 31, 1995, the Company has engaged The Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts to provide daily unit value
calculations and related services for the Company's separate accounts.
Item 32. UNDERTAKINGS.
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
(b) The Registrant hereby undertakes to include as part of the application to
purchase a Contract a space that the applicant can check to request a Statement
of Additional Information.
(c) The Registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the requirements
of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Directors, Officers and Controlling Persons of Registrant under any
registration statement, underwriting agreement or otherwise, Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, Officer or Controlling Person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(B)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.
Registrant, a separate account of Allmerica Financial Life Insurance and Annuity
Company ("Company"), states that it is (a) relying on Rule 6c-7 under the 1940
Act with respect to withdrawal restrictions under the Texas Optional Retirement
Program ("Program") and (b) relying on the "no-action" letter (Ref. No. IP-6-88)
issued on November 28, 1988 to the
<PAGE>
American Council of Life Insurance, in applying the withdrawal restrictions of
Internal Revenue Code Section 403(b)(11). Registrant has taken the following
steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in the prospectus
of each registration statement used in connection with the offer of the
Company's variable contracts.
2. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in sales
literature used in connection with the offer of the Company's variable
contracts.
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
restrictions imposed by the Program and by Section 403(b)(11) to the
attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (i) the
restrictions on redemption imposed by the Program and by Section 403(b)(11)
and (ii) the investment alternatives available under the employer's
arrangement will be obtained from each participant who purchases a variable
annuity contract prior to or at the time of purchase.
Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not so
denied or limited will be effected as expeditiously as possible.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Worcester, and Commonwealth of Massachusetts on the
26th.day of April, 1996
Allmerica Financial Life Insurance and
Annuity Company
Allmerica Select Separate Account
(Registrant)
By:/s/Joseph W. MacDougall, Jr.
-----------------------------
Joseph W. MacDougall, Jr.
Vice President, Associate General
Counsel and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Richard M. Reilly Director, President April 26,1996
- --------------------- and Chief Executive Officer
Richard M. Reilly
/s/ John F. O'Brien Director and Chairman of the April 26,1996
- ------------------- Board
John F. O'Brien
/s/ Eric A. Simonsen Director, Vice President and April 26,1996
- -------------------- Chief Financial Officer
Eric A. Simonsen
/s/ Mark R. Colborn Vice President and Controller April 26, 1996
- -------------------
Mark R. Colborn
/s/ Richard J. Baker Director and Vice President April 26,1996
- --------------------
Richard J. Baker
/s/ John F. Kelly Director and Vice President April 26,1996
- -----------------
John F. Kelly
<PAGE>
EXHIBIT TABLE
Exhibit 8(b)- Fidelity Service Agreement
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 10- Consent of Independent Accountants
Exhibit 16- Consent of Newly Elected Directors
Exhibit 27- Financial Data Schedules
<PAGE>
EXHIBIT (8) B
FIDELITY SERVICES AGREEMENT
<PAGE>
SERVICE AGREEMENT
This Agreement is entered into and effective as of the 1st day of
November, 1995, by and between FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS
COMPANY ("FIIOC") and ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
("Company").
WHEREAS, FIIOC provides transfer agency and other services to Fidelity's
Variable Insurance Products Fund and Variable Insurance Products Fund II
(collectively "Funds"); and
WHEREAS, the services provided by FIIOC on behalf of the Funds include
responding to inquiries about the Funds, including the provision of information
about the Funds' investment objectives, investment policies, portfolio holdings,
etc.; and
WHEREAS, Company holds shares of the Funds in order to fund certain
variable annuity contracts, group annuity contracts, and/or variable life
insurance policies, the beneficial interests in which are held by individuals,
plan trustees, or others who look to Company to provide information about the
Funds similar to the information provided by FIIOC; and
WHEREAS, the Company and one or both of the Funds have entered into one
or more Participation Agreements, under which the Company agrees not to provide
information about the Funds except for information provided by the Funds or
their designees; and
WHEREAS, FIIOC and Company desire that Company be able to respond to
inquiries about the Funds from individual variable annuity owners, participants
in group annuity contracts issued by the Company, and owners and participants
under variable life insurance policies issued by the Company, and prospective
customers for any of the above; and
WHEREAS, FIIOC and Company recognize that Company's efforts in
responding to customer inquiries will reduce the burden that such inquiries
would place on FIIOC should such inquiries be directed to FIIOC.
NOW, THEREFORE, the parties do agree as follows:
1. INFORMATION TO BE PROVIDED TO COMPANY. FIIOC agrees to provide to
Company, on a periodic basis, directly or through a designee, information about
the Funds' investment objectives, investment policies, portfolio holdings,
performance, etc. The content and format of such information shall be as FIIOC,
in its sole discretion, shall choose. FIIOC may change the format and/or
content of such informational reports, and the frequency with which such
information is provided. For purposes of Section 4.2 of each of the Company's
Participation Agreement(s) with the Funds, FIIOC represents that it is the
designees of the Funds, and Company may therefore use the information provided
by FIIOC without seeking additional permission from the Funds.
2. USE OF INFORMATION BY COMPANY. Company may use the information
provided by FIIOC in communications to individuals, plan trustees, or others who
have legal title or beneficial interest in the annuity or life insurance
products issued by Company, and to prospective purchasers of such products or
beneficial interests thereunder. If such information is contained as part of
larger pieces of sales literature, advertising, etc., such pieces shall be
furnished for review to the Funds in accordance with the terms of the Company's
Participation Agreements with the Funds. Nothing herein shall give the Company
the right to expand upon, reformat or otherwise alter the information provided
by FIIOC. Company acknowledges that the information provided it by FIIOC may
need to be supplemented with additional qualifying information, regulatory
disclaimers, or other information before it may be conveyed to persons outside
the Company.
1
<PAGE>
3. COMPENSATION TO COMPANY. In recognition of the fact that Company
will respond to inquiries that otherwise would be handled by FIIOC, FIIOC agrees
to pay Company a quarterly fee computed as follows:
At the close of each calendar quarter, FIIOC will determine the Average
Daily Assets held in the Funds by the Company. Average Daily Assets shall be
the sum of the daily assets for each calendar day in the quarter divided by the
number of calendar days in the quarter. The Average Daily Assets shall be
multiplied by 0.0002 (2 basis points) and that sum shall be divided by four.
The resulting number shall be the quarterly fee for that quarter, which shall be
paid to Company during the following month.
Should the Participation Agreement(s) between Company and the Fund(s) be
terminated effective before the last day of a quarter, Company shall be entitled
to a fee for that portion of the quarter during which the Participation
Agreement was still in effect, unless such termination is due to misconduct on
the part of the Company. For such a stud quarter, Average Daily Assets shall be
the sum of the daily assets for each calendar day in the quarter through and
including the date of termination of the Participation Agreement(s), divided by
the number of calendar days in that quarter for which the Participation
Agreement was in effect. Such Average Daily Assets shall be multiplied by
0.0002 (2 basis points) and that number shall be multiplied by the number of
days in such quarter that the Participation Agreement was in effect, then
divided by three hundred sixty-five. The resulting number shall be the
quarterly fee for the stub quarter, which shall be paid to Company during the
following month.
4. TERMINATION. This Agreement may be terminated by Company at any time
upon written notice to FIIOC. FIIOC may terminate this Agreement at any time
upon ninety (90) days's written notice to Company. FIIOC may terminate this
Agreement immediately upon written notice to Company (1) if required by any
applicable law or regulation, (2) if so required by action of the Fund(s) Board
of Trustees, or (3) if Company engages in any material breach of this Agreement.
This Agreement shall terminate immediately and automatically upon the
termination of Company's Participation Agreement(s) with the Funds, and in such
event no notice need be given hereunder.
5. INDEMNIFICATION. Company agrees to indemnify and hold harmless FIIOC
for any misuse by Company, its affiliates, its agents, its brokers, and any
persons controlling Company, under common control with Company, or controlled by
Company, of the information provided by FIIOC under this Agreement.
6. APPLICABLE LAW. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
7. ASSIGNMENT. This Agreement may not be assigned, except that is shall
be assigned automatically to any successor to FIIOC as the Funds' transfer
agent, and any such successor shall be bound by the terms of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands as of the date first
written above.
FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY
By: /s/ Virginia Meany
---------------------------
Virginia Meany
Senior Vice President
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
---------------------------
Name: Richard M. Reilly
---------------------------
Title: President
---------------------------
2
<PAGE>
Exhibit 9
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
April 21, 1996
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of Allmerica Financial Life Insurance and Annuity
Company (the "Company"), I have participated in the preparation of the Post-
Effective Amendment to the Registration Statement for the Allmerica Select
Account on Form N-4 under the Securities Act of 1933, with respect to the
Company's qualified and non-qualified varialbe annuity products.
I am of the following opinion:
1. The Allmerica Select Account is a separate account of the Company validly
existing pursuant to the Delaware Insurance Code and the regulations issued
thereunder.
2. The assets held in the Allmerica Select Account are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The contracts, when issued in accordance with the Prospectus contained in
the Registration Statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company in accordance with
their terms and when sold will be legally issued, fully paid and non-
assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendment to the Registration Statement of the Inheiritage Account on
Form S-6 filed under the Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 8 to the Registration
Statement on Form N-4 of our report dated February 5, 1996, relating to the
financial statements of Allmerica Financial Life Insurance and Annuity
Company and our report dated February 23, 1996, relating to the financial
statements of Allmerica Select Separate Account of Allmerica Financial
Life Insurance and Annuity Company, both of which appear in such Statement of
Additional Information. We also consent to the reference to us under the
heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 25, 1996
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Consent of Newly Elected Director
Having been duly elected as a Director of Allmerica Financial Life Insurance
and Annuity Company ("Company"), effective April 30, 1996, each of the
undersigned hereby consents to being named as a Director of the Company in such
post-effective amendments to Registration Statements for the Company's variable
annuity and variable life contracts as will be filed with the Securities and
Exchange Commission on or before April 30, 1996, with an effective date on or
after April 30, 1996, pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940.
Signed this 25th day of April, 1996
/s/ Bruce C. Anderson /s/ Theodore J. Rupley
- ----------------------------------- -----------------------------------
Bruce C. Anderson Theodore J. Rupley
/s/ Kruno Huitzingh /s/ Phillip E. Soule
----------------------------------- -----------------------------------
Kruno Huitzingh Phillip E. Soule
/s/ Larry C. Renfro /s/ Diane E. Wood
----------------------------------- -----------------------------------
Larry C. Renfro Diane E. Wood
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
Name and Position Principal Occupation(s)
During Past Five Years
- ------------------- ----------------------------
Bruce C. Anderson Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica
Abigail M. Armstrong Secretary of First Allmerica since 1996;
Secretary and Counsel Counsel, First Allmerica
Mark R. Colborn Vice President and Controller, First
Vice President and Controller Allmerica
Kruno Huitzingh Director of First Allmerica since 1996; Vice
Director, Vice President and President & Chief Information Officer, First
Chief Information Officer Allmerica since 1993; Executive Vice
President, Chicago Board Options Exchange,
1985 to 1993
John F. Kelly Director of First Allmerica since 1996;
Director Senior Vice President, General Counsel and
Assistant Secretary, First Allmerica
John F. O'Brien Director, Chairman of the Board, President
Director and Chairman and Chief Executive Officer of First
of the Board Allmerica
Edward J. Parry, III Vice President and Treasurer, First Allmerica
Vice President and Treasurer since 1993; Assistant. Vice President to 1992
to 1993; Manager, Price Waterhouse, 1987 to
1992
Richard M. Reilly Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica; Director and
President, Allmerica Investments, Inc.;
Director and President Allmerica Investment
Management Company, Inc .since 1992, Director
and Executive Vice President, 1990 to 1992.
Larry C. Renfro Director of First Allmerica since 1996; Vice
President, First Allmerica
Theodore J. Rupley Director of First Allmerica since 1996;
Director President, The Hanover Insurance Company
since 1992; President, Fountain Powerboats,
1992; President; Metropolitan Property &
Casualty Company, 1986-1992.
Philip J. Soule Director of First Allmerica since 1996; Vice
Director President, First Allmerica
Eric Simonsen Director of First Allmerica since 1996; Vice
Director, Vice President and President and Chief Financial Officer, First
Chief Financial Officer Allmerica
Diane E. Wood Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 83
<NAME> SMASE301
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 70200936
<INVESTMENTS-AT-VALUE> 90179681
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90179681
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22193
<TOTAL-LIABILITIES> 22193
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 51006402
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