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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. 9
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 11
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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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on pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a) (1)
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X on July 8, 1996 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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PROSPECTUS A
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 Provident Investment Counsel
- 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
RogersCasey Consulting, Inc., a leading pension consulting firm.
RogersCasey Consulting, Inc. 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. 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 Provident Investment Counsel.
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 RogersCasey Consulting, Inc., a leading pension
consulting firm. The cost of such consultation is borne by the Manager.
RogersCasey Consulting, Inc. 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%
Provident Investment Counsel 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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<PAGE>
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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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>
PROSPECTUS B
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
This prospectus describes interests under flexible premium deferred
combination variable and fixed annuity contracts issued either on a group basis
or as individual contracts by Allmerica Financial Life Insurance and Annuity
Company ("Company") to individuals and businesses in connection with retirement
plans which may or may not qualify for special federal income tax treatment.
(For information about the tax status when used with a particular type of plan,
see "FEDERAL TAX CONSIDERATIONS.") Participation in a group contract will be
accounted for by the issuance of a certificate describing the individual's
interest under the group contract. Participation in an individual contract will
be evidenced by the issuance of an individual contract. Certificates and
individual contracts are collectively referred to herein as the "Contracts." The
following is a summary of information about these Contracts. More detailed
information can be found under the referenced captions in this Prospectus.
Contract values may accumulate on a variable basis in the contract's
Variable Account, known as the Allmerica Select Account The Assets of the
Variable Account are divided into Subaccounts, each investing exclusively in
shares of one of the following funds:
SELECT INTERNATIONAL EQUITY FUND
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
SELECT AGGRESSIVE GROWTH FUND
SELECT CAPITAL APPRECIATION FUND
SELECT GROWTH FUND
FIDELITY VIP GROWTH PORTFOLIO
SELECT GROWTH AND INCOME FUND
FIDELITY VIP EQUITY-INCOME PORTFOLIO
FIDELITY VIP HIGH INCOME PORTFOLIO
SELECT INCOME FUND
MONEY MARKET FUND
In most jurisdictions, values may also be allocated on a fixed basis to the
Fixed Account, which is part of the Company's General Account and during the
accumulation period to one or more of the Guarantee Period Accounts. Amounts
allocated to the Fixed Account earn interest at a guaranteed rate for one year
from the date allocated. Amounts allocated to a Guarantee Period Account earn a
fixed rate of interest for the duration of the applicable Guarantee Period. The
interest earned is guaranteed if held for the entire guarantee period. If
removed prior to the end of the Guarantee Period the value may be increased or
decreased by a market value adjustment. Assets supporting allocation to the
Guarantee Period Accounts in the accumulation phase are held in the Company's
Separate Account GPA.
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 3 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 A CURRENT PROSPECTUS OF
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, AND T. ROWE
PRICE INTERNATIONAL SERIES, INC. THE VIP HIGH INCOME PORTFOLIO INVESTS
IN HIGHER YIELDING, LOWER RATED DEBT SECURITIES (SEE "INVESTMENT
OBJECTIVES AND POLICIES"). INVESTORS SHOULD RETAIN A COPY OF
THIS PROSPECTUS FOR FUTURE
REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE CONTRACTS ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE CONTRACTS ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR
CREDIT UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL
AGENCY. INVESTMENT IN THE CONTRACTS ARE SUBJECT TO VARIOUS RISKS,
INCLUDING THE FLUCTUATION OF VALUE AND POSSIBLE LOSS OF
PRINCIPAL.
DATED JULY 8, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION........................................... 2
SPECIAL TERMS.......................................................................................... 4
SUMMARY................................................................................................ 6
ANNUAL AND TRANSACTION EXPENSES........................................................................ 10
PERFORMANCE INFORMATION................................................................................ 14
WHAT IS AN ANNUITY?.................................................................................... 16
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY.......................................................... 17
RIGHT TO REVOKE OR SURRENDER IN SOME STATES............................................................ 17
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, THE TRUST, VIP, AND T. ROWE PRICE....................
17
VOTING RIGHTS.......................................................................................... 23
CHARGES AND DEDUCTIONS................................................................................. 23
A. Annual Charges Against Variable Account Assets................................... 23
B. Contract Fee..................................................................... 24
C. Premium Taxes.................................................................... 24
D. Contingent Deferred Sales Charge................................................. 25
E. Transfer Charge.................................................................. 28
DESCRIPTION OF CONTRACT................................................................................ 28
A. Payments......................................................................... 28
B. Transfer Privilege............................................................... 29
C. Surrender........................................................................ 30
D. Partial Redemption............................................................... 30
E. Death Benefit.................................................................... 31
F. The Spouse of the Contract Owner as Beneficiary.................................. 32
G. Assignment....................................................................... 32
H. Electing the Form of Annuity and Annuity Date.................................... 32
I. Description of Variable Annuity Options.......................................... 33
J. Norris Decision.................................................................. 34
K. Computation of Variable Account Values and Annuity Benefit Payments.............. 34
GUARANTEE PERIOD ACCOUNTS.............................................................................. 36
FEDERAL TAX CONSIDERATIONS............................................................................. 38
A. Qualified and Non-Qualified Contracts............................................ 39
B. Taxation of the Contracts in General............................................. 39
C. Tax Withholding and Penalties.................................................... 40
D. Provisions Applicable to Qualified Employee Benefit Plans........................ 40
E. Qualified Employee Pension and Profit Sharing Trusts............................. 40
F. Self-Employed Individuals........................................................ 41
G. Individual Retirement Account Plans.............................................. 41
H. Simplified Employee Pensions..................................................... 42
I. Public School Systems and Certain Tax-Exempt Organizations....................... 42
J. Texas Optional Retirement Program................................................ 42
K. Section 457 Plans for State Governments and Tax-Exempt Entities.................. 42
L. Non-individual Owners............................................................ 43
REPORTS................................................................................................ 43
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C>
LOANS (QUALIFIED CONTRACTS ONLY)....................................................................... 43
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT........................................................... 43
DISTRIBUTION........................................................................................... 44
LEGAL MATTERS.......................................................................................... 44
FURTHER INFORMATION.................................................................................... 44
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT................................................. 45
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT........................................ 46
APPENDIX C -- DEATH BENEFIT............................................................................ 49
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY........................................................................ 2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY....................................................... 2
SERVICES............................................................................................... 3
UNDERWRITERS........................................................................................... 3
ANNUITY PAYMENTS....................................................................................... 4
PERFORMANCE INFORMATION................................................................................ 5
FINANCIAL STATEMENTS................................................................................... 9
</TABLE>
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE OR SOLICIT AN OFFER IN THAT STATE.
3
<PAGE>
SPECIAL TERMS
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the Fixed Account and
Guarantee Period Accounts then credited to the Contract, on any date before the
Annuity Date.
ACCUMULATION UNIT: a measure of the Contract Owner's interest in a
Subaccount before annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity
benefit payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity benefit
payments under the Contract.
FIXED ACCOUNT: the part of the Company's General Account that guarantees
principal and a fixed minimum interest rate and to which all or a portion of a
payment or transfer under this Contract may be allocated.
FIXED AMOUNT ANNUITY: an Annuity providing for annuity benefit payments
which remain fixed in an amount throughout the annuity benefit payment period
selected.
GUARANTEED INTEREST RATE: the annual effective rate of interest after daily
compounding credited to a Guarantee Period Account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed
Interest Rate for a specified Guarantee Period and is supported by assets in a
non-unitized separate account.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
SUBACCOUNT: a subdivision of the Variable Account. Each Subaccount
available under the Contracts invests exclusively in the shares of a
corresponding fund of Allmerica Investment Trust, a corresponding portfolio of
the Variable Insurance Products Fund, or the International Stock Portfolio of T.
Rowe Price International Series, Inc.
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender
after application of any Contract fee, contingent deferred sales charge, and
Market Value Adjustment.
UNDERLYING FUNDS: the Select International Equity Fund of Allmerica
Investment Trust, T. Rowe Price's International Stock Portfolio, the Select
Aggressive Growth Fund, Select Capital Appreciation Fund, and Select Growth Fund
of Allmerica Investment Trust, Fidelity's VIP Growth Portfolio, the Select
Growth and Income Fund of Allmerica Investment Trust, Fidelity's VIP
Equity-Income Portfolio, Fidelity's VIP High Income Portfolio, and the Select
Income Fund and the Money Market Fund of Allmerica Investment Trust.
VALUATION DATE: a day on which the net asset value of the shares of any of
the Underlying Funds is determined and Unit values of the Subaccounts are
determined. Valuation dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Contract was
received) when there is a sufficient degree of trading in an Underlying Fund's
portfolio securities such that the current net asset value of the Subaccounts
may be materially affected.
4
<PAGE>
VARIABLE ACCOUNT: Allmerica Select Account, one of the Company's Separate
Accounts, consisting of assets segregated from other assets of the Company. The
investment performance of the assets of the Variable Account is determined
separately from the other assets of the Company and are not chargeable with
liabilities arising out of any other business which the Company may conduct.
VARIABLE ANNUITY: an Annuity providing for payments varying in amount in
accordance with the investment experience of certain of the Underlying Funds.
5
<PAGE>
SUMMARY
WHAT IS THE ALLMERICA SELECT RESOURCE II VARIABLE ANNUITY?
The Allmerica Select Resource II 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 payment and any additional payments
you choose to make may be allocated to the combination of portfolios of
securities ("Funds") 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 investment options most
appropriate for your investment needs. The Contracts permit net payments to be
allocated among the Funds, the Guarantee Period Account, and the Fixed Account.
Each Fund is professionally advised by an investment adviser with experience
managing the types of investments in the Fund. All investment gains or losses of
the Funds 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 benefit payments to
begin. Annuity benefit 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 ("Company"). 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 benefit payments under the Contract. The
beneficiary is the person who receives any payment on death of the Contract
Owner or Annuitant.
6
<PAGE>
CAN I EXAMINE THE CONTRACT?
Yes. Your Contract will be delivered to you after your purchase. If you
return the Contract to the Company during the first 10 days from the date you
received it, the Contract will be canceled. (There may be a longer period in
certain states; see the "Right to Examine" provision on the cover of your
Contract). 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. 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 payment paid, including
fees, and any amount allocated to the Variable Account and (2) the Accumulated
Value (on the date the cancellation request is received by the Company)
attributable to amounts allocated to the Variable Account Subaccount. See "RIGHT
TO REVOKE CONTRACT."
WHAT ARE MY INVESTMENT CHOICES?
The Contract permits net payments to be allocated among the Funds, the
Guarantee Period Accounts, and the Fixed Interest Account. The Fixed Account is
part of the General Account of the Company and provides a guarantee of principal
and a fixed interest rate, for one year from the date amounts are allocated to
the account. Payments allocated to a Guarantee Period Account are held in a
separate account and earn a guaranteed interest rate if held for the full
duration of the Guarantee period.
THE FIXED ACCOUNT AND/OR THE GUARANTEE PERIOD ACCOUNTS MAY NOT BE AVAILABLE
IN ALL STATES. SIMILARLY, NOT ALL FUNDS MAY BE AVAILABLE IN ALL STATES.
You have a choice of eleven Funds:
- Select International Equity Fund
Managed by Bank of Ireland Asset Management Limited
- T. Rowe Price's 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 Provident Investment Counsel
- Fidelity's VIP Growth Portfolio
Managed by Fidelity Management & Research Company
- Select Growth and Income Fund
Managed by John A. Levin & Co., Inc.
- Fidelity's VIP Equity-Income Portfolio
Managed by Fidelity Management & Research Company
- Fidelity's VIP 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.
7
<PAGE>
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 and allocations to the Guarantee Period Accounts will be allocated
to the Money Market Fund. 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."
GUARANTEE PERIOD ACCOUNTS -- Assets supporting the guarantees under the
Guarantee Period Accounts are held in the Company's Separate Account GPA, a
non-unitized insulated separate account. However, values and benefits calculated
on the basis of Guarantee Period Account allocations are obligations of the
Company's General Account. Amounts allocated to a Guarantee Period Account earn
a Guaranteed Interest Rate declared by the Company. The level of the Guarantee
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company currently makes available seven Guarantee Periods ranging from three
to ten years in duration (excluding a four year Guarantee period.) Once
declared, the Guarantee Interest Rate will not change during the duration of the
Guarantee Period. If amounts allocated to a Guarantee Period Account are
transferred, surrendered or applied to any annuity option at any time other than
the last day of the applicable Guarantee Period, a Market Value adjustment will
apply that may increase or decrease the account's value. For more information
about the Guarantee Period Accounts and the Market Value Adjustment, see
"Guarantee Period Accounts.
FIXED ACCOUNT -- The Fixed Account is part of the General Account which
consists of all the Company's assets other than those allocated to the Variable
Account and any other separate account. Allocations to the Fixed Account are
guaranteed as to principal and a minimum rate of interest. Additional excess
interest may be declared periodically at the Company's discretion. Furthermore,
the initial rate in effect on the date an amount is allocated to the Fixed
Account will be guaranteed for one year from that date. For more information
about the Fixed Account see Appendix A, MORE INFORMATION ABOUT THE FIXED
ACCOUNT."
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
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 RogersCasey
Consulting, Inc., a leading pension consulting firm. RogersCasey Consulting,
Inc. 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. 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.
8
<PAGE>
Rowe Price-Fleming International, Inc. ("Price-Fleming") is the investment
manager of T. Rowe Price. 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. Prior to the Annuity Date, You may transfer among the Funds, the
Guarantee Period Accounts, and the Fixed Account. 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 "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,"
"PARTIAL REDEMPTION," and "Market Value Adjustment." 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, Contract Owner or Joint Owner should die before the
Annuity Date, a death benefit will be paid to the beneficiary. Upon the death of
the Annuitant (or an Owner who is also an Annuitant), the death benefit is equal
to the GREATEST of:
- The Accumulated Value increased by any positive Market Value
Adjustment;
- Gross payments, with interest accumulating daily at an annual
rate of 5% starting on the date each payment was applied,
reduced proportionately to reflect withdrawals (for each
withdrawal, the proportionate reduction is calculated as the
death benefit under this option immediately prior to the
withdrawal, multiplied by the withdrawal amount, and divided by
the Accumulated Value immediately prior to the withdrawal); or
- The death benefit that would have been payable on the most
recent Contract Anniversary, increased for subsequent purchase
payments and reduced proportionately to reflect withdrawals
after that date.
If an Owner who is not also the Annuitant dies during the Accumulation
phase, the death benefit will equal the Accumulated Value of the Contract
increased by any positive Market Value Adjustment. If the Annuitant dies after
the Annuity Date but before all guaranteed annuity benefit payments have been
made, the remaining payments will be paid to the beneficiary at least as rapidly
as under the annuity option in effect. See "Death Benefit."
WHAT ARE MY ANNUITY OPTIONS UNDER THE CONTRACT?
You may choose variable annuity benefit payments based on the investment
performance of certain Funds, fixed-amount annuity benefit payments, or a
combination of fixed-amount and variable annuity benefit payments. Fixed-amount
payments are guaranteed by the Company. See "DESCRIPTION OF THE CONTRACT" for
information about annuity benefit payment options, selecting the Annuity Date,
and how annuity benefit payments are calculated.
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
At each Contract anniversary and upon surrender, if the Accumulated Value is
$50,000 or less, the Company will deduct a $30 Contract Fee from your Contract.
The Contract Fee is waived for Contracts issued to and maintained by a Trustee
of a 401(k) plan.
9
<PAGE>
Should you decide to surrender your Contract, make withdrawals, or receive
payments under certain annuity options, you may be subject to a contingent
deferred sales charge. If applicable, this charge will be between 1% and 6.5% of
purchase payments withdrawn, based on when the payments were made.
A deduction for state and local premium taxes, if any, may be made as
described under "PREMIUM TAXES."
Currently, the Company makes no charge for processing transfers. The first
twelve (12) transfers in a Contract year are guaranteed to be free of a transfer
charge. For each subsequent transfer in a contract year, the Company reserves
the right to assess a charge which is guaranteed never to exceed $25.
The Company 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.
- You may cancel your Contract within 10 days of delivery, as
discussed above.
- You may select the form and timing of annuity benefit payments.
ANNUAL AND TRANSACTION EXPENSES
The following tables show charges under your Contract, expenses of the
Subaccounts, 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."
10
<PAGE>
CONTRACT CHARGES
<TABLE>
<CAPTION>
YEARS FROM
DATE OF PAYMENT CHARGE
----------------- -------------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE:
This charge may be assessed upon surrender, redemption or annuitization 0-1 6.5%
under any commutable period certain option or a noncommutable period 2 6.0%
certain option of less than 10 years. The charge is a percentage of 3 5.0%
purchase payments applied to the amount surrendered (in excess of any 4 4.0%
amount that is free of charge) within the indicated time periods. 5 3.0%
6 2.0%
7 1.0%
TRANSFER CHARGE:
The Company currently makes no charge for processing transfers. The Company $25
guarantees that the first twelve transfers in a Contract Year will not
subject to a transfer charge. For each subsequent transfer, the Company
reserves the right to assess a charge, guaranteed never to exceed $25, to
reimburse the Company for the costs of processing the transfer.
CONTRACT FEE:
The Fee is deducted annually and upon surrender prior to the annuity date $30
when Accumulated Value is $50,000 or less. The fee is waived for contracts
issued to and maintained by the Trustee of a 401(k) plan.
SUBACCOUNT EXPENSES
(on annual basis as percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.25 %
Administrative Expense Charge: 0.15 %
---
Total Asset Charge: 1.40 %
</TABLE>
FUND EXPENSES
(annual basis as percentage of average daily net assets)
<TABLE>
<CAPTION>
OTHER FUND TOTAL FUND
MANAGEMENT FEE EXPENSES EXPENSES
--------------- ------------- --------------
<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 VIP Growth Portfolio................................... 0.61% 0.09% 0.70%+
Select Growth and Income Fund................................... 0.75% 0.10% 0.85%*
Fidelity VIP Equity-Income Portfolio............................ 0.51% 0.10% 0.61%+
Fidelity VIP 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%.
+ 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.
11
<PAGE>
The following examples demonstrate the cumulative expenses which would be
paid by the Contract Owner at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Subaccount
and a 5% annual return on assets, 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 Subaccounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
(a) If, at the end of the applicable period, you surrender your Contract or
annuitize* under a commutable variable period certain option or a noncommutable
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>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------- ----------- ----------- ----------- -----------
<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 VIP Growth Fund......................................... $ 81 $ 113 $ 144 $ 250
Select Growth and Income Fund...................................... $ 83 $ 120 $ 154 $ 272
Fidelity's VIP Equity-Income Portfolio............................. $ 80 $ 110 $ 138 $ 239
Fidelity's VIP 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 noncommutable 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>
FUND 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 VIP Growth Fund......................................... $ 22 $ 68 $ 117 $ 250
Select Growth and Income Fund...................................... $ 24 $ 75 $ 128 $ 272
Fidelity's VIP Equity-Income Portfolio............................. $ 21 $ 65 $ 111 $ 239
Fidelity's VIP 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 Variable 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 noncommutable period certain option
of ten years or longer.
12
<PAGE>
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
1995 1994 1993 1992
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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 -- --
T. ROWE PRICE INTERNATIONAL STOCK
Unit Value:
Beginning of Period................................................... 1.000 -- -- --
End of Period......................................................... 1.065 -- -- --
Number of Units Outstanding at End of Period (in thousands)............. 4,066 -- -- --
SELECT AGGRESSIVE GROWTH
Unit Value:
Beginning of Period................................................... 1.354 1.405 1.192 1.000
End of Period......................................................... 1.768 1.354 1.405 1.192
Number of Units Outstanding at End of Period (in thousands)............. 51,006 36,330 17,538 5,123
SELECT CAPITAL APPRECIATION
Unit Value:
Beginning of Period................................................... 1.000 -- -- --
End of Period......................................................... 1.383 -- -- --
Number of Units Outstanding at End of Period (in thousands)............. 5,424 -- -- --
SELECT GROWTH
Unit Value:
Beginning of Period................................................... 1.069 1.101 1.104 1.000
End of Period......................................................... 1.315 1.069 1.101 1.104
Number of Units Outstanding at End of Period (in thousands)............. 53,073 38,752 20,366 5,246
FIDELITY VIP GROWTH
Unit Value:
Beginning of Period................................................... 1.000 -- -- --
End of Period......................................................... 1.235 -- -- --
Number of Units Outstanding at End of Period (in thousands)............. 6,677 -- -- --
SELECT GROWTH & INCOME
Unit Value:
Beginning of Period................................................... 1.074 1.082 0.994 1.000
End of Period......................................................... 1.382 1.074 1.082 0.994
Number of Units Outstanding at End of Period (in thousands)............. 61,942 43,292 20,983 2,2339
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992
--------- --------- --------- ---------
FIDELITY VIP EQUITY INCOME
<S> <C> <C> <C> <C>
Unit Value:
Beginning of Period................................................... 1.000 -- -- --
End of Period......................................................... 1.191 -- -- --
Number of Units Outstanding at End of Period (in thousands)............. 9,213 -- -- --
FIDELITY VIP HIGH INCOME
Unit Value:
Beginning of Period................................................... 1.000 -- -- --
End of Period......................................................... 1.096 -- -- --
Number of Units Outstanding at End of Period (in thousands)............. 6,714 -- -- --
SELECT INCOME
Unit Value:
Beginning of Period................................................... 1.028 1.095 1.001 1.000
End of Period......................................................... 1.186 1.028 1.095 1.001
Number of Units Outstanding at End of Period (in thousands)............. 46,845 32,823 18,320 5,372
MONEY MARKET
Unit Value:
Beginning of Period................................................... 1.045 1.019 1.003 1.000
End of Period......................................................... 1.091 1.045 1.019 1.003
Number of Units Outstanding at End of Period (in thousands)............. 45,589 31,836 19,802 1,447
</TABLE>
PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1996. However, Allmerica
Financial may advertise "Total Return and "Average Annual Total Return"
performance information based on the periods that the Underlying Funds have been
in existence. The results for any period prior to the Contracts being offered
will be calculated as if the Contracts had been offered during that period of
time, with all charges assumed to be those applicable to the Subaccounts, the
Underlying Funds, and (in Table 1) assuming that the Contract is surrendered at
the end of the applicable period.
The "total return" of a Subaccount refers to the total of the income
generated by an investment in the Subaccount and of the changes in the value of
the principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by certain charges, and expressed as a percentage of
the investment.
The "yield" of the Subaccount investing in the Money Market Fund of the
Trust refers to the income generated by an investment in the Subaccount over a
seven-day period (which period will be specified in the advertisement). This
income is then "annualized" by assuming that the income generated in the
specific week is generated over a 52-week period. This annualized yield is shown
as a percentage of the investment. The "effective yield" calculation is similar,
but when annualized, the income earned by an investment in the Subaccount is
assumed to be reinvested. Thus the "effective yield" will be slightly higher
than the "yield" because of the compounding effect of this assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect
the Subaccount's asset charges. The total return figures also reflect the $30
annual Contract Fee and the contingent deferred sales load which would be
assessed if the investment were completely redeemed at the end of the specified
period.
14
<PAGE>
The Company may also advertise supplemental total return performance
information. Supplemental total return refers to the total of the income
generated by an investment in the Subaccount and of the changes of value of the
principal invested (due to realized and unrealized capital gains or losses),
adjusted by the Subaccount'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 contingent deferred sales load is NOT
included in the calculation of supplemental total return.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Subaccount
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity variable accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Subaccount. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of
a hypothetical investment in the Subaccount during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the portfolio of the Underlying Fund in which the Subaccount invests and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future.
AVERAGE ANNUAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(ASSUMING COMPLETE REDEMPTION OF INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR
ENDED: SINCE
NAME OF UNDERLYING FUND 12/31/95 3 YEARS 5 YEARS INCEPTION
- --------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select International Equity Fund..................................... 11.55% N/A N/A 4.01%
T. Rowe Price International Stock Portfolio.......................... 3.21% N/A N/A 2.16%
Select Aggressive Growth Fund........................................ 24.05% 12.73% N/A 17.67%
Select Capital Appreciation Fund..................................... N/A N/A N/A 31.72%
Select Growth Fund................................................... 16.45% 4.50% N/A 7.47%
Fidelity VIP Growth Portfolio........................................ 26.96% 14.43% 18.79% 13.22%
Select Growth and Income Fund........................................ 22.11% 10.26% N/A 9.13%
Fidelity VIP Equity-Income Portfolio................................. 26.70% 16.71% 19.32% 11.74%
Fidelity VIP High Income Portfolio................................... 12.53% 9.70% 16.93% 9.90%
Select Income Fund................................................... 8.93% 4.32% N/A 4.13%
Money Market Fund.................................................... -2.06% 1.23% 2.55% 4.42%
</TABLE>
15
<PAGE>
AVERAGE ANNUAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(ASSUMING NO REDEMPTION OF INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR
ENDED: SINCE
NAME OF UNDERLYING FUND 12/31/95 3 YEARS 5 YEARS INCEPTION
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select International Equity Fund...................................... 17.99% N/A N/A 7.47%
T. Rowe Price International Stock Portfolio........................... 9.62% N/A N/A 5.80%
Select Aggressive Growth Fund......................................... 30.49% 14.01% N/A 18.48%
Select Capital Appreciation Fund...................................... N/A N/A N/A 38.22%
Select Growth Fund.................................................... 22.88% 5.99% N/A 8.46%
Fidelity VIP Growth Portfolio......................................... 33.46% 15.69% 19.09% 13.22%
Select Growth and Income Fund......................................... 28.55% 11.60% N/A 10.09%
Fidelity VIP Equity-Income Portfolio.................................. 33.20% 17.92% 19.62% 11.74%
Fidelity VIP High Income Portfolio.................................... 19.03% 11.07% 17.25% 9.90%
Select Income Fund.................................................... 15.36% 5.81% N/A 5.20%
Money Market Fund..................................................... 4.38% 2.81% 3.08% 4.42%
</TABLE>
- ------------------------
* The inception dates for the Underlying Funds are: 5/01/94 for Select
International Equity Fund; 3/31/94 for T. Rowe Price International Stock
Portfolio; 8/21/92 for Select Aggressive Growth Fund; 4/28/95 for Select
Capital Appreciation Fund; 8/21/92 for Select Growth Fund; 10/09/86 for
Fidelity VIP Growth; 8/21/92 for Select Growth and Income Fund; 10/09/86
Fidelity VIP Equity-Income; 9/19/85 for Fidelity VIP High Income; 8/21/92
for Select Income Fund; 4/29/85 for Money Market Fund.
WHAT IS AN ANNUITY?
In general, an annuity is a contract designed to provide a retirement income
in the form of periodic payments for the lifetime of the purchaser or an
individual chosen by the purchaser. The retirement income payments are called
"annuity benefit payments" and the individual receiving the payments is called
the "Annuitant." Annuity benefit payments begin on the annuity date.
Under an annuity contract, the insurance company assumes a mortality risk
and an expense risk. The mortality risk arises from the insurance company's
guarantee that annuity benefit payments will continue for the life of the
Annuitant, regardless of how long the Annuitant lives or how long all Annuitants
as a group live. The expense risk arises from the insurance company's guarantee
that charges will not be increased beyond the limits specified in the Contract,
regardless of actual costs of operations.
The Contract Owner's payments, less any applicable deductions, are invested
by the insurance company. After retirement, annuity benefit payments are paid to
the Annuitant for life or for such other period chosen by the Contract Owner. In
the case of a "fixed" annuity, the value of these annuity benefit payments is
guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more information
about fixed annuities see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED
ACCOUNT." With a variable annuity, the value of the Contract and the annuity
benefit payments are not guaranteed but will vary depending on the investment
performance of a portfolio of securities. Any investment gains or losses are
reflected in the value of the Contract and in the annuity benefit payments. If
the portfolio increases in value, the value of the Contract increases. If the
portfolio decreases in value, the value of the Contract decreases.
16
<PAGE>
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Contract intended to qualify as an Individual
Retirement Annuity ("IRA") may revoke the Contract at any time within 10 days
after receipt of the contract and receive a refund. In order to revoke the
Contract, the Contract Owner must mail or deliver the Contract to the agent
through whom the Contract was purchased, to the principal office of the Company
at 440 Lincoln Street, Worcester, Massachusetts 01653, or to any local agency of
the Company. Mailing or delivery must occur on or before 10 days after receipt
of the Contract for revocation to be effective.
Within seven days the Company will provide a refund equal to the greater of
(1) gross payments, or (2) the Accumulated Value plus any amounts deducted under
the Contract or by the Underlying Investment Companies for taxes, charges or
fees.
The liability of the Variable Account under this provision is limited to the
Contract Owner's Accumulated Value in the Subaccounts on the date of
cancellation. Any additional amounts refunded to the Contract Owner will be paid
by the Company.
RIGHT TO REVOKE OR SURRENDER IN SOME STATES
In Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina, Oklahoma,
South Carolina, Texas, Utah, Washington and West Virginia, any Contract Owner
may revoke the Contract at any time within ten days (20 in Idaho) after receipt
of the Contract and receive a refund as described under "RIGHT TO REVOKE
INDIVIDUAL RETIREMENT ANNUITY", above.
In all other states, a Contract Owner may return the Contract at any time
within 10 days (or the number of days required by state law if more than 10)
after receipt of the Contract. The Company will pay to the Contract Owner an
amount equal to the sum of (i) the difference between the premium paid,
including fees, and any amount allocated to the Variable Account and (ii) the
Accumulated Value of amounts allocated to the Variable Account as of the date
the request is received. If the Contract was purchased as an IRA, the IRA
revocation right described above may be utilized in lieu of the special
surrender right.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
THE TRUST, VIP, AND T. ROWE PRICE
THE COMPANY -- The Company is a life insurance company organized under the
laws of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, Telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1995, the
Company had over $5 billion in assets and over $18 billion of life insurance in
force.
Effective October 1, 1995, the Company changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company. The
Company is an indirect wholly-owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995 and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1995 First Allmerica and its subsidiaries (including
the Company) had over $11 billion in combined assets and over $35.2 billion in
life insurance in force.
ALLMERICA SELECT SEPARATE ACCOUNT -- Allmerica Select Separate Account
("Variable Account") is a separate investment account of The Company with eleven
Subaccounts. The assets used to fund the variable portions of the Contracts are
set aside in Subaccounts kept separate from the
17
<PAGE>
general assets of the Company. Each Subaccount is administered and accounted for
as part of the general business of the Company. However, the income, capital
gains, or capital losses of each Subaccount are allocated to each Subaccount,
without regard to any other income, capital gains, or capital losses of the
Company. Under Delaware law, the assets of the Variable Account may not be
charged with any liabilities arising out of any other business of the Company.
The Variable Account was authorized by vote of the Board of Directors of the
Company on March 5, 1992. The Variable 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 Variable
Account by the SEC.
The Company reserves the right, subject to compliance with applicable law,
to change the names of the Separate Account and the Subaccounts.
ALLMERICA INVESTMENT TRUST -- Allmerica Investment Trust, (the "Trust") is
an open-end, diversified management investment company registered with the
Commission under the 1940 Act.
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 variable accounts established by the Company or other affiliated
insurance companies. Seven investment portfolios ("Funds") of the Trust are
currently available under the Contracts, each issuing a series of shares: the
Money Market Fund, 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 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. Shares of the Trust are not offered to the general
public but solely to such variable accounts.
Allmerica Investment Management Company, Inc. ("Allmerica Investment")
serves as investment adviser of the Trust. Allmerica Investment 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."
VARIABLE INSURANCE PRODUCTS FUND -- Variable Insurance Products Fund
("VIP"), managed by 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: High Income Portfolio,
Equity-Income Portfolio, and Growth Portfolio.
Various Fidelity companies perform certain activities required to operate
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. The
Portfolios of VIP as part of their operating expenses pay an investment
management fee to Fidelity Management. See "INVESTMENT ADVISORY SERVICES TO
VIP."
T. ROWE PRICE INTERNATIONAL SERIES, INC. -- T. Rowe Price International
Series, Inc. ("T. Rowe Price"), managed by Rowe Price-Fleming International,
Inc. ("Price-Fleming") is an open-end, diversified, management investment
company 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. See "INVESTMENT ADVISORY
SERVICES TO T. ROWE PRICE."
18
<PAGE>
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'S 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 Provident Investment Counsel.
FIDELITY VIP 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.
FIDELITY VIP 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 VIP 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.
19
<PAGE>
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 The Company within sixty (60) days of
the later of (1) the effective date of such change in the investment policy or
(2) the receipt of the notice of the Contract Owner's right to transfer.
INVESTMENT ADVISORY SERVICES
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 RogersCasey Consulting, Inc., a leading pension
consulting firm. The cost of such consultation is borne by the Manager.
RogersCasey Consulting, Inc. provides consulting services to pension plans
representing over $300 billion in total assets and, in its consulting capacity,
monitors the investment performance of over 1000 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 The Company.
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:
20
<PAGE>
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.
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>
FUND SUBADVISER NET ASSET VALUE RATE
- ------------------------------- ----------------------------------------------- --------------------- ---------
<S> <C> <C> <C>
Select International Equity Bank of Ireland Asset Management Ltd. First $ 50 million 0.45%
Next $ 50 million 0.40%
Over $ 100 million 0.30%
Select Aggressive Growth Nicholas-Applegate Capital Management ** 0.60%
Select Capital Appreciation Janus Capital Corporation First $ 100 million 0.60%
Over $ 100 million 0.55%
Select Growth Provident Investment Counsel First $ 50 million 0.50%
$ 50 - 100 million 0.45%
$ 150 - 250 million 0.35%
$ 250 - 350 million 0.30%
Over $ 350 million 0.25%
Select Growth and Income John A. Levin & Co., Inc. First $ 100 million 0.40%
Next $ 200 million 0.25%
Over $ 300 million 0.30%
Select Income Standish, Ayer & Wood, Inc. ** 0.20%
Money Market Fund Allmerica Asset Management, Inc. ** 0.10%
</TABLE>
- ------------------------
** For the Money Market Fund, Select Aggressive Growth Fund, and Select Income
Fund, each rate applicable to the Sub-Advisers 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.
21
<PAGE>
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 International Stock Portfolio pays
Price-Fleming a single, all-inclusive fee of 1.05% of its average daily net
assets.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS -- The Company reserves
the right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Fund are no longer
available for investment or if in the Company's judgment further investment in
any Underlying Fund should become inappropriate in view of the purposes of the
Variable Account or the affected Subaccount, the Company may redeem the shares
of that Underlying Fund and substitute shares of another registered open-end
management company. The Company will not substitute any shares attributable to a
Contract interest in a Subaccount without notice to the Contract Owner and prior
approval of the Commission and state insurance authorities, to the extent
required by the 1940 Act or other applicable law. The Variable Account may, to
the extent permitted by law, purchase other securities for other contracts or
permit a conversion between contracts upon request by a Contract Owner.
The Company also reserves the right to establish additional Subaccounts of
the Variable Account, each of which would invest in shares corresponding to a
new Underlying Fund or in shares of another investment company having a
specified investment objective. Subject to applicable law and any required
Commission approval, the Company may, in its sole discretion, establish new
Subaccounts or eliminate one or more Subaccounts if marketing needs, tax
considerations or investment conditions warrant. Any new Subaccounts may be made
available to existing Contract Owners on a basis to be determined by the
Company.
Shares of the Underlying Funds are also issued to variable accounts of the
Company and its affiliates which issue variable life Contracts ("mixed
funding"). Shares of the Portfolios are also issued to other unaffiliated
insurance companies ("shared funding"). It is conceivable that in the future
such mixed funding or shared funding may be disadvantageous for variable life
Contract Owners or variable annuity Contract Owners. Although the Company and
the Underlying Investment Companies do not currently foresee any such
disadvantages to either variable life insurance Contract Owners or variable
annuity Contract Owners, the Company and the respective Trustees intend to
monitor events in order to identify any material conflicts between such Contract
Owners and to determine what action, if any, should be taken in response
thereto. If the Trustees were to conclude that separate funds should be
established for variable life and variable annuity Separate accounts, the
Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Contract to reflect the substitution or
change and will notify Contract Owners of all such changes. If the Company deems
it to be in the best interest of Contract Owners, and subject to any approvals
that may be required under applicable law, the Variable Account or any
Subaccount(s) may be operated as a management company under the 1940 Act, may be
deregistered under the 1940 Act if registration is no longer required, or may be
combined with other Subaccounts or other separate accounts of the Company.
22
<PAGE>
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Subaccount in
accordance with instructions received from Contract Owners and, after the
Annuity Date, from the Annuitants. Each person having a voting interest in a
Subaccount will be provided with proxy materials of the Underlying Fund together
with a form with which to give voting instructions to the Company. Shares for
which no timely instructions are received will be voted in proportion to the
instructions which are received. The Company will also vote shares in a
Subaccount that it owns and which are not attributable to Contracts in the same
proportion. If the 1940 Act or any rules thereunder should be amended or if the
present interpretation of the 1940 Act or such rules should change, and as a
result the Company determines that it is permitted to vote shares in its own
right, whether or not such shares are attributable to the Contract, the Company
reserves the right to do so.
The number of votes which a Contract Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Fund. During the accumulation period, the number of Underlying Fund shares
attributable to each Contract Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Contract by
the net asset value of one Underlying Fund share. During the annuity period, the
number of Underlying Fund shares attributable to each Annuitant will be
determined by dividing the reserve held in each Subaccount for the Annuitant's
variable annuity by the net asset value of one Underlying Fund share.
Ordinarily, the Annuitant's voting interest in the Underlying Fund will decrease
as the reserve for the variable annuity is depleted.
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the
Subaccounts are described below. Other deductions and expenses paid out of the
assets of the Underlying Funds are described in the Prospectus and Statement of
Additional Information of the Trust, VIP, and T. Rowe Price.
A. ANNUAL CHARGES AGAINST VARIABLE ACCOUNT ASSETS.
MORTALITY AND EXPENSE RISK CHARGE -- The Company makes a charge of 1.25% on
an annual basis of the daily value of each Subaccount's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Contract. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
guarantee that it will make annuity benefit payments in accordance with annuity
rate provisions established at the time the Contract is issued for the life of
the Annuitant (or in accordance with the annuity option selected), no matter how
long the Annuitant (or other payee) lives and no matter how long all Annuitants
as a class live. Therefore, the mortality charge is deducted during the annuity
phase on all contracts, including those that do not involve a life contingency,
even though the Company does not bear direct mortality risk with respect to
variable annuity settlement options that do not involve life contingencies. The
expense risk arises from the Company's guarantee that the charges it makes will
not exceed the limits described in the Contract and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover
actual mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE -- The Company assesses each Subaccount with a
daily charge at an annual rate of 0.15% of the average daily net assets of the
Subaccount. The charge is imposed
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during both the accumulation period and the annuity period. The daily
Administrative Expense Charge is assessed to help defray administrative expenses
actually incurred in the administration of the Subaccount, without profits.
However, there is no direct relationship between the amount of administrative
expenses imposed on a given contract and the amount of expenses actually
attributable to that contract.
Deductions for the Contract Fee (described under B. CONTRACT FEE) and for
the Administrative Expense Charge are designed to reimburse the Company for the
cost of administration and related expenses and are not expected to be a source
of profit. The administrative functions and expense assumed by the Company in
connection with the Variable Account and the Contracts include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
OTHER CHARGES -- Because the Subaccounts purchase shares of the Underlying
Funds, the value of the net assets of the Subaccounts will reflect the
investment advisory fee and other expenses incurred by the Underlying Funds. The
Prospectus and Statement of Additional Information of the Trust, VIP, and T.
Rowe Price contain additional information concerning expenses of the Underlying
Funds.
B. CONTRACT FEE.
A $30 Contract Fee currently is deducted on the Contract anniversary date
and upon full surrender of the Contract when the Accumulated Value is $50,000 or
less. The Contract Fee is waived for Contracts issued to and maintained by the
Trustee of a 401(k) plan. Where Contract value has been allocated to more than
one account, a percentage of the total Contract Fee will be deducted from the
Value in each account. The portion of the charge deducted from each account will
be equal to the percentage which the Value in that account bears to the
Accumulated Value under the Contract. The deduction of the Contract Fee from a
Subaccount will result in cancellation of a number of Accumulation Units equal
in value to the percentage of the charge deducted from that account.
C. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
Contracts. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when purchase payments
were received, the premium tax charge is deducted on a pro rata basis when
partial withdrawals are made, upon surrender of the Contract, or when
annuity benefit payments begin (the Company reserves the right instead to
deduct the premium tax charge for these Contracts at the time the purchase
payments are received); or
(2) the premium tax charge is deducted when annuity benefit payments
begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law
If no amount for premium tax was deducted at the time the purchase payment
was received, but subsequently tax is determined to be due prior to the Annuity
Date, the Company reserves the right to deduct the premium tax from the Contract
value at the time such determination is made.
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D. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from payments at the time the
payments are made. However, a contingent deferred sales charge is deducted from
the Accumulated Value of the Contract in the case of surrender and/or partial
redemption of the Contract or at the time annuity benefit payments begin, within
certain time limits described below.
For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments -- payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments -- Accumulated payments not defined as New Payments;
and (3) Earnings -- the amount of Contract Value in excess of all payments that
have not been previously surrendered. For purposes of determining the amount of
any contingent deferred sales charge, surrenders will be deemed to be taken
first from Old Payments, then from New Payments. Old Payments may be withdrawn
from the Contract at any time without the imposition of a contingent deferred
sales charge. If a withdrawal is attributable all or in part to New Payments, a
contingent deferred sales charge may apply.
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Contract is surrendered,
or if New Payments are redeemed, while the Contract is in force and before the
Annuity Date, a contingent deferred sales charge may be imposed. The amount of
the charge will depend upon the number of years that the New Payments, if any,
to which the withdrawal is attributed have remained credited under the Contract.
Amounts withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for income
tax purposes.)
The Contingent Deferred Sales Charges are as follows:
<TABLE>
<CAPTION>
YEARS FROM CHARGE AS PERCENTAGE OF
DATE OF NEW
PAYMENT PAYMENTS WITHDRAWN
- --------------------------- -----------------------
<S> <C>
Less than 1 6.5%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%
</TABLE>
The amount redeemed equals the amount requested by the Contract Owner plus
the charge, if any. The charge is applied as a percentage of the New Payments
redeemed, but in no event will the total contingent deferred sales charge exceed
a maximum limit of 6.5% of total gross New Payments. Such total charge equals
the aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES. Where permitted by law, the
Company will waive the contingent deferred sales charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is: (a) admitted to
a medical care facility after the issue date of the Contract and remains
confined there until the later of one year after the issue date or 90
consecutive days; (b) first diagnosed by a licensed physician as having a fatal
illness after the issue date of the contract; or (c) physically disabled after
the issue date of the Contract and before attaining age 65. The Company may
require proof of such disability and continuing disability, including written
confirmation of receipt and approval of any claim for Social Security Disability
Benefits and reserves the right to obtain an examination by a licensed physician
of its choice and at its expense.
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For purposes of the above provision, "medical care facility" means any state
licensed facility (or, in a state that does not require licensing)a facility
that is operating pursuant to state law, providing medically necessary inpatient
care which is prescribed by a licensed "physician" in writing and based on
physical limitations which prohibit daily living in a non-institutional setting;
"fatal illness" means a condition diagnosed by a licensed physician which is
expected to result in death within two years of the diagnosis; and "physician"
means a person other than the Owner, Annuitant or a member of one of their
families who is state licensed to give medical care or treatment and is acting
within the scope of that license.
Where contingent deferred sales charges have been waived under any one of
three situations discussed above, no additional payments under this Contract
will be accepted. Where permitted by law, no contingent deferred sales charge is
imposed (and no commissions will be paid) on contracts issued where both the
Contract Owner and the Annuitant on the date of issue are within the following
classes of individuals ("eligible persons"): employees and registered
representatives of any broker-dealer which has entered into a Sales Agreement
with the Company to sell the Contract; officers, directors, trustees and
employees of any of the Underlying Funds, investment managers or sub-advisers;
and the spouses and children/ other legal dependants (under age 21) of such
eligible persons.
In addition, from time to time the Company may also reduce the amount of the
contingent deferred sales, the period during which it applies, or both, when
Contracts are sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider (a) the size and type of
group; (b) the total amount of payments to be received; (c) other transactions
where sales expenses are likely to be reduced. Any reduction or elimination in
the amount or duration of the contingent deferred sales charge will not
discriminate unfairly between purchasers of this Contract. The Company will not
make any changes to this charge where prohibited by law.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the
contingent deferred sales charges is modified to effect certain exchanges of the
annuity contracts for the Contracts. See Statement of Additional Information.
WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, the Company
will waive the contingent deferred sales charge, if any, on an amount
("Withdrawal Without Surrender Charge") equal to the greatest of (1), (2) or
(3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by
total gross payments not previously redeemed ("Cumulative Earnings")
Where (2) is:
10% of the Accumulated Value as of the Valuation Date coincident with or
next following the date of receipt of the request for withdrawal, reduced
by the total amount of any prior partial redemptions made in the same
calendar year to which no contingent deferred sales charge was applied.
Where (3) is:
The amount calculated under the Company's life expectancy distribution (see
"LED Distributions," below) whether or not the withdrawal was part of such
distribution (applies only if Annuitant is also an Owner)
For example, an 81 year old Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $1,530, which is equal to the greatest of:
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(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge will first be deducted from
Cumulative Earnings. If the Withdrawal Without Surrender Charge exceeds
Cumulative Earnings, the excess amount will be deemed withdrawn from payments
not previously redeemed on a last-in-first-out ("LIFO") basis. If more than one
partial withdrawal is made during the year, on each subsequent withdrawal the
Company will waive the contingent deferred sales load, if any, until the entire
Withdrawal Without Surrender Charge has been redeemed. Amounts withdrawn from a
Guarantee Period Account prior to the end of the applicable Guarantee Period
will be subject to a Market Value Adjustment.
LED DISTRIBUTIONS. Prior to the Annuity Date a Contract Owner who is also
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to a life expectancy distribution ("LED") option, by
returning a properly signed LED request form to the Company's Principal Office.
The LED option permits the Contract Owner to make systematic withdrawals from
the Contract over his or her lifetime. The amount withdrawn from the Contract
changes each year, because life expectancy changes each year that a person
lives. For example, actuarial tables indicate that a person age 70 has a life
expectancy of 16 years, but a person who attains age 86 has a life expectancy of
another 6.5 years.
If a Contract Owner elects the LED option, in each calendar year a fraction
of the Accumulated Value is withdrawn based on the Contract Owner's then life
expectancy. The numerator of the fraction is 1 (one) and the denominator of the
fraction is the remaining life expectancy of the Contract Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value at the beginning of the year to determine the
amount to be distributed during the year. The Contract Owner may elect monthly,
bimonthly, quarterly, semiannual, or annual distributions, and may terminate the
LED option at any time. The Contract Owner may also elect to receive
distributions under an LED option which is determined on the joint life
expectancy of the Contract Owner and a beneficiary. The Company may also offer
other systematic withdrawal options.
If a Contract Owner makes withdrawals under the LED distribution prior to
age 59 1/2, the withdrawals may be treated by the IRS as premature distributions
from the Contract. The payments would then be taxed on an "income first" basis,
and be subject to a 10% federal tax penalty. For more information, see "FEDERAL
TAX CONSIDERATIONS," "B. Taxation of the Contracts in General." The LED will
cease on the Annuity Date.
SURRENDERS. In the case of a complete surrender, the amount received by the
Contract Owner is equal to the entire Accumulated Value under the Contract, net
of the applicable contingent deferred sales charge on New Payments, the Contract
Fee and any applicable tax withholding and adjusted for any applicable Market
Value Adjustment. Subject to the same rules applicable to partial redemptions,
the Company will not assess a contingent deferred sales charge on an amount
equal to the greater of the Withdrawal Without Surrender Charge Amount,
described above, or the life expectancy distribution, if applicable.
Where a Contract Owner who is trustee under a pension plan surrenders, in
whole or in part, a Contract on a terminating employee, the trustee will be
permitted to reallocate all or a part of the total Accumulated Value under the
Contract to other contracts issued by the Company and owned by the trustee, with
no deduction for any otherwise applicable contingent deferred sales charge. Any
such reallocation will be at the unit values for the Subaccounts as of the
valuation date on which a written, signed request is received at the Company's
Principal Office.
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<PAGE>
For further information on surrender and partial redemption, including
minimum limits on amount redeemed and amount remaining under the Contract in the
case of partial redemption, and important tax considerations, see "Surrender"
and "Partial Redemption" under "DESCRIPTION OF CONTRACT" and see "FEDERAL TAX
CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If any commutable period
certain option or a non-commutable period certain option for less than ten years
is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization
in any Contract year under an option involving a life contingency or for any
non-commutable period certain option for ten years or more. However, a Market
Value Adjustment may apply. See "Guarantee Period Accounts".
If an owner of a fixed annuity Contract issued by the Company wishes to
elect a variable annuity option, the Company may permit such owner to exchange,
at the time of annuitization, the fixed Contract for a Contract offered in this
Prospectus. The proceeds of the fixed Contract, minus any contingent deferred
sales charge applicable under the fixed Contract if a period certain option is
chosen, will be applied towards the variable annuity option desired by the
owner. The number of Annuity Units under the option will be calculated using the
Annuity Unit values as of the 15th of the month preceding the Annuity Date.
E. TRANSFER CHARGE.
The Company currently makes no charge for processing transfers. The Company
guarantees that the first twelve transfers in a Contract Year will be free of
transfer charge, but reserves the right to assess a charge, guaranteed never to
exceed $25, for each subsequent transfer in a Contract Year.
The Contract Owner may have automatic transfers of at least $100 a month
made on a periodic basis (a) from the Subaccount which invest in the Money
Market Fund or the Select Income Fund of the Trust or from the Fixed Account to
one or more of the other Subaccounts or (b) in order to reallocate Contract
Value among the Subaccounts. The first automatic transfer counts as one transfer
towards the twelve transfers which are guaranteed to be free of a transfer
charge in each contract year. For more information, see "The Contract Transfer
Privilege."
DESCRIPTION OF THE CONTRACT
The Contracts are designed for use in connection with several types of
retirement plans as well as for sale to individuals. Participants under such
plans, as well as Contract Owners, Annuitants, and beneficiaries, are cautioned
that the rights of any person to any benefits under such Contracts may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the Contracts.
The Contracts offered by the Prospectus may be purchased from
representatives of Allmerica Investments, Inc., a registered broker-dealer under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. (NASD). Allmerica Investments, Inc., 440 Lincoln
Street, Worcester, Massachusetts, 01653, is indirectly wholly-owned by the
Company. The Contracts also may be purchased from certain independent
broker-dealers which are NASD members.
Contract Owners may direct any inquiries to Annuity Customer Services,
Allmerica Financial Life Insurance and Annuity Company, 440 Lincoln Street,
Worcester, Massachusetts 01653.
A. PAYMENTS.
The Company's underwriting requirements, which include receipt of the
initial payment and allocation instructions by the Company at its Principal
Office, must be met before a Contract can be issued. These requirements may also
include the proper completion of an application; however, where
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<PAGE>
permitted, the Company may issue a contract without completion of an application
for certain classes of annuity contracts. Payments are to be made payable to the
Company. A net payment is equal to the payment received less the amount of any
applicable premium tax.
The initial net payment will be credited to the Contract as of the date that
all issue requirements are properly met. If all issue requirements are not
complied with within five business days of the Company's receipt of the initial
payment, the payment will be returned unless the Owner specifically consents to
the holding of the initial payment until completion of any outstanding issue
requirements. Subsequent payments will be credited as of the Valuation Date
received at the Principal Office.
Payments are not limited as to frequency and number, but there are certain
limitations as to amount. Currently, the initial payment must be at least $1000.
Under a salary deduction or monthly automatic payment plan, the minimum initial
payment is $50. In all cases, each subsequent payment must be at least $50.
Where the contribution on behalf of an employee under an employee-sponsored
retirement plan is less that $600 but more than $300 annually, the Company may
issue a contract on the employee, if the plan's average annual contribution per
eligible plan participant is at least $600. The minimum allocation to a
Guarantee Period Account is $1,000. If less than $1,000 is allocated to a
Guarantee Period Account, the Company reserves the right to apply that amount to
the Money Market Fund of the Trust.
Generally, unless otherwise requested, all payments will be allocated among
the accounts in the same proportion that the initial net payment is allocated,
or, if subsequently changed, according to the most recent allocation
instructions. However, to the extent permitted by state law, if the contract is
issued as an IRA or is issued in Georgia, Idaho, Indiana, Michigan, Missouri,
North Carolina, Oklahoma, South Carolina, Texas, Utah, Washington and West
Virginia, any portion of the initial net payment and of additional net payments
received during the contracts's first fifteen days measured from the date of
issue, allocated to any Subaccount and/or any Guarantee Period Account, will be
held in the Money Market Fund of the Trust until the end of the fifteen day
period. Thereafter, these amounts will be allocated as requested.
The Contract Owner may change allocation instructions for new payments
pursuant to a written or telephone request. If telephone requests are elected by
the Contract Owner, a properly completed authorization must be on file before
telephone requests will be honored. The policy of the Company and its agents and
affiliates is that they will not be responsible for losses resulting from acting
upon telephone requests reasonably believed to be genuine. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; otherwise, the Company may be liable for any losses due
to unauthorized or fraudulent instructions. The procedures the Company follows
for transactions initiated by telephone include requirements that callers on
behalf of a Contract Owner identify themselves by name and identify the
Annuitant by name, date of birth and social security number. All transfer
instructions by telephone are tape recorded.
B. TRANSFER PRIVILEGE.
At any time prior to the Annuity Date a Contract Owner may have amounts
transferred among all accounts. Transfer values will be effected at the
Accumulation Value next computed after receipt of the transfer order. The
Company will make transfers pursuant to written or telephone requests. As
discussed in "A. Payments," a properly completed authorization form must be on
file before telephone requests will be honored.
Transfers to a Guarantee Period Account must be at least $1,000. If the
amount to be transferred to a Guarantee Period Account is less than $1,000, the
Company may transfer that amount to the Subaccount which invests in the Money
Market Fund.
The Contract Owner may have automatic transfers of at least $100 each made
on a periodic basis from the Money Market Fund or the Select Income Fund of the
Trust, from the Fixed Account to one or more of the other Subaccounts or may
elect automatic reallocation Contract values among the Subaccounts. Automatic
transfers or automatic rebalancing may be made on a monthly, quarterly,
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semiannual or annual schedule. The first automatic transfer counts as one
transfer towards the twelve transfers discussed below. Any subsequent automatic
transfer will not count as a transfer for the purposes of the charge.
Currently, the Company makes no charge for transfers. The first twelve (12)
transfers in a Contract year are guaranteed to be free of any charge. For each
subsequent transfer in a Contract year the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
C. SURRENDER.
At any time prior to the Annuity Date, a Contract Owner may surrender the
Contract and receive its Accumulated Value, less applicable charges and adjusted
for any market value adjustment ("Surrender Amount"). The Contract Owner must
return the Contract and a signed, written request for surrender, satisfactory to
the Company, to the Company's Principal Office. The amount payable to the
Contract Owner upon surrender will be based on the Contract's Accumulated Value
as of the Valuation Date on which the request and the Contract are received at
the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted
when a Contract is surrendered if payments have been credited to the Contract
during the last seven full contract years. See "CHARGES AND DEDUCTIONS." The
Contract Fee will be deducted upon surrender of the Contract.
After the Annuity Date, only Contracts under which future annuity benefit
payments are limited to a specified period (as specified in the Period Certain
Annuity Option ) may be surrendered. The Surrender Amount is the commuted value
of any unpaid installments, computed on the basis of the assumed interest rate
incorporated in such annuity benefit payments. No contingent deferred sales
charge is imposed after the Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Subaccount in any
period during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each separate account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial
redemptions of amounts allocated to the Company's Fixed Account and Guarantee
Period Accounts for a period not to exceed six months.
The surrender rights of Contract Owners who are participants under Section
403(b) plans or who are participants in the Texas Optional Retirement Program
(Texas ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School
Systems and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL
TAX CONSIDERATIONS."
D. PARTIAL REDEMPTION.
At any time prior to the Annuity Date, a Contract Owner may redeem a portion
of the Accumulated Value of his or her Contract, subject to the limits stated
below. The Contract Owner must file a signed, written request for redemption,
satisfactory to the Company, at the Company's Principal Office. The written
request must indicate the dollar amount the Contract Owner wishes to receive and
the accounts from which such amount is to be redeemed. The amount redeemed
equals the amount requested by the Contract Owner plus any applicable contingent
deferred sales charge, as described
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under "CHARGES AND DEDUCTIONS." In addition, amounts redeemed from a Guarantee
Period Account prior to the end of the applicable Guarantee Period will be
subject to a Market Value Adjustment, as described under "GUARANTEE PERIOD
ACCOUNTS".
Where allocations have been made to more than one account, a percentage of
the partial redemption may be allocated to each such account. A partial
redemption from a Subaccount will result in cancellation of a number of units
equivalent in value to the amount redeemed, computed as of the Valuation Date
that the request is received at the Company's principal office.
Each partial redemption must be in a minimum amount of $100. No partial
redemption will be permitted if the Accumulated Value remaining under the
Contract would be reduced to less than $1,000. Partial redemptions will be paid
in accordance with the time limitations described under "Surrender."
After the Annuity Date, only Contracts under which future variable annuity
benefit payments are limited to a specified period may be partially redeemed. A
partial redemption after the Annuity Date will result in cancellation of a
number of Annuity Units equivalent in value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Contract
Owners who are participants under Section 403(b) plans or under the Texas ORP,
see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems and Certain Tax
Exempt Organizations" and "J. Texas Optional Retirement Program."
For important tax consequences which may result from partial redemptions,
see "FEDERAL TAX CONSIDERATIONS."
E. DEATH BENEFIT.
If the Annuitant dies (or a Contract Owner predeceases the Annuitant) prior
to the Annuity Date while the Contract is in force, the Company will pay the
Beneficiary a death benefit, except where the Contract continues as provided in
"F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY."
Upon death of the Annuitant (including an Owner who is also the Annuitant),
the death benefit is equal to the greatest of (a) the Accumulated Value under
the Contract increased for any positive Market Value Adjustment, (b) gross
payments accumulated daily at 5% starting on the date each payment is applied,
reduced proportionately to reflect withdrawals (for each withdrawal, the
proportionate reduction is calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the withdrawal amount and
divided by the Accumulated Value immediately prior to the withdrawal); or (c) or
the death benefit that would have been payable on the most recent contract
anniversary, increased for subsequent payments and reduced proportionately to
reflect withdrawals after that date.
If an Owner who is not also the Annuitant dies before the Annuity Date, the
death benefit will be the Accumulated Value increased by any positive Market
Value Adjustment. The death benefit will never be reduced by a negative Market
Value Adjustment. The death benefit will generally be paid to the Beneficiary in
one sum within 7 days of the receipt of due proof of death unless the Owner has
specified a death benefit annuity option. Instead, the Beneficiary may, by
Written Request, elect to:
(a) defer distribution of the death benefit for a period no more than 5
years from the date of death; or
(b) receive a life annuity or an annuity for a period certain not
extending beyond the Beneficiary's life expectancy. Annuity benefit payments
must begin within one year from the date of death.
If distribution of the death benefit is deferred under (a) or (b), any value
in the Guarantee Period Accounts will be transferred to the Subaccount investing
in the Money Market Fund. The excess, if any, of the death benefit over the
Accumulated Value will also be added to the Money Market Fund.
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The Beneficiary may, by Written Request, effect transfers and withdrawals during
the deferral period and prior to annuitization under (b), but may not make
additional payments. If there are multiple Beneficiaries, the consent of all is
required.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed annuity benefit payments, any unpaid amounts or
installments will be paid to the Beneficiary. The Company must pay the remaining
payments at least as rapidly as under the payment option in effect on the date
of the Annuitant's death.
With respect to any death benefit, the Accumulated Value under the Contract
shall be based on the unit values next computed after due proof of the
Annuitant's death has been received at the Company's principal office. If the
beneficiary elects to receive the death benefit in one sum, the death benefit
will be paid within seven business days. If the beneficiary has not elected an
annuity option within one year from the date notice of death is received by the
Company, the Company will pay the death benefit in one sum. The death benefit
will reflect any earnings or losses experienced during the period and any
withdrawals.
F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY.
The Contract Owner's spouse, if named as the sole beneficiary, may by
written request continue the Contract in lieu of receiving the amount payable
upon death of the Contract Owner. Upon such election, the spouse will become the
Owner and Annuitant subject to the following: (a) any value in the Guarantee
Period Accounts will be transferred to the Money Market Subaccount; (b) the
excess, if any, of the death benefit over the Contract's Accumulated Value will
also be added to the Money Market Subaccount. Additional payments may be made;
however, a Surrender charge will apply to these amounts. All other rights and
benefits provided in the Contract will continue, except that any subsequent
spouse of such new Contract Owner will not be entitled to continue the Contract
upon such new Owner's death.
G. ASSIGNMENT.
The Contracts, other than those sold in connection with certain qualified
plans, may be assigned by the Contract Owner at any time prior to the Annuity
Date and while the Annuitant is alive (see "FEDERAL TAX CONSIDERATIONS"). The
Company will not be deemed to have knowledge of an assignment unless it is made
in writing and filed at the Principal Office. The Company will not assume
responsibility for determining the validity of any assignment. If an assignment
of the Contract is in effect on the Annuity Date, the Company reserves the right
to pay to the assignee, in one sum, that portion of the Surrender Value of the
Contract to which the assignee appears to be entitled. The Company will pay the
balance, if any, in one sum to the Contract Owner in full settlement of all
liability under the Contract. The interest of the Contract Owner and of any
beneficiary will be subject to any assignment.
H. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
Subject to certain restrictions described below, the Contract Owner has the
right (1) to select the annuity option under which annuity benefit payments are
to be made, and (2) to determine whether payments are to be made on a fixed
basis, a variable basis, or a combination fixed and variable basis. Annuity
benefit payments are determined according to the annuity tables in the Contract,
by the annuity option selected, and by the investment performance of the
Account(s) selected.
To the extent a fixed annuity is selected, Accumulated Value will be
transferred to the Fixed Account of the Company, and the annuity benefit
payments will be fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE
FIXED ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number
of Annuity Units in the Subaccount(s) is made monthly, quarterly, semiannually
or annually. Since the value of an Annuity Unit in a Subaccount will reflect the
investment performance of the Subaccount, the amount of each annuity benefit
payment will vary.
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The annuity option selected must produce an initial payment of at least $50
(a lower amount may be required in some states). The Company reserves the right
to increase this minimum amount. If the annuity option(s) selected does not
produce an initial payment which meet this minimum, a single payment will be
made. Once the Company begins making annuity benefit payments, the Annuitant
cannot make partial redemptions or surrender the annuity benefit, except in the
case where future annuity benefit payments are limited to a "period certain."
Only beneficiaries entitled to receive remaining payments for a "period certain"
may elect to instead receive a lump sum settlement.
The Annuity Date is selected by the Contract Owner. To the extent permitted
in your state, the Annuity Date may be the first day of any month (a) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Contract is 75 or under, or (b) within 10 years from the date of issue of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of issue is between 76 and 90. The Contract Owner may elect to change the
Annuity Date by sending a request to the Company's Principal Office at least one
month before the new Annuity date. The new Annuity Date must be the first day of
any month occurring before the Annuitant's 90th birthday and must be within the
life expectancy of the Annuitant. The Company shall determine such life
expectancy at the time a change in Annuity Date is requested. The Internal
Revenue Code and the terms of qualified plans impose limitations on the age at
which annuity benefit payments may commence and the type of annuity option
selected. See "FEDERAL TAX CONSIDERATIONS" for further information.
If the Contract Owner does not elect otherwise, a variable life annuity with
periodic payments for 10 years guaranteed will be purchased. Changes in either
the Annuity Date or annuity option can be made up to one month prior to the
Annuity Date.
I. DESCRIPTION OF VARIABLE ANNUITY OPTIONS.
The Company provides the variable annuity options described below.
Currently, Variable annuity options may be funded through the Subaccounts
investing in the Select Growth and Income Fund, the Select Income Fund, the
Select Growth Fund and the Money Market Fund.
The Company also provides these same options funded through the fixed
account (fixed-amount annuity option). Regardless of how payments were allocated
during the accumulation period, any one of the variable annuity options or the
fixed-amount options may be selected, or any one of the variable annuity options
may be selected in combination with any one of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS. This variable
annuity is payable periodically during the lifetime of the payee with the
guarantee that if the payee should die before all payments have been made, the
remaining annuity benefit payments will continue to the beneficiary.
VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING THE LIFETIME OF THE PAYEE
ONLY. It would be possible under this option for the Annuitant to receive only
one annuity benefit payment if the Annuitant dies prior to the due date of the
second annuity benefit payment, two annuity benefit payments if the Annuitant
dies before the due date of the third annuity benefit payment, and so on.
However, payments will continue during the lifetime of the payee, no matter how
long the payee lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is an annuity payable periodically
during the lifetime of the payee with the guarantee that if (1) exceeds (2) then
periodic variable annuity benefit payments will continue to the beneficiary
until the number of such payments equals the number determined in (1).
Where: (1) is the dollar amount of the Accumulated Value divided by the
dollar amount of the first payment (which determines the
greatest number of payment payable to the beneficiary), and
(2) is the number of payments paid prior to the death of the payee.
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JOINT AND SURVIVOR VARIABLE LIFE ANNUITY This variable annuity is payable
jointly to two payees during their joint lifetime, and then continues thereafter
during the lifetime of the survivor. The amount of each payment to the survivor
is based on the same number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be either the person
designated as the Annuitant in the Contract or the beneficiary. There is no
minimum number of payments under this option.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY This variable annuity
is payable jointly to two payees during their joint lifetime, and then continues
thereafter during the lifetime of the survivor. However, the amount of each
periodic payment to the survivor is based upon two-thirds of the number of
Annuity Units which applied during the joint lifetime of the two payees. One of
the payees must be the person designated as the Annuitant in the Contract or the
beneficiary. There is no minimum number of payments under this option.
PERIOD CERTAIN VARIABLE ANNUITY This variable annuity has periodic payments
for a stipulated number of years ranging from one to thirty.
It should be noted that the Period Certain Option does not involve a life
contingency. In the computation of the payments under this option, the charge
for annuity rate guarantees, which includes a factor for mortality risks, is
made. Although not contractually required to do so, the Company currently
follows a practice of permitting persons receiving payments under the Period
Certain Option to elect to convert to a variable annuity involving a life
contingency. The Company may discontinue or change this practice at any time,
but not with respect to election of the option made prior to the date of any
change in this practice. See "FEDERAL TAX CONSIDERATIONS" for a discussion of
the possible adverse tax consequences of selecting a Period Certain Option.
J. NORRIS DECISION.
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States
Supreme Court ruled that, in connection with retirement benefit options offered
under certain employer-sponsored employee benefit plans, annuity options based
on sex-distinct actuarial tables are not permissible under Title VII of the
Civil Rights Act of 1964. The ruling requires that benefits derived from
contributions paid into a plan after August[nb]1, 1983 be calculated without
regard to the sex of the employee. Annuity benefits attributable to payments
received by the Company under a Contract issued in connection with an
employer-sponsored benefit plan affected by the Norris decision will be based on
the greater of (1) the Company's unisex Non-Guaranteed Current Annuity Option
Rates or (2) the guaranteed unisex rates described in such Contract, regardless
of whether the Annuitant is male or female.
K. COMPUTATION OF VALUES AND ANNUITY BENEFIT PAYMENTS.
THE ACCUMULATION UNIT. Each net payment is allocated to the account(s)
selected by the Contract Owner. Allocations to the Subaccounts are credited to
the Contract in the form of Accumulation Units. Accumulation Units are credited
separately for each Subaccount. The number of Accumulation Units of each
Subaccount credited to the Contract is equal to the portion of the net payment
allocated to the Subaccount, divided by the dollar value of the applicable
Accumulation Unit as of the Valuation Date the payment is received at the
Company's Principal Office. The number of Accumulation Units resulting from each
payment will remain fixed unless changed by a subsequent split of Accumulation
Unit value, a transfer, a partial redemption, or surrender. The dollar value of
an Accumulation Unit of each Subaccount varies from Valuation Date to Valuation
Date based on the investment experience of that Subaccount and will reflect the
investment performance, expenses and charges of its Underlying Funds. The value
of an Accumulation Unit was set at $1.00 on the first Valuation Date for each
Subaccount.
Allocations to the Guarantee Period Account and the Fixed Account are not
converted into Accumulation Units, but are credited interest at a rate
periodically set by the Company. See Appendix B.
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The Accumulated Value under the Contract is determined by (1) multiplying
the number of Accumulation Units in each Subaccount by the value of an
Accumulation Unit of that Subaccount on the Valuation Date, (2) adding the
products, and (3) adding the amount of the accumulations in the Fixed Account
and Guarantee Period Accounts, if any.
NET INVESTMENT FACTOR
The Net Investment Factor is an index that measures the investment
performance of a Subaccount from one Valuation Period to the next. This factor
is equal to 1.000000 plus the result from dividing (a) by (b) and subtracting
(c) and (d) where:
(a) is the investment income of a Subaccount for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(b) is the value of that Subaccount's assets at the beginning of the
Valuation Period;
(c) is a charge for mortality and expense risks equal to 1.25% on an
annual basis of the daily value of the Subaccount's assets, and
(d) is an administrative charge of .15% on an annual basis of the daily
value of the Subaccount's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY PAYMENTS" in the Statement of Additional Information.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a
measure of the value of the Annuitant's monthly annuity benefit payments under a
variable annuity option. The value of an Annuity Unit in each Subaccount
initially was set at $1.00. The value of an Annuity Unit under a Subaccount on
any Valuation Date thereafter is equal to the value of such unit on the
immediately preceding Valuation Date, multiplied by the product of (1) the net
investment factor of the Subaccount for the current Valuation Period and (2) a
factor to adjust benefits to neutralize the assumed interest rate. The assumed
interest rate, discussed below, is incorporated in the variable annuity options
offered in the Contract.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The
first periodic annuity benefit payment is based upon the Accumulated Value as of
a date not more than four weeks preceding the date that the first annuity
benefit payment is due. Currently, variable annuity benefit payments are made on
the first of a month based on unit values as of the 15th day of the preceding
month.
The Contract provides annuity rates which determine the dollar amount of the
first periodic payment under each form of annuity for each $1,000 of applied
value. For Life Option and Noncommutable Period Certain Options of 10 or more
years, the annuity value is the Accumulated Value less any premium taxes and
adjusted for any Market Value Adjustment. For commutable period certain options
or any period certain option less than 10 years, the value is surrender value
less any premium tax. For a death benefit annuity, the annuity value will be the
amount of the death benefit. The annuity rates in the Contract are based on a
modification of the 1983 Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. Norris Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3 1/2% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity benefit payments will
increase over periods when the actual net investment result of the Subaccount(s)
funding the annuity exceeds the equivalent of the assumed
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interest rate for the period. Variable annuity benefit payments will decrease
over periods when the actual net investment result of the respective Subaccount
is less than the equivalent of the assumed interest rate for the period.
The dollar amount of the first periodic annuity benefit payment under life
annuity options and non-commutable period certain options of 10 years or more is
determined by multiplying (1) the Accumulated Value applied under that option
(after application of any Market Value Adjustment and less premium tax, if any)
divided by $1,000, by (2) the applicable amount of the first monthly payment per
$1,000 of value. For commutable period certain options and any period certain
option of less than 10 years, the Surrender Value less premium taxes, if any, is
used rather than the Accumulated Value. The dollar amount of the first variable
annuity benefit payment is then divided by the value of an Annuity Unit of the
selected Subaccount(s) to determine the number of Annuity Units represented by
the first payment. This number of Annuity Units remains fixed under all annuity
options except the joint and two-thirds survivor annuity option. For each
subsequent payment, the dollar amount of the variable annuity benefit payment is
determined by multiplying this fixed number of Annuity Units by the value of an
Annuity unit on the applicable Valuation Date.
After the first benefit payment, the dollar amount of each periodic variable
annuity benefit payment will vary with subsequent variations in the value of the
Annuity Unit of the selected Subaccount(s). The dollar amount of each fixed
amount annuity benefit payment is fixed and will not change, except under the
joint and two-thirds survivor annuity option.
The Company may from time to time offer its Contract Owners both fixed and
variable annuity rates more favorable than those contained in the Contract. Any
such rates will be applied uniformly to all Contract Owners of the same class.
For an illustration of variable annuity benefit payment calculation using a
hypothetical example, see "ANNUITY PAYMENTS" in the Statement of Additional
Information.
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 or the Investment Company Act of 1940. Accordingly, the staff of the
Commission has not reviewed the disclosures in this Prospectus relating to the
Guarantee Period Accounts or the Fixed Account. Nevertheless, disclosures
regarding the Guarantee Period Accounts and the Fixed Account of this annuity
Contract or any benefits offered under these accounts may be subject to the
provisions of the Securities Act of 1933 relating to the accuracy and
completeness of statements made in the Prospectus.
INVESTMENT OPTIONS -- In most jurisdictions, there are currently seven
Guarantee Period Accounts available under this Contract with Guarantee Periods
of three, five, six, seven, eight, nine and ten years. Each Guarantee Period
Account established for the Contract Owner is accounted for separately in a
non-unitized segregated account. Each Guarantee Period Account provides for the
accumulation of interest at a Guaranteed Interest Rate. The Guaranteed Interest
Rate on amounts allocated or transferred to a Guarantee Period Account is
determined from time-to-time by the Company in accordance with market
conditions; however, once an interest rate is in effect for a Guarantee Period
Account, the Company may not change it during the duration of the Guarantee
Period. In no event will the Guaranteed Interest Rate be less than 3%.
To the extent permitted by law, the Company reserves the right at any time
to offer Guarantee Periods with durations that differ from those which were
available when a Contract was initially issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Contract Owners may allocate net payments or make transfers from any of the
Subaccounts, the Fixed Account or an existing Guarantee Period Account to
establish a new Guarantee Period Account at any time prior to the Annuity Date.
(In Oregon, payments and transfers to the Fixed Account are
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subject to certain restrictions. See Appendix A.) Transfers from a Guarantee
Period Account on any date other than on the day following the expiration of
that Guarantee Period will be subject to a Market Value Adjustment. The Company
establishes a separate investment account each time the Contract Owner allocates
or transfers amounts to a Guarantee Period Account except that amounts allocated
to the same Guarantee Period on the same day will be treated as one Guarantee
Period Account. The minimum that may be allocated to establish a Guarantee
Period Account is $1,000. If less than $1,000 is allocated, the Company reserves
the right to apply that amount to the Money Market Fund. The Contract Owner may
allocate amounts to any of the Guarantee Periods available. Notwithstanding any
other provision in this Prospectus, with respect to contracts issued in the
state of Pennsylvania, no amounts may be allocated or transferred to any
Guarantee Period that would extend more than six months beyond the Annuity Date
in effect on the date the allocation or transfer is effected.
At least 45 days, but not more than 75 days prior to the end of a Guarantee
Period, the Company will notify the Contract Owner in writing of the expiration
of that Guarantee Period. At the end of a Guarantee Period the Owner may
transfer amounts to the Subaccounts, the Fixed Account or establish a new
Guarantee Period Account of any duration then offered by the Company without a
Market Value Adjustment. If reallocation instructions are not received at the
Principal Office before the end of a Guarantee Period, the account value will be
automatically applied to a new Guarantee Period Account with the same duration
unless (1) less than $1,000 would remain in the Guarantee Period Account on the
expiration date, or (2) unless the Guarantee Period would extend beyond the
Annuity Date or is no longer available. In such cases, the Guarantee Period
Account value will be transferred to the Money Market Fund.
MARKET VALUE ADJUSTMENT -- No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of the Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See " Death Benefit". A Market
Value Adjustment will apply to all other transfers, withdrawals, or a surrender.
Amounts applied under an annuity option are treated as withdrawals when
calculating the Market Value Adjustment. The Market Value Adjustment will be
determined by multiplying the amount taken from each Guarantee Period Account
before deduction of any Surrender Charge by the market value factor. The market
value factor for each Guarantee Period Account is equal to:
[(1+i)/(1+j)](n/365)-1
where:
i is the Guaranteed Interest Rate expressed as a decimal (for example:
3% = 0.03) being credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate, expressed as a decimal, for a
Guarantee Period with a duration equal to the number of years remaining in
the current Guarantee Period, rounded to the next higher number of whole
years. If that rate is not available, the Company will use a suitable rate
or index allowed by the Department of Insurance; and
n is the number of days remaining from the Effective Valuation Date to
the end of the current Guarantee Period.
If the Guaranteed Interest Rate being credited is lower than the current
Guaranteed Interest Rate, the Market Value Adjustment will decrease the
Guarantee Period Account value. Similarly, if the Guaranteed Interest Rate being
credited is higher than the current Guaranteed Interest Rate, the Market Value
Adjustment will increase the Guarantee Period Account value. The Market Value
Adjustment will never result in a change to the value more than the interest
earned in excess of the
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Minimum Guarantee Period Account Interest Rate (see Specifications page)
compounded annually from the beginning of the current Guarantee Period. For
examples of how the Market Value Adjustment works, See Appendix B.
WITHDRAWALS -- Prior to the Annuity Date, the Contract Owner may make
withdrawals of amounts held in the Guarantee Period Accounts. Withdrawals from
these accounts will be made in the same manner and be subject to the same rules
as set forth under "Partial Redemptions" and "Surrender." In addition, the
following provisions also apply to withdrawals from a Guarantee Period Account:
a) a Market Value Adjustment will apply to all withdrawals, including
Withdrawals without Surrender Charge, unless made at the end of the Guarantee
Period; and b) the Company reserves the right to defer payments of amounts
withdrawn from a Guarantee Period Account for up to six ;months from the date it
receives the withdrawal request. If deferred for 30 days or more, the Company
will pay interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a
portion of the value of a Guarantee Period Account, it will be calculated on the
amount requested and deducted or added to the amount remaining in the Guarantee
Period Account. If the entire amount in a Guarantee Period Account is requested,
the adjustment will be made to the amount payable. If a Contingent Deferred
Sales Charge applies to the withdrawal, it will be calculated as set forth under
"Contingent Deferred Sales Charge" after application of the Market Value
Adjustment.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Contract, on
redemptions or surrenders, on annuity benefit payments, and on the economic
benefit to the Contract Owner, Annuitant, or beneficiary depends upon a variety
of factors. The following discussion is based upon the Company's understanding
of current federal income tax laws as they are interpreted as of the date of
this Prospectus. No representation is made regarding the likelihood of
continuation of current federal income tax laws or of current interpretations by
the Internal Revenue Service (IRS).
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER SHOULD ALWAYS BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income,
assets, or existence of the Contracts, the Variable Account or the Subaccounts
may have upon its tax. The Variable Account presently is not subject to tax, but
the Company reserves the right to assess a charge for taxes should the Variable
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
Contract Owners and with respect to each separate account as though that
separate account were a separate taxable entity.
The Variable Account is considered to be a part of and taxed with the
operations of the Company. The Company is taxed as a life insurance company
under subchapter L of the Code. The Company files a consolidated tax return with
its affiliates.
The Internal Revenue Service has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
contracts under Section 817(h) of the Internal Revenue Code ("Code"). The
regulations provide that the investments of a segregated asset account
underlying a variable annuity contract are adequately diversified if no more
than 55% of the value of its assets is represented by any one investment, no
more than 70% by any two investments, no more than 80% by any three investments,
and no more than 90% by any four investments. If the investments are not
adequately diversified, the income on a contract, for any taxable year of the
Contract Owner, would be treated as ordinary income received or accrued by the
Contract Owner. It is anticipated that the Funds of the Allmerica Investment
Trust, the Portfolios of VIP and VIP II, the Portfolio of T. Rowe Price and the
Series of DGPF will comply with the diversification requirements.
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A. QUALIFIED AND NON-QUALIFIED CONTRACTS.
From a federal tax viewpoint there are two types of variable annuity
Contracts, "qualified" Contracts and "non-qualified" Contracts. A qualified
Contract is one that is purchased in connection with a retirement plan which
meets the requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Contract is one that is not purchased in connection with one of
the indicated retirement plans. The tax treatment for certain partial
redemptions or surrenders will vary according to whether they are made from a
qualified Contract or a non-qualified Contract. For more information on the tax
provisions applicable to qualified Contracts, see Sections D through J, below.
B. TAXATION OF THE CONTRACTS IN GENERAL.
The Company believes that the Contracts described in this Prospectus will,
with certain exceptions (see K below), be considered annuity contracts under
Section 72 of the Internal Revenue Code (the "Code"). This section provides for
the taxation of annuities. The following discussion concerns annuities subject
to Section 72. Section 72(e)(11)(A)(ii) requires that all non-qualified deferred
annuity contracts issued by the same insurance company to the same Contract
Owner during the same calendar year be treated as a single contract in
determining taxable distributions under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the
Contract is not taxable to the Contract Owner until it is withdrawn from the
Contract. If the Contract is surrendered or amounts are withdrawn prior to the
Annuity Date, to the extent of the amount withdrawn any investment gain in value
over the cost basis of the Contract would be taxed as ordinary income. Under the
current provisions of the Code, amounts received under a non-qualified Contract
prior to the Annuity Date (including payments made upon the death of the
Annuitant or Contract Owner), or as non-periodic payments after the Annuity
Date, are generally first attributable to any investment gains credited to the
Contract over the taxpayer's basis (if any) in the Contract. Such amounts will
be treated as income subject to federal income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if
the withdrawal is made prior to age 59 1/2. The penalty tax will not be imposed
after age 59 1/2, or if the withdrawal follows the death of the Contract Owner
(or, if the Contract Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Owner. Furthermore, under Section 72 of the Code,
this penalty tax will not be imposed, irrespective of age, if the amount
received is one of a series of "substantially equal" periodic payments made at
least annually for the life or life expectancy of the payee. This requirement is
met when the Contract Owner elects to have distributions made over the Contract
Owner's life expectancy, or over the joint life expectancy of the Contract Owner
and beneficiary. The requirement that the amount be paid out as one of a series
of "substantially equal" periodic payments is met when the number of units
withdrawn to make each distribution is substantially the same.
In a Private Letter Ruling, the IRS took the position that where
distributions from a variable annuity contract were determined by amortizing the
accumulated value of the contract over the taxpayer's remaining life expectancy
(such as under the Contract's life expectancy distribution ("LED") option), and
the option could be changed or terminated at any time, the distributions failed
to qualify as part of a "series of substantially equal payments" within the
meaning of Section 72 of the Code. The distributions were therefore subject to
the 10% federal penalty tax. This Private Letter Ruling may be applicable to a
Contract Owner who receives distributions under the LED option prior to age
59 1/2. Subsequent private letter rulings, however, have treated LED-type
withdrawal programs as effectively avoiding the 10% penalty tax. The position of
the IRS on this issue is unclear.
If the Contract Owner transfers (assigns) the Contract to another individual
as a gift prior to the Annuity Date, the Code provides that the Contract Owner
will incur taxable income at the time of the transfer. An exception is provided
for certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the Surrender Value of the
Contract over the Contract Owner's cost basis at the time of the transfer. The
transfer is also subject to federal gift tax provisions. Where the Contract
Owner and Annuitant are different persons, the change of
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ownership of the Contract to the Annuitant on the Annuity Date, as required
under the Contract, is a gift and will be taxable to the Contract Owner as such.
However, the Contract Owner will not incur taxable income. Rather the Annuitant
will incur taxable income upon receipt of annuity benefit payments as discussed
below.
When annuity benefit payments are commenced under the Contract, generally a
portion of each payment may be excluded from gross income. The excludable
portion is generally determined by a formula that establishes the ratio that the
cost basis of the Contract bears to the expected return under the Contract. The
portion of the payment in excess of this excludable amount is taxable as
ordinary income. Once all cost basis in the Contract is recovered, the entire
payment is taxable. If the Annuitant dies before cost basis is recovered, a
deduction for the difference is allowed on the Annuitant's final tax return.
C. TAX WITHHOLDING AND PENALTIES.
The Code requires withholding with respect to payments or distributions from
nonqualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.
In certain situations, the Code provides for a tax penalty if, prior to
death, disability or attainment of age 59 1/2, a Contract Owner makes a
withdrawal or receives any amount under the Contract, unless the distribution is
in the form of a life annuity (including life expectancy distributions). The
penalty is 10% of the amount includible in income by the Contract Owner.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Contracts offered by this Prospectus will vary according to
whether the amount redeemed or surrendered is allocable to an investment in the
Contract made before or after certain dates.*
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified employer plans, as defined by the
Code, vary according to the type of plan and the terms and conditions of the
plan itself. Therefore, the following is general information about the use of
the Contracts with various types of qualified plans. The rights of any person to
any benefits under such qualified plans will be subject to the terms and
conditions of the qualified plans themselves regardless of the terms and
conditions of the Contract.
A loan to a participant or beneficiary from plans qualified under Sections
401 and 403 or an assignment or pledge of an interest in such a plan is
generally treated as a distribution. This general rule does not apply to loans
which contain certain repayment terms and do not exceed a specified maximum
amount, as required under Section 72(p).
E. QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS AND QUALIFIED ANNUITY
PLANS.
When an employee (including a self-employed individual) or one or more of
the employee's beneficiaries receives a "lump sum" distribution (a distribution
from a qualified plan described in Code Section 401(a) within one taxable year
equal to the total amount payable with respect to such an employee) the taxable
portion of such distribution may qualify for special treatment under a special
five-year income averaging provision of the Code. The employee must have had at
least 5 years of participation under the plan, and the lump sum distribution
must be made after the employee has attained age 59 1/2 or on account of his or
her death, separation from the employer's service (in the case of a common-law
employee) or disability (in the case of a self-employed individual). Such
treatment can be elected for only one taxable year once the individual has
reached age 59 1/2. An employee who attained age 50 before January 1, 1986 may
elect to treat part of the taxable portion of a lump-sum distribution as
long-term capital gains and may also elect 10-year averaging instead of
five-year averaging.
The Company can provide prototype plans for certain of the pension or profit
sharing plans for review by your legal counsel. For information, ask your agent.
40
<PAGE>
F. SELF-EMPLOYED INDIVIDUALS.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended,
frequently referred to as "H.R. 10", allows self-employed individuals and
partners to establish qualified pension and profit sharing trusts and annuity
plans to provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements
applicable to corporate qualified plans, with some special restrictions imposed
on "owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
G. INDIVIDUAL RETIREMENT ACCOUNT PLANS.
Any individual who earns "compensation" (as defined in the Code and
including alimony payable under a court decree) from employment or
self-employment, whether or not he or she is covered by another qualified plan,
may establish an Individual Retirement Account or Annuity plan ("IRA") for the
accumulation of retirement savings on a tax-deferred basis. Income from
investments is not included in "compensation." The assets of an IRA may be
invested in, among other things, annuity Contracts including the Contracts
offered by this Prospectus.
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the
above-described limit on each. An individual with an IRA may establish an
additional IRA for a non-working spouse if they file a joint return.
Contributions to the two IRAs together are deductible up to the lesser of $2,250
or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 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, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity benefit payments and other distributions under an IRA will be
taxed as ordinary income unless the owner has made non-deductible contributions.
In addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2, and failure to
make adequate distributions at this time may result in certain adverse tax
consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a
non-deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's tax
return to enable the IRS to determine the proportion of the IRA balance which
represents non-deductible contributions. If
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<PAGE>
the required information is provided, that part of the amount withdrawn which is
proportionate to the individual's aggregate non-deductible contributions over
the aggregate balance of all of the individual's IRAs, is excludable from
income.
Distributions which are a return of a non-deductible contribution are
non-taxable, as they represent a return of basis. If the required information is
not provided to the IRS, distributions from an IRA to which both deductible and
non-deductible contributions have been made are presumed to be fully taxable.
H. SIMPLIFIED EMPLOYEE PENSIONS.
Employers may establish Simplified Employee Pensions ("SEPs") under Code
Section 408(k) if certain requirements are met. A SEP is an IRA to which the
employer contributes under a written formula. Currently, a SEP may accept
employer contributions each year up to $30,000 or 15% of compensation (as
defined), whichever is less. To establish SEPs the employer must make a
contribution for every employee age 21 and over who has performed services for
the employer for at least three of the five immediately preceding calendar years
and who has earned at least $300 for the year. SEP contributions for employees
over age 70 1/2 are permissible.
The employer's contribution is excluded from the employee's gross income for
the taxable year for which it was made up to the $30,000/15% limit. In addition
to the employer's contribution, the employee may contribute 100% of the
employee's earned income, up to $2,000, to the SEP, but such contributions will
be subject to the rules described above in "G. Individual Retirement Account
Plans."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
I. PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS.
Under the provisions of Section 403(b) of the Code, payments made for
annuity Contracts purchased for employees under annuity plans adopted by public
school systems and certain organizations which are tax exempt under Section
501(c)(3) of the Code are excludable from the gross income of such employees to
the extent that the aggregate purchase payments for such annuity Contracts in
any year do not exceed the maximum contribution permitted under the Code.
A Contract qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Contract Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax. The distribution restrictions are
effective for years beginning after December 31, 1988, but only with respect to
amounts that were not held under the Contract as of that date.
J. TEXAS OPTIONAL RETIREMENT PROGRAM.
Under a Code Section 403(b) annuity contract issued as a result of
participation in the Texas Optional Retirement Program, distributions may not be
received except in the case of the participant's death, retirement or
termination of employment in the Texas public institutions of higher education.
These restrictions are imposed by reason of an opinion of the Texas Attorney
General interpreting the Texas laws governing the Optional Retirement Program.
K. SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES.
Code Section 457 allows employees of a state, one of its political
subdivisions, or certain tax-exempt entities to participate in eligible
government deferred compensation plans. An eligible plan, by
42
<PAGE>
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.
L. NON-INDIVIDUAL OWNERS.
Non-individual Owners (e.g., a corporation) of deferred annuity contracts
generally will be currently taxed on any increase in the cash surrender value of
the deferred annuity attributable to contributions made after February 28, 1986.
This rule does not apply to immediate annuities or to deferred annuities held by
a qualified pension plan, an IRA, a 403(b) plan, estates, employers with respect
to terminated pension plans, or a nominee or agent holding a contract for the
benefit of an individual. Corporate-owned annuities may result in exposure to
the alternative minimum tax, to the extent that income on the annuities
increases the corporation's adjusted current earnings.
REPORTS
A Contract Owner is sent a report semi-annually which states certain
financial information about the Underlying Funds. The Company will also furnish
an annual report to the Contract Owner containing a statement of his or her
account, including unit values and other information as required by applicable
law, rules and regulations.
LOANS (QUALIFIED CONTRACTS ONLY)
Loans are available to owners of TSA contracts (i.e. contracts issued under
Section 403(b) of the Internal Revenue Code) and to contracts issued to plans
qualified under Sections 401(a) and 401(k) of the Code. Loans are subject to
provisions of the Code and to applicable qualified retirement plan rules. Tax
advisors and plan fiduciaries should be consulted prior to exercising loan
privileges.
Loaned amounts will first be withdrawn from Subaccount and Fixed Account
values on a pro-rata basis until exhausted. Thereafter, any additional amounts
will be withdrawn from the Guarantee Period Accounts (pro-rata by duration and
LIFO (last-in, first-out) within each duration), subject to any applicable
Market Value Adjustments. The maximum loan amount will be determined under the
Company's maximum loan formula. The minimum loan amount is $1,000. Loans will be
secured by a security interest in the contract and the amount borrowed will be
transferred to a loan asset account within the Company's General Account, where
it will accrue interest at a specified rate below the then-current loan rate.
Generally, loans must be repaid within five years or less and repayments must be
made quarterly and in substantially equal amounts. Repayments will be allocated
pro-rata in accordance with the most recent payment allocation, except that any
allocations to a Guarantee Period Account will instead be allocated to the Money
Market Fund.
CHANGES IN OPERATION OF THE VARIABLE ACCOUNT
The Company reserves the right, subject to compliance with applicable law,
to (1) transfer assets from any Separate Account or Subaccount to another of the
Company's variable accounts or Subaccounts having assets of the same class, (2)
to operate the variable account or any Subaccount as a
43
<PAGE>
management investment company under the 1940 Act or in any other form permitted
by law, (3) to deregister the Variable Account under the 1940 Act in accordance
with the requirements of the 1940 Act, (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Subaccount, in the event that Underlying Fund shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the
Subaccount, (5) to change the methodology for determining the net investment
factor, and (6) to change the names of the Variable Account or of the
Subaccounts. In no event will the changes described above be made without notice
to Contract Owners in accordance with the 1940 Act.
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.
The Company pays commissions not to exceed 6.0% 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.
The Company intends to recoup commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
the Company'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 the Company.
Contract Owners may direct any inquiries to their financial adviser or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653,
508-855-3590.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a
party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted in this
Prospectus pursuant to the rules and regulations of the Commission. The omitted
information may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the Commission's prescribed fees.
44
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account are not generally subject to regulation under the
provisions of the Securities Act of 1933 or the Investment Company Act of 1940.
Disclosures regarding the fixed portion of the annuity contract and the Fixed
Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission.
The Fixed Account is made up of all of the general assets of the Company
other than those allocated to the separate account. Allocations to the Fixed
Account become part of the assets of the Company and are used to support
insurance and annuity obligations. A portion or all of net payments may be
allocated to accumulate at a fixed rate of interest in the Fixed Account. Such
net amounts are guaranteed by the Company as to principal and a minimum rate of
interest. Under the Contracts, the minimum interest which may be credited on
amounts allocated to the Fixed Account is 3% compounded annually. Additional
"Excess Interest" may or may not be credited at the sole discretion of the
Company.
If a Contract is surrendered, or if an Excess Amount is redeemed, while the
Contract is in force and before the Annuity Date, a contingent deferred sales
charge is imposed if such event occurs before the payments attributable to the
surrender or withdrawal have been credited to the Contract less than seven full
contract years.
In Oregon, payments and transfers to the Fixed Account are subject to the
following restrictions:
If a Contract issued prior to the Annuitant's 60th birthday, allocations
to the Fixed Account will be permitted until the Annuitant's 61st birthday.
On and after the Annuitant's 61st birthday, no additional Fixed Account
allocations will be accepted. If a Contract is issued on or after the
Annuitant's 81st birthday, Fixed Account allocations will be permitted
during the first Contract year. On and after the first Contract anniversary,
no additional allocations to the Fixed Account will be permitted. If a
Contract is issued after the Annuitant's 81st birthday, no payments to the
Fixed Account will be permitted at any time.
If an allocation designated as a Fixed Account allocation is received at
the principal office during a period when the Fixed Account is not available
due to the limitations outlined above, the monies will be allocated to the
Money Market Fund.
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<PAGE>
APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no partial withdrawals and that the free
withdrawal amount is equal to the greater of 10% of the current account value or
the accumulated earnings in the contract. The table below presents examples of
the surrender charge resulting from a full surrender of the Contract Owner's
Account, based on hypothetical Accumulated Value:
<TABLE>
<CAPTION>
HYPOTHETICAL FREE SURRENDER
ACCUMULATED WITHDRAWAL CHARGE SURRENDER
ACCOUNT YEAR VALUE AMOUNT PERCENTAGE CHARGE
- ------------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
1 54,000.00 5,400.00 6.5% 3,159.00
2 58,320.00 8,320.00 6% 3,000.00
3 62,985.60 12,985.60 5% 2,500.00
4 68,024.45 18,024.45 4% 2,000.00
5 73,466.40 23,466.40 3% 1,500.00
6 79,343.72 29,343.72 2% 1,000.00
7 85,691.21 35,691.21 1% 500.00
8 92,546.51 42,546.51 0% 0.00
</TABLE>
PARTIAL WITHDRAWAL
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Purchase Payments are made. Assume that the free withdrawal amount is equal to
the greater of 10% of the current Account Value or the accumulated earnings in
the contract and there are partial withdrawals as detailed below. The table
below presents examples of the surrender charge resulting from partial
surrenders of the Contract Owner's Account, based on hypothetical Accumulated
Values
<TABLE>
<CAPTION>
HYPOTHETICAL FREE SURRENDER
ACCUMULATED PARTIAL WITHDRAWAL CHARGE SURRENDER
ACCOUNT YEAR VALUE WITHDRAWAL AMOUNT PERCENTAGE CHARGE
- ------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1 54,000.00 0.00 5,400.00 6.5% 0.00
2 58,320.00 0.00 8,320.00 6% 0.00
3 62,985.60 0.00 12,985.60 5% 0.00
4 68,024.45 30,000.00 18,024.45 4% 479.02
5 41,066.40 10,000.00 4,106.64 3% 176.80
6 33,551.72 5,000.00 3,355.17 2% 32.90
7 30,835.85 10,000.00 3,083.59 1% 69.16
8 22,502.72 15,000.00 2,250.27 0% 0.00
</TABLE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)]n/365-1
The following examples assume:
1. The Payment was allocated to a ten-year Guarantee Period Account
with a guaranteed interest rate of 8%.
2. The date of surrender is seven years (2555 days) from the expiration
date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at
the end of three years.
4. No transfers of partial withdrawals affecting this Guarantee Period
Account have been made.
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<PAGE>
5. Surrender charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.10)]2555/365-1
= (.98182)7-1
= -.12054
The market value adjustment = the market value factor multiplied by the
withdrawal
= -.12054*$62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.07)]2555/365-1
= (1.0093)7-1
= .06694
The market value adjustment = the market value factor multiplied by the
withdrawal
= .06694*$62,985.60
= $4,216.26
</TABLE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.11)]2555/365-1
= (.97297)7-1
= -.17454
The market value adjustment = Minimum of the market value factor
multiplied by the withdrawal or the
negative of the excess interest earned
over 3%
= Minimum (-.17454*$62,985.60 or -$8,349.25)
= Minimum-$10,993.51 or -$8,349.25)
= -$8,349.25
</TABLE>
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<PAGE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.06)]2555/365-1
= (1.01887)7-1
= .13981
The market value adjustment = Minimum of the market value factor
multiplied by the withdrawal or the
excess interest earned over 3%
= Minimum of .13981*$62,985.60 or $8,349.25)
= Minimum of $8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
48
<PAGE>
APPENDIX C
THE DEATH BENEFIT
PART 1 : DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no partial withdrawals and that the Death
Benefit Effective Annual Yield is equal to 5%. The table below presents examples
of the Death Benefit based on the hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE DEATH DEATH DEATH DEATH
YEAR VALUE ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) BENEFIT
----- ------------ ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1 53,000.00 0.00 53,000.00 52,500.00 50,000.00 53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (b) is the gross payments accumulated daily at
the Death Benefit Effective Annual Yield reduced proportionately to reflect
withdrawals. Death Benefit (c) is the death benefit that would have payable on
the most recent contract anniversary, increased for subsequent payments, and
decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits
(a), (b), or (c)
DEATH BENEFIT ASSUMING PARTIAL WITHDRAWALS
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are partial withdrawals as detailed in the table
below and that the Death Benefit Effective Annual Yield is equal to 5%. The
table below presents examples of the Death Benefit based on the hypothetical
Accumulated Value.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL HYPOTHETICAL
ACCUMULATED WITHDRAWAL MARKET VALUE DEATH DEATH DEATH DEATH
YEAR VALUE HYPOTHETICAL ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) BENEFIT
----- ------------ ------------ ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 53,000.00 0.00 0.00 53,000.00 52,500.00 50,000.00 53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 3,816.94 3,635.18 3,883.00
4 3,494.70 0.00 500.00 3,994.70 4,007.79 3,883.00 4,007.79
5 3,844.17 0.00 0.00 3,844.17 4,208.18 4,007.79 4,208.18
6 4,228.59 0.00 500.00 4,728.59 4,418.59 4,208.18 4,728.59
7 4,651.45 0.00 0.00 4,651.45 4,639.51 4,728.59 4,728.59
8 5,116.59 0.00 500.00 5,616.59 4,871.49 4,728.59 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,115.07 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 599.51 628.25 691.07
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (b) is the gross payments accumulated daily at
the Death Benefit Effective Annual Yield
49
<PAGE>
reduced proportionately to reflect withdrawals. Death Benefit (c) is the death
benefit that would have payable on the most recent contract anniversary,
increased for subsequent payments, and decreased proportionately for subsequent
withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits
(a), (b), or (c)
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no partial withdrawals and that the Death
Benefit Effective Annual Yield is equal to 5%. The table below presents examples
of the Death Benefit based on the hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE DEATH
YEAR VALUE ADJUSTMENT BENEFIT
--- ------------ ------------ ------------
<S> <C> <C> <C>
1 53,000.00 0.00 53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>
The hypothetical Death Benefit is the Accumulated Value increased by any
positive Market Value Adjustment.
50
<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 JULY 8, 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 $0.00 in 1995, $0.00 in 1994 and $833,623.78 in 1993. The aggregate
amount of commissions paid to independent broker/dealers was $8,979,395.64 in
1995, $7,542,837.54 in 1994 and $5,124,559.37 in 1993.
-3-
<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 - Specimen Policy Form A and Certificate and Generic Policy Form
were previously filed on April 15, 1992, and are incorporated
herein be reference. Policy Form B is filed herewith as
Exhibit 4.
Exhibit 5 - Specimen Generic Application Form A was previously filed on
August 14, 1992, and is incorporated herein by reference.
Specimen Application Form A is filed herewith as Exhibit 5.
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 was filed on April 30, 1996 and is
incorporated herein by reference.
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 on May 1, 1995 and are incorporated by reference herein.
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 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 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
Director 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 E. Soule Director of First Allmerica Financial Life
Director Insurance Company since 1996; Vice
President, First Allmerica Financial Life
Insurance Company
Eric A. 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, Allmerica Select Account, Group VEL
Account and Allmerica Select Separate Account II, 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 has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Worcester, and Commonwealth of Massachusetts on
the 3rd day of May, 1996.
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
Allmerica Select Account
BY: /s/ Joseph W. MacDougall, Jr.
------------------------------
Joseph W. MacDougall, Jr.
Vice President, Associate General Counsel and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities on May 3, 1996
/s/ John F. O'Brien /s/ John F. Kelly
- ----------------------------- -----------------------------
John F. O'Brien John F. Kelly
Director and Chairman of the Board Director
/s/ Richard M. Reilly /s/
- ----------------------------- -----------------------------
Richard M. Reilly James R. McAuliffe
Director, President, and CEO Director
/s/ Eric A. Simonsen /s/ Larry C. Renfro
- ----------------------------- -----------------------------
Eric A. Simonsen Larry C. Renfro
Director, Vice President and CFO Director
/s/ Bruce C. Anderson /s/ Theodore J. Rupley
- ----------------------------- -----------------------------
Bruce C. Anderson Theodore J. Rupley
Director Director
/s/ Mark R. Colborn /s/ Phillip E. Soule
- ----------------------------- -----------------------------
Mark R. Colborn Phillip E. Soule
Vice President and Controller Director
/s/ Kruno Huitzingh /s/ Diane E. Wood
- ----------------------------- -----------------------------
Kruno Huitzingh Diane E. Wood
Director, Vice President and Director, Vice President and
Chief Information Officer Chief Investment Officer
<PAGE>
EXHIBIT TABLE
Exhibit 4- Policy Form B
Exhibit 5- Application Form B
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 10- Consent of Independent Accountants
Exhibit 27- Financial Data Schedules
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
ANNUITY BENEFIT PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED
ON THE INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. PLEASE REFER TO THE VALUE OF
THE VARIABLE ACCOUNT SECTION FOR ADDITIONAL INFORMATION.
VALUES REMOVED FROM A GUARANTEE PERIOD ACCOUNT PRIOR TO THE END OF ITS GUARANTEE
PERIOD MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT THAT MAY INCREASE OR DECREASE
THE VALUES. A NEGATIVE MARKET VALUE ADJUSTMENT WILL NEVER BE APPLIED TO THE
DEATH BENEFIT. A POSITIVE MARKET VALUE ADJUSTMENT, IF APPLICABLE, WILL BE ADDED
TO THE DEATH BENEFIT WHEN THE BENEFIT PAID IS THE CONTRACT'S ACCUMULATED VALUE.
PLEASE REFER TO THE MARKET VALUE ADJUSTMENT SECTION FOR ADDITIONAL INFORMATION.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of its
authorized representatives within ten days after receipt. If returned, the
Company will refund an amount equal to the sum of (1) gross payments, less any
amounts allocated to the Variable Account, (2) the Accumulated Value of amounts
allocated to the Variable Account on the date the returned contract is received
at the Principal Office and (3) any fees or other charges imposed on the amounts
allocated to the Variable Account. If, however, the contract is issued as an
Individual Retirement Annuity (IRA), the Company will refund the greater of the
above or the gross payments.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
This is a legal contract between Allmerica Financial Life Insurance and Annuity
Company (the Company) and the Owner and is issued in consideration of the
initial payment shown on the Specifications page. Additional payments are
permitted and may be made either to the Principal Office or to an authorized
representative of the Company. Payments may be allocated to Variable Sub-
Accounts, the Fixed Account or Guarantee Period Accounts. While this contract
is in effect, the Company agrees to pay annuity benefits to the Annuitant
beginning on the Annuity Date or to pay a death benefit to the Beneficiary if
either the Owner or Annuitant dies prior to the Annuity Date.
/s/ John F. O'Brien /s/ Abigail M. Armstrong
President Secretary
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OWNER AND BENEFICIARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
VALUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
WITHDRAWAL AND SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . . . .10
DEATH BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
ANNUITY BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
ANNUITY OPTION TABLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
2
<PAGE>
SPECIFICATIONS
Annuitant: Contract Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Issue Date: Contract Type:
Annuitant Sex: Annuitant Date of Birth:
Owner: Owner Date of Birth:
Joint Owner: Joint Owner Date of Birth:
Annuity Date: [The earlier of the date, if any, Beneficiary:
selected by the Owner or the later
of annuitant's age 85 or birthday following the
tenth contract anniversary not to exceed 90]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Minimum Fixed Account Guaranteed Interest Rate: [3%] Minimum Additional Payment: [$50]
Minimum Guarantee Period Account Interest Rate: [3% ] Minimum Guarantee Period Account Allocation: [$1,000]
Death Benefit Effective Annual Yield: [5%] Minimum Withdrawal Amount: [$100]
Minimum Annuity Benefit Payment: [$50] Minimum Accumulated Value After Withdrawal: [$1,000]
</TABLE>
Maximum Alternative Annuity Date: No later than the first of the month
preceding the Annuitant's [90th]
birthday and within life expectancy
Surrender Charge Table:
Years Measured From Surrender Charge as a
Date of Payment Percent of the Payments
To Date of Withdrawal Withdrawn
------------------------------------------------------
[Less than: 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%]
Withdrawal without Surrender Charge: [15%]
Mortality and Expense Risk Charge: [1.25%] on an annual basis of the daily
value of the Sub-Account assets.
Administrative Charge: [.15%] on an annual basis of the daily value of the
Sub-Account assets.
Contract Fee: [$30, if the Accumulated Value is less than $50,000].
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
[(1-800-533-2124)]
3
<PAGE>
SPECIFICATIONS (continued)
Annuitant: Contract Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Initial Net Payment:
Initial Net Payment Allocation:
VARIABLE SUB-ACCOUNTS
FIXED ACCOUNT
Initial Interest Rate:
GUARANTEE PERIOD ACCOUNTS
GUARANTEED
GUARANTEE INTEREST EXPIRATION
PERIOD RATE DATE
--------- ---------- ----------
[2 years
3 years
4 years
5 years
6 years
7 years
8 years
9 years
10 years]
-----
100% TOTAL
4
<PAGE>
DEFINITIONS
ACCUMULATED The value of all accounts in this contract before
VALUE the Annuity Date. As long as the Accumulated
Value is greater than zero, the contract will stay
in effect.
ACCUMULATION A measure used to calculate the value of a Sub-
UNIT Account before annuity benefit payments begin.
ANNUITY DATE The date annuity benefit payments begin. The
Annuity Date is shown on the Specifications page,
unless the Owner elects an alternative Annuity
Date.
ANNUITY UNIT A measure used to calculate annuity benefit
payments under a variable annuity option.
BENEFICIARY The person, persons or entity entitled to the death benefit.
COMPANY Allmerica Financial Life Insurance and Annuity Company.
CONTRACT YEAR A period of one year computed from the date of issue or from
an anniversary of the date of issue.
EFFECTIVE The Valuation Date on or immediately following the
VALUATION DATE day a payment, request for transfer, withdrawal or
surrender, or proof of death is received at the
Principal Office.
FIXED ACCOUNT The part of the Company's General Account to which
all or a portion of a payment or transfer may be
allocated.
FUND Each separate investment series eligible for
investment by a Sub-Account of the Variable
Account.
GENERAL ACCOUNT All assets of the Company that are not allocated
to a Separate Account.
GUARANTEED The annual effective rate of interest after daily
INTEREST RATE compounding credited to a Guarantee Period
Account.
GUARANTEE PERIOD The number of years that a Guaranteed Interest
Rate may be credited to a Guarantee Period
Account. The Guarantee Period may range from two
to ten years.
GUARANTEE PERIOD An account which corresponds to a Guaranteed
ACCOUNT Interest Rate for a specified Guarantee Period and
is supported by assets in a Separate Account.
MARKET VALUE A positive or negative adjustment assessed if any
ADJUSTMENT portion of a Guarantee Period Account is withdrawn
or transferred prior to the end of its Guarantee Period.
OWNER The person, persons or entity entitled to exercise
the rights and privileges under this contract.
Joint owners are permitted if one of the two is
the annuitant.
PRINCIPAL OFFICE The Company's office at 440 Lincoln Street,
Worcester, Massachusetts, 01653.
PRO RATA How a payment or withdrawal may be allocated among
the accounts. A Pro Rata allocation or withdrawal
will be made in the same proportion that the value
of each account bears to the Accumulated Value.
5
<PAGE>
SEPARATE ACCOUNT A segregated account established by the Company.
The assets are not commingled with the Company's
general assets and obligations.
SUB-ACCOUNT A Variable Account subdivision that invests
exclusively in shares of a corresponding Fund.
SURRENDER VALUE The amount payable to the Owner on full surrender
after application of any Surrender Charge, Market
Value Adjustment and contract fee.
TELEPHONE A request by telephone to the Principal Office. A
REQUEST signed authorization must be on file for such
requests to be honored.
VALUATION DATE A day the values of all units are determined.
Valuation Dates occur at the close of business on
each day the New York Stock Exchange is open for trading.
VALUATION PERIOD The interval between two consecutive Valuation Dates.
VARIABLE ACCOUNT The Company's Separate Account, consisting of Sub-Accounts
that invest in the underlying Funds.
WRITTEN REQUEST A request or notice in writing satisfactory to the
OR WRITTEN Company and filed at the Principal Office.
NOTICE
6
<PAGE>
OWNER AND BENEFICIARY
OWNER During the lifetime of the Annuitant and before
the Annuity Date, the Owner will be as shown on
the Specifications page unless changed in
accordance with the terms of this contract. On
and after the Annuity Date, the Annuitant will be
the Owner unless the Owner immediately prior to
the Annuity Date is not a person. In that case,
ownership will remain the same on and after the
Annuity Date.
The Owner may exercise all rights and options
granted in this contract or by the Company,
subject to the consent of any irrevocable
Beneficiary. Where the contract is owned jointly,
the consent of both is required in order to
exercise any ownership rights.
ASSIGNMENT The Owner may be changed at any time prior to the Annuity
Date and while the Annuitant is alive. Only the Owner
may assign this contract. An absolute assignment will
transfer ownership to the assignee. This contract may
also be collaterally assigned as security. The
limitations on ownership rights while the collateral
assignment is in effect are stated in the assignment.
Additional limitations may exist for contracts issued
under provisions of the Internal Revenue Code.
An assignment will take place only when the Company has
received Written Notice and recorded the change at the
Principal Office. The Company will not be deemed to know
of the assignment until it has received Written Notice.
When recorded, the assignment will take effect as of the
date it was signed. The assignment will be subject to
payments made or actions taken by the Company before the
change was recorded.
The Company will not be responsible for the validity of
any assignment nor the extent of any assignee's interest.
The interests of the Annuitant and the Beneficiary will
be subject to any assignment.
BENEFICIARY The Beneficiary is as named on the Specifications page
unless subsequently changed. The Owner may declare any
Beneficiary to be revocable or irrevocable. A revocable
Beneficiary may be changed at any time. An irrevocable
Beneficiary must consent in writing to any change.
Unless otherwise indicated, the Beneficiary will be
revocable.
A Beneficiary change must be made in writing on a
Beneficiary designation form and will be subject to the
rights of any assignee of record. When the Company
receives the form, the change will take place as of the
date it was signed, even if the Owner or Annuitant is
then deceased. Any rights created by the change will be
subject to payments made or actions taken by the Company
before the change was recorded.
All death benefits provided by this contract will be
divided equally among the surviving Beneficiaries of the
same class, unless the Owner directs otherwise. If there
is no surviving Beneficiary, the deceased Beneficiary's
interest will pass to the Owner or the Owner's estate.
PROTECTION OF To the extent allowed by law, this contract and any
PROCEEDS payments made under it will be exempt from the claims of
creditors. Neither the Annuitant nor the Beneficiary can
assign, transfer, commute, anticipate or encumber the
proceeds or payments unless given that right by the Owner.
7
<PAGE>
PAYMENTS
The Initial Payment is shown on the Specifications page.
ADDITIONAL Prior to the Annuity Date, the Owner may make
PAYMENTS additional payments of at least the Minimum
Additional Payment (see Specifications page).
Total payments made may not exceed $5,000,000
without the Company's consent.
NET PAYMENTS Each Net Payment is equal to the gross payment
less the amount of any applicable premium tax.
The Company reserves the right to deduct the
amount of the premium tax from the Accumulated
Value at a later date rather than when the tax
is first incurred. In no event will an amount
be deducted for premium taxes before the Company
has incurred a tax liability under applicable
state law.
NET PAYMENT The initial Net Payment is allocated as shown on
ALLOCATIONS the Specifications page. Additional Net
Payments will be allocated in the same
proportion as the initial Net Payment, unless
changed by the Owner's Written or Telephone
Request.
If the Right To Examine Contract provision
provides for a full refund of all payments, any
portion of a Net Payment allocated to a Sub-
Account or a Guarantee Period Account will be
held in the Money Market Sub-Account during the
contract's first fifteen days. After fifteen
days, these amounts will be allocated as
requested.
The minimum that may be allocated to a Guarantee
Period Account is shown on the Specifications
page. If less is allocated to a Guarantee
Period Account, the Company reserves the right
to apply that amount to the Money Market Sub-
Account.
VALUES
VALUE OF THE The value of a Sub-Account on a Valuation Date
VARIABLE ACCOUNT is determined by multiplying the Accumulation
Units in that Sub-Account by the Accumulation
Unit value as of the Valuation Date.
Accumulation Units are credited when an amount
is allocated to a Sub-Account. The number of
Accumulation Units credited equals that amount
divided by the applicable Accumulation Unit
Value as of the Effective Valuation Date.
ACCUMULATION The value of a Sub-Account Accumulation Unit as
UNIT VALUES of any Valuation Date is determined by
multiplying the value of an Accumulation Unit
for the preceding Valuation Date by the net
investment factor for that Valuation Period.
NET INVESTMENT The net investment factor measures the
FACTOR investment performance of a Sub-Account from one
Valuation Period to the next. This factor is
equal to 1.000000 plus the result from dividing
(a) by (b) and subtracting (c) and (d) where:
(a) is the investment income of a Sub-Account for the
Valuation Period, including realized or unrealized
capital gains and losses during the Valuation Period,
adjusted for provisions made for taxes, if any;
8
<PAGE>
(b) is the value of that Sub-Account's assets at the
beginning of the Valuation Period;
(c) is the Mortality and Expense Risk Charge (see
Specifications page); and
(d) is the Administrative Charge (see Specifications page).
The Company assumes the risk that actual
mortality and expenses may exceed the amount
provided for such costs and guarantees that the
charge for mortality and expense risks and the
administrative charge will not be increased.
Subject to applicable state and federal laws,
these charges may be decreased or the method
used to determine the net investment factor may
be changed.
VALUE OF THE Allocations to the Fixed Account are credited
FIXED ACCOUNT interest at rates periodically set by the
Company. The Company guarantees that the rate
of interest in effect when an amount is
allocated to the Fixed Account will remain in
effect for that amount for one year.
Thereafter, the rate of interest for that amount
will be the Company's current interest rate, but
no less than the Minimum Fixed Account
Guaranteed Interest Rate (see Specifications page).
The value of the Fixed Account on any date is
the sum of allocations to the Fixed Account plus
interest compounded and credited daily at the
rates applicable to those allocations. The
value of the Fixed Account will be at least
equal to the minimum required by law in the
state in which this contract is delivered.
VALUE OF THE A Guarantee Period Account will be established
GUARANTEE PERIOD on the date a Net Payment or transfer is
ACCOUNTS allocated to a specific Guarantee Period.
Amounts allocated to the same Guarantee Period
on the same day will be treated as one Guarantee
Period Account. The interest rate in effect
when an amount is allocated is guaranteed for
the duration of the Guarantee Period. Additional
amounts allocated to Guarantee Periods of the
same or different durations will result in
additional Guarantee Period Accounts, each with
its own Guaranteed Interest Rate and expiration
date.
The value of a Guarantee Period Account on any
date is the sum of the allocation to that
Guarantee Period Account plus interest
compounded and credited daily at the rate
applicable to that allocation.
GUARANTEED The Company will periodically set Guaranteed
INTEREST RATES Interest Rates for each available Guarantee
Period. These rates will be guaranteed for the
duration of the respective Guarantee Periods. A
Guaranteed Interest Rate will never be less than
the Minimum Guarantee Period Account Interest
Rate (see Specifications page.)
RENEWAL At least 45 days, but not more than 75 days
GUARANTEE prior to the end of a Guarantee Period, the
PERIODS Company will notify the Owner in writing of the
expiration of that Guarantee Period. The Owner
may transfer amounts to the Sub-Accounts, the
Fixed Account or establish a new Guarantee
Period Account of any duration then offered by
the Company as of the day following the
expiration of the Guarantee Period without a
Market Value Adjustment. Guaranteed Interest
Rates corresponding to the available Guarantee
Periods may be higher or lower than the previous
Guaranteed Interest Rate. If reallocation
instructions are not received at the Principal
Office before the end of a Guarantee Period,
9
<PAGE>
the Guarantee Period Account value will be
automatically applied to a new Guarantee Period
Account with the same Guarantee Period unless:
(a) less than the Minimum Guarantee Period Account
Allocation (see Specifications page) remains in the
Guarantee Period Account on the expiration date; or
(b) the Guarantee Period would extend beyond the Annuity
Date or is no longer available.
In such cases, the Guarantee Period Account
value will be transferred to the Money Market
Sub-Account.
CONTRACT FEE The Company will deduct a contract fee (see
Specifications page) Pro Rata on each contract
anniversary prior to the Annuity Date and when
the contract is surrendered. If the contract is
issued to and maintained by the Trustee of a
401(k) Plan, the Company will waive the contract
fee, but reserves the right to impose a fee of
not more than $30.
TRANSFERS
Prior to the Annuity Date, the Owner may transfer amounts
among accounts by Written or Telephone Request to the
Principal Office. Transfers to a Guarantee Period Account
will be subject to the Minimum Guarantee Period Account
Allocation (see Specifications page). If less would be
allocated to a Guarantee Period Account, the Company may
transfer that amount to the Money Market Sub-Account.
Any transfer from a Guarantee Period Account prior to the
end of its Guarantee Period will be subject to a Market
Value Adjustment. In the case of a partial transfer of a
Guarantee Period Account the Market Value Adjustment will
be applied to the value remaining in the account.
There is no charge for the first twelve transfers per
contract year. A transfer charge of up to $25 may be
imposed on each additional transfer.
WITHDRAWAL AND SURRENDER
The Owner may, by Written Request, withdraw a part of the
Accumulated Value of this contract or surrender it for
its Surrender Value prior to the Annuity Date.
Any withdrawal must be at least the Minimum Withdrawal
Amount (see Specifications page). A withdrawal will not
be permitted if the Accumulated Value remaining in the
contract would be less than the Minimum Accumulated Value
After Withdrawal (see Specifications page). The Written
Request must indicate the dollar amount to be paid and
the accounts from which it is to be withdrawn.
When surrendered, this contract terminates and the
Company has no further liability under it. The Surrender
Value will be based on the Accumulated Value on the
Effective Valuation Date.
10
<PAGE>
Amounts taken from the Variable Account will be paid
within 7 days of the date a Written Request is received
(plus any period of extension under applicable laws,
rules and regulations governing variable annuities).
Amounts taken from the Fixed Account or the Guarantee
Period Accounts will normally be paid within 7 days of
receipt of a Written Request. The Company may defer
payment for up to six months from the receipt date. If
deferred for 30 days or more, the amount payable will be
credited interest at a rate of at least 3%.
WITHDRAWAL WITHOUT In each calendar year, withdrawals up to the greater of
SURRENDER CHARGE (a) or (b) may be made without a surrender charge where:
(a) is cumulative earnings, calculated as the Accumulated
Value as of the Effective Valuation Date reduced by
total gross payments not previously withdrawn; and
(b) is a percent (see Specifications page) of the
Accumulated Value as of the Effective Valuation Date
reduced by any prior withdrawal without surrender charge
made in the same calendar year.
The withdrawal without surrender charge will first be
deducted from cumulative earnings even if it is based
upon (b) above. To the extent that it exceeds cumulative
earnings, the excess will be considered withdrawn on a
(last-in, first-out basis from payments not previously
withdrawn. Amounts withdrawn from a Guarantee Period
Account prior to the end of the applicable Guarantee
Period will be subject to a Market Value Adjustment.
LIFE EXPECTANCY In each calendar year, the amount of the life
DISTRIBUTION expectancy distribution available under the
BENEFIT Company's then current life expectancy
distribution rules that exceeds the withdrawal
without surrender charge may also be withdrawn
without charge. Life expectancy distribution is
available only if the Annuitant is an Owner.
WITHDRAWAL WITH Any amounts withdrawn or surrendered in excess
SURRENDER CHARGE of the withdrawal without surrender charge or
life expectancy distribution benefit may be
subject to a surrender charge.
These amounts will be taken on a first-in,
first-out basis from payments not previously
considered withdrawn. The Company will compute
applicable charges using the Surrender Charge
Table (see Specifications page) until the total
amount withdrawn equals the amount of the
withdrawal requested plus the withdrawal charge
or, if a surrender, until all remaining payments
have been exhausted. The surrender charge will
then be deducted from the Accumulated Value in
the same manner as the withdrawals.
WAIVER OF The surrender charge will be waived if an Owner,
SURRENDER CHARGE or the Annuitant if the Owner is not a person
is:
(a) admitted to a "medical care facility" after the issue
date of the contract and remains confined there until
the later of one year after the issue date or 90
consecutive days;
(b) first diagnosed by a licensed "physician" as having a
"fatal illness" after the issue date of the contract; or
11
<PAGE>
(c) physically disabled after the issue date of the
contract and before attaining age 65. The Company may
require proof of continuing disability, including
written confirmation of receipt and approval of any
claim for Social Security Disability Benefits, and
reserves the right to obtain an examination by a
licensed physician of its choice and at its expense.
"Medical care facility" means any state licensed
facility providing medically necessary inpatient
care which is prescribed by a licensed
"physician" in writing and based on physical
limitations which prohibit daily living in a
non-institutional setting. "Fatal illness"
means a condition diagnosed by a licensed
"physician" which is expected to result in death
within two years of the diagnosis. "Physician"
means a person other than the Owner, the
Annuitant or a member of one of their families
who is state licensed to give medical care or
treatment and is acting within the scope of that
license.
No additional payments are permitted after this
provision becomes effective.
MARKET VALUE A transfer, withdrawal or surrender from a
ADJUSTMENT Guarantee Period Account at the end of its
Guarantee Period will not be subject to a Market
Value Adjustment. A Market Value Adjustment
will apply to all other transfers or
withdrawals, or a surrender. Amounts applied
under an annuity option are treated as
withdrawals when calculating the Market Value
Adjustment. The Market Value Adjustment will be
determined by multiplying the amount taken from
each Guarantee Period Account before deduction
of any Surrender Charge by the market value
factor. The market value factor for each
Guarantee Period Account is equal to:
[(1+i)/(1+j)]n/365 -1
where:
i is the Guaranteed Interest Rate expressed as
a decimal (for example: 3% = 0.03) being
credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate,
expressed as a decimal, for a
Guarantee Period with a duration
equal to the number of years
remaining in the current Guarantee
Period, rounded to the next higher
number of whole years. If that rate
is not available, the Company will
use a suitable rate or index allowed
by the Department of Insurance; and
n is the number of days remaining from the
Effective Valuation Date to the end of the
current Guarantee Period.
If the Guaranteed Interest Rate being credited
is lower than the current Guaranteed Interest
Rate, the Market Value Adjustment will decrease
the Guarantee Period Account value. Similarly,
if the Guaranteed Interest Rate being credited
is higher than the current Guaranteed Interest
Rate, the Market Value Adjustment will increase
the Guarantee Period Account value. The Market
Value Adjustment will never result in a change
to the value more than the interest earned in
excess of the Minimum Guarantee Period Account
Interest Rate (see Specifications page)
compounded annually from the beginning of the
current Guarantee Period.
12
<PAGE>
DEATH BENEFIT
At the death of the Annuitant, Owner or joint Owner,
whichever occurs first, the Company will pay to the
Beneficiary a death benefit determined as of the
Effective Valuation Date upon receipt at the Principal
Office of proof of death. If the Annuitant is also an
Owner and dies, the Annuitant's death benefit will apply.
ANNUITANT'S DEATH If the Annuitant dies before the Annuity Date, the death
BENEFIT BEFORE THE benefit will be the greatest of:
ANNUITY DATE
(a) the Accumulated Value increased by any positive Market
Value Adjustment;
(b) gross payments accumulated daily at the Death Benefit
Effective Annual Yield shown on the Specifications page,
starting on the Effective Valuation Date of each gross
payment, reduced proportionately to reflect withdrawals.
For each withdrawal, the proportionate reduction is
calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the
withdrawal amount and divided by the Accumulated Value
immediately prior to the withdrawal; or,
(c) the death benefit that would have been payable on the
most recent contract anniversary, increased for
subsequent payments, and decreased proportionately for
subsequent withdrawals.
OWNER'S DEATH If an Owner who is not also the Annuitant dies before the
BENEFIT BEFORE Annuity Date, the death benefit will be the Accumulated
THE ANNUITY DATE Value increased by any positive Market Value Adjustment.
PAYMENT OF THE The death benefit will be paid to the Beneficiary within
DEATH BENEFIT 7 days of the Effective Valuation Date unless the Owner
BEFORE THE has specified a death benefit annuity option. Instead,
ANNUITY DATE the Beneficiary may, by Written Request, elect to:
(a) defer distribution of the death benefit for a period
no more than 5 years from the date of death ; or
(b) receive a life annuity or an annuity for a period
certain not extending beyond the Beneficiary's life
expectancy. Annuity benefit payments must begin within
one year from the date of death .
If distribution of the death benefit is deferred under
(a) or (b), any value in the Guarantee Period Accounts
will be transferred to the Money Market Sub-Account. The
excess, if any, of the death benefit over the Accumulated
Value will also be added to the Money Market Sub-Account.
The Beneficiary may, by Written Request, effect transfers
and withdrawals, but may not make additional payments.
If there are multiple Beneficiaries, the consent of all
is required.
If the sole Beneficiary is the deceased Owner's spouse,
the Beneficiary may, by Written Request, continue the
contract and become the new Owner and Annuitant subject
to the following:
(a) any value in the Guarantee Period Accounts will be
transferred to the Money Market Sub-Account.
13
<PAGE>
(b) the excess, if any, of the death benefit over the
contract's Accumulated Value will also be added to the
Money Market Sub-Account;
(c) additional payments may be made. A surrender charge will
apply only to these additional payments; and
(d) any subsequent spouse of the new Owner, if named as the
Beneficiary, may not continue the contract.
DEATH BENEFIT AND If the Annuitant dies after the Annuity Date but before
PAYMENT AFTER THE all guaranteed annuity benefit payments have been made,
ANNUITY DATE the remaining payments will be paid to the Beneficiary at
least as rapidly as under the annuity option in effect on
the Annuitant's death.
ANNUITY BENEFIT
ANNUITY OPTIONS Annuity options are available on a fixed, variable or
combination fixed and variable basis. The annuity options
described below or any alternative option offered by the
Company may be chosen. If no option is chosen, monthly
benefit payments under a variable life annuity with
payments guaranteed for 10 years will be made.
The Owner may also elect to have the death benefit
applied under a life annuity or a period certain annuity
not extending beyond the Beneficiary's life expectancy.
Such an election may not be altered by the Beneficiary.
Fixed annuity options are funded through the Fixed
Account. Variable annuity options may be funded through
one or more of the Sub-Accounts. Not all Sub-Accounts
may be made available.
ANNUITY BENEFIT Annuity benefit payments may be received on a
PAYMENTS monthly, quarterly, semiannual or annual basis.
If the first payment would be less than the
Minimum Annuity Benefit Payment (see
Specifications page), a single payment will be
made instead. The Company reserves the right to
increase the minimum payment amount to not more
than $500, subject to applicable state
regulations. Satisfactory proof of the payee's
date of birth must be received at the Principal
Office before annuity benefit payments begin.
Where a life annuity option has been elected,
the Company may require satisfactory proof that
the payee is alive before any payment is made.
ANNUITY VALUE The amount of the first annuity benefit payment
under all available options except period
certain options will depend on the age of the
payee or payees on the Annuity Date and the
annuity value applied. Period certain options
are based on the duration of payments and the
annuity value.
For life annuity options and non-commutable
period certain options with a duration of 10
years or more, the annuity value will be the
Accumulated Value and may include any applicable
Market Value Adjustment less any premium tax.
For commutable period certain options or any
period certain option less than 10 years, the
annuity value will be the Surrender Value less
any premium tax. For a death benefit annuity,
the annuity value will be the amount of the
death benefit. The annuity value applied under
a variable annuity option is based on the
Accumulation Unit value on a Valuation Date not
more than four weeks, uniformly applied, before
the Annuity Date.
14
<PAGE>
ANNUITY UNIT A Sub-Account Annuity Unit value on any
VALUES Valuation Date is equal to its value on the
preceding Valuation Date multiplied by the
product of:
(a) a discount factor equivalent to the assumed
interest rate; and
(b) the net investment factor of the Sub-Account funding
the annuity benefit payments for the applicable
Valuation Period.
The value of an Annuity Unit as of any date
other than a Valuation Date is equal to its
value as of the preceding Valuation Date.
Each variable annuity benefit payment is equal
to the number of Annuity Units multiplied by the
applicable value of an Annuity Unit, except that
under a Joint and Two-Thirds Option, payments to
the surviving payee are based on two-thirds the
number of Annuity Units that applied when both
payees were living. Variable annuity benefit
payments will increase or decrease with the
value of annuity units. The Company guarantees
that the amount of each variable annuity benefit
payment will not be affected by changes in
mortality and expense experience.
NUMBER OF The number of Annuity Units determining the
ANNUITY UNITS benefit payable is equal to the amount of the
first annuity benefit payment divided by the
value of the Annuity Unit as of the Valuation
Date used to calculate the amount of the first
payment. Once annuity benefit payments begin,
the number of Annuity Units will not change
unless a split is made.
ANNUITY BENEFIT VARIABLE OR FIXED LIFE ANNUITY WITH PAYMENTS
PAYMENT OPTIONS GUARANTEED FOR 10 YEARS: Periodic annuity
benefit payments during the payee's life. If
the payee dies before all guaranteed payments
have been made, the remaining payments will be
made to the Beneficiary.
VARIABLE OR FIXED LIFE ANNUITY: Periodic
annuity benefit payments during the payee's
life.
UNIT REFUND VARIABLE OR FIXED LIFE ANNUITY:
Periodic annuity benefit payments during the
payee's life. If the payee dies and the annuity
value initially applied to purchase the option,
divided by the first payment, exceeds the number
of payments made before the payee's death,
payments will continue to the Beneficiary until
the number of payments equals the Annuity Value
divided by the first payment.
JOINT AND SURVIVOR VARIABLE OR FIXED LIFE
ANNUITY: Periodic annuity benefit payments
during the joint lifetime of two payees with
payments continuing during the lifetime of the
survivor. One of the payees must be the
Annuitant or, if the Annuitant is not living
when payments begin, one of the payees must be
the Beneficiary.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE OR FIXED
LIFE ANNUITY: Periodic annuity benefit
payments during the joint lifetime of two payees
with payments continuing during the lifetime of
the survivor at two-thirds the amount payable
when both payees were living. One of the payees
must be the Annuitant or, if the Annuitant is
not living when payments begin, one of the
payees must be the Beneficiary.
VARIABLE OR FIXED ANNUITY FOR A PERIOD CERTAIN:
Periodic annuity benefit payments for a chosen
number of years. The number of years
15
<PAGE>
selected may be from 1 to 30. If the payee dies before
the end of the period, remaining payments will
continue to the Beneficiary.
ANNUITY TABLES The first annuity benefit payment will be based on the
greater of the guaranteed annuity rates shown in the
following tables or the Company's non-guaranteed current
annuity option rates applicable to this class of
contracts. Second and subsequent annuity benefit
payments, when based on the investment experience of the
Variable Account, may increase or decrease.
16
<PAGE>
ANNUITY OPTION TABLES
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Age Life Annuity with Life Unit Refund
Nearest Payments Guaranteed Annuity Life Annuity
Birthday for 10 Years
- --------------------------------------------------------------------------------
50 4.22 4.24 4.14
51 4.28 4.31 4.19
52 4.34 4.37 4.25
53 4.41 4.44 4.31
54 4.48 4.52 4.37
55 4.55 4.59 4.43
56 4.63 4.68 4.50
57 4.71 4.76 4.57
58 4.80 4.86 4.65
59 4.89 4.96 4.73
60 4.98 5.06 4.82
61 5.08 5.18 4.90
62 5.19 5.30 5.00
63 5.30 5.43 5.10
64 5.42 5.56 5.20
65 5.55 5.71 5.31
66 5.68 5.87 5.43
67 5.81 6.04 5.55
68 5.96 6.22 5.68
69 6.11 6.41 5.81
70 6.26 6.62 5.96
71 6.43 6.84 6.11
72 6.60 7.08 6.27
73 6.77 7.34 6.44
74 6.95 7.62 6.62
75 7.13 7.91 6.81
- --------------------------------------------------------------------------------
These tables are based on an annual interest rate of 3 1/2%
and the 1983(a) Individual Mortality Table.
17
<PAGE>
ANNUITY OPTION TABLES (CONTINUED)
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Joint and Two-Thirds Survivor Life
Joint and Survivor Life Annuity Annuity
Older Age Older Age
- ---------------------------------------------------------------------------------------------------
50 55 60 65 70 75 80 50 55 60 65 70 75 80
- ----------------------------------------------------------------------------------------------------
Y 50 3.91 3.97 4.02 4.05 4.07 4.09 4.10 4.25 4.40 4.57 4.76 4.96 5.18 5.39
O
U 55 4.18 4.26 4.32 4.36 4.39 4.41 4.60 4.80 5.02 5.26 5.50 5.75
N
G 60 4.54 4.65 4.73 4.78 4.81 5.08 5.35 5.63 5.92 6.21
E
R 65 5.04 5.19 5.29 5.35 5.74 6.10 6.46 6.82
A 70 5.75 5.95 6.08 6.67 7.15 7.62
G 75 6.77 7.06 8.04 8.69
E 80 8.29 10.05
</TABLE>
These tables are based on an annual interest rate of 3 1/2%
and the 1983(a) Individual Mortality Table.
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Number of Variable or Fixed Annuity Number of Variable or Fixed Annuity
Years for a Period Certain Years for a Period Certain
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 84.65 16 6.76
2 43.05 17 6.47
3 29.19 18 6.20
4 22.27 19 5.97
5 18.12 20 5.75
6 15.35 21 5.56
7 13.38 22 5.39
8 11.90 23 5.24
9 10.75 24 5.09
10 9.83 25 4.96
11 9.09 26 4.84
12 8.46 27 4.73
13 7.94 28 4.63
14 7.49 29 4.53
15 7.10 30 4.45
These tables are based on an annual interest rate of 3 1/2%.
18
<PAGE>
GENERAL PROVISIONS
ENTIRE CONTRACT The entire contract consists of this contract, any
application attached at issue and any endorsements.
MISSTATEMENT OF If a payee's age is misstated, the Company will adjust
AGE all annuity benefit payments to those that the annuity
value applied would have purchased at the correct age.
Any underpayments already made by the Company will be
paid immediately. Any overpayments will be deducted
from future annuity benefits.
MODIFICATIONS Only the President, a Vice President or Secretary of the
Company may modify or waive any provisions of this
contract. Agents or Brokers are not authorized to do so.
INCONTESTABILITY The Company cannot contest this contract.
CHANGE OF ANNUITY The Owner may change the Annuity Date by Written Request
DATE at any time after the contract has been issued. The
request must be received at the Principal Office at least
one month before the new Annuity Date. The alternative
Annuity Date must be the first of any month prior to the
Maximum Alternative Annuity Date shown on the
Specifications page and must be within the life
expectancy of the Annuitant. The Company will determine
life expectancy at the time a change in the Annuity Date
is requested.
MINIMUMS All values, benefits or settlement options available
under this contract equal or exceed those required by the
state in which the contract is delivered.
ANNUAL REPORT The Company will furnish an annual report to the Owner
containing a statement of the number and value of
Accumulation Units credited to the Sub-Accounts, the
value of the Fixed Account and the Guarantee Period
Accounts and any other information required by applicable
law, rules and regulations.
ADDITION, DELETION, The Company reserves the right, subject to compliance
OR SUBSTITUTION OF with applicable law, to add to, delete from, or
INVESTMENTS substitute for the shares of a Fund that are held by the
Sub-Accounts or that the Sub-Accounts may purchase. The
Company also reserves the right to eliminate the shares
of any Fund no longer available for investment or if the
Company believes further investment in the Fund is no
longer appropriate for the purposes of the Sub-Accounts.
The Company will not substitute shares attributable to
any interest in a Sub-Account without notice to the Owner
and prior approval of the Securities and Exchange
Commission as required by the Investment Company Act of
1940. This will not prevent the Variable Account from
purchasing other securities for other series or classes
of contracts, or from permitting a conversion between
series or classes of contracts on the basis of requests
made by Owners.
The Company reserves the right, subject to compliance
with applicable laws, to establish additional Guarantee
Period Accounts and Sub-Accounts and to make them
available to any class or series of contracts as the
Company considers appropriate. Each new Sub-Account will
invest in a new investment company or in shares of
another open-end investment company. The Company also
reserves the right to eliminate or combine existing
Sub-Accounts and to transfer the assets of any
Sub-Accounts to any other Sub-Accounts. In the event of
any substitution or change, the Company may, by
appropriate notice,
19
<PAGE>
make such changes in this and other
contracts as may be necessary or appropriate to reflect
the substitution or change. If the Company considers it
to be in the best interests of contract Owners, the
Variable Account or any Sub-Account may be operated as a
management company under the Investment Company Act of
1940, or may be deregistered under that Act in the event
registration is no longer required, or may be combined
with other accounts of the Company.
CHANGE OF NAME Subject to compliance with applicable law, the Company
reserves the right to change the names of the Variable
Account or the Sub-Accounts.
FEDERAL TAX The Variable Account is not currently subject to tax, but
CONSIDERATIONS the Company reserves the right to assess a charge for
taxes if the Variable Account becomes subject to tax.
SPLITTING OF UNITS The Company reserves the right to split the value of a
unit, either to increase or decrease the number of units.
Any splitting of units will have no material effect on
the benefits, provisions or investment return of this
contract or upon the Owner, the Annuitant, any
Beneficiary, or the Company.
INSULATION OF The investment performance of Separate Account assets is
SEPARATE ACCOUNT determined separately from the other assets of the
Company. The assets of a Separate Account equal to the
reserves and liabilities of the contracts supported by
the account will not be charged with liabilities from any
other business that the Company may conduct.
VOTING RIGHTS The Company will notify Owners with voting interests of
any shareholders' meeting at which Fund shares held by
each Sub-Account will be voted and will provide proxy
materials together with a form to be used to give voting
instructions to the Company. The Company will vote Fund
shares for which no timely instructions have been
received in the same proportion as shares of that Fund
for which instructions have been received.
Prior to the Annuity Date, the number of shares is
determined by dividing the dollar value of the
Sub-Account Accumulation Units by the net asset value of
one Fund share. After the Annuity Date, the number of
Fund shares is determined by dividing the reserves held
in each Sub-Account to meet the annuity obligations by
the net asset value of one Fund share.
Flexible Payment Deferred Variable and Fixed Annuity
Annuity Benefits Payable to Annuitant on the Annuity Date
Death Benefit Payable to Beneficiary if either Owner or
Annuitant Dies prior to Annuity Date
Non-Participating
20
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND 440 LINCOLN STREET, VARIABLE ANNUITY APPLICATION
ANNUITY COMPANY WORCESTER, MA 01653
_______________________________________________________________________________
1. ANNUITANT
Please Print Clearly
First MI Last
___________________________________________________________________________
Street Address Apt.
___________________________________________________________________________
City State ZIP
___________________________________________________________________________
Daytime Telephone / / Male Date of Birth
( ) / / Female / /
___________________________________________________________________________
S.S.#
___________________________________________________________________________
_______________________________________________________________________________
2. OWNER COMPLETE THIS SECTION ONLY IF (CHECK ONE AND FILL IN BELOW):
Please Print Clearly
/ / THE OWNER IS OTHER THAN THE ANNUITANT, OR
/ / THIS IS A JOINT OWNER WITH THE ANNUITANT.
First MI Last
_______________________________________________________________________________
Street Address Apt.
_______________________________________________________________________________
City State Zip
_______________________________________________________________________________
S.S.#/Tax I.D. # Date of Birth Date of Trust
/ / / /
_______________________________________________________________________________
_______________________________________________________________________________
3. BENEFICIARY
/ /______ Day Common Disaster Clause
_______________________________________________________________________________
Primary Relationship to Annuitant
_______________________________________________________________________________
Contingent Relationship to Annuitant
_______________________________________________________________________________
4. TYPE OF PLAN
/ / 401(a) Pension/Profit Sharing* / / 408(k) SEP-IRA*
/ / 401(k) Profit Sharing* / / 457 Deferred Comp.
/ / 403(b) TSA* / / Non-Qual. Def. Comp.
/ / 408(b) IRA / / Non-Qualified
*Attach required additional forms.
_______________________________________________________________________________
5. INITIAL PAYMENT
Initial Payment $ _________________________________________
If IRA or SEP-IRA application, the applicant has received a
Disclosure Buyer's Guide and this payment is a (check one):
/ / Rollover / /Trustee to Trustee Transfer
/ / Regular or SEP-IRA Payment for Tax Year ___________
_______________________________________________________________________________
6. REPLACEMENT
Will the proposed contract replace or change any existing
annuity or insurance policy? / / NO / / YES
(If yes, list company name and policy number)
_________________________________________________________
_______________________________________________________________________________
7. ALLOCATION OF PAYMENTS (FUNDS)
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________% 3 Year
___________% 5 Year
___________% 6 Year
___________% 7 Year
___________% 8 Year
___________% 9 Year
___________% 10 Year
1 0 0 % (All allocations above must total 100%)
___________
________________________________________________________________________
/ / I elect Automatic Account Rebalancing among the above accounts
(excluding the Fixed and Guarantee Period Accounts) starting on the
16th day after the issue date and continuing every:
/ / 1 / / 2 / / 3 / / 6 / / 12 Months
NOTE: If the contract applied for provides for a full refund of the
initial payment under its "Right to Examine" provision, that portion
of each payment not allocated to the Fixed Account will be allocated
solely to the Money Market account during its first 15 days.
Reallocation will then be made as specified.
_______________________________________________________________________________
8. TELEPHONE TRANSFER
I/We authorize and direct Allmerica Financial Life Insurance and Annuity
Company to accept telephone instructions from any person who can furnish
proper identification to effect transfers and future payment allocation
changes. I agree to hold harmless and indemnify Allmerica Financial
Life Insurance and Annuity Company and its affiliates and their collective
directors, officers, employees and agents against any claim arising from
such action.
/ / I DO NOT accept this telephone transfer privilege.
_______________________________________________________________________________
SML-1443 (7/96)
<PAGE>
_______________________________________________________________________________
9. DOLLAR COST AVERAGING
Please transfer $_________________ from (check ONE source account)
($100 minimum)
/ / Fixed Account / / Government Bond / / Money Market
EVERY: / / 1 / / 2 / / 3 / / 6 / / 12 months
FUNDS
TO: ___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
Dollar Cost Averaging begins on the 16th day after the issue date and
ends when the source account value is exhausted.
DOLLAR COST AVERAGING INTO THE FIXED OR GUARANTEE PERIOD ACCOUNTS IS
NOT AVAILABLE.
_______________________________________________________________________________
10. SYSTEMATIC WITHDRAWALS
Please withdraw $_________________
($100 minimum)
EVERY: / / 1 / / 2 / / 3 / / 6 / / 12 months
(Systematic withdrawls from the Guarantee Period Accounts are not available.)
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
1 0 0 % TOTAL
___________
/ / Do NOT Withhold Federal Income Taxes
/ / Do Withhold at 10% or _________ (% or $)
Systematic withdraws begin on the 16th day after the issue date.
/ / I wish to use Electronic Funds Transfer. I authorize the Company to
electronically correct any overpayments or erroneous credits made to
my account.
A VOIDED CHECK MUST BE ATTACHED.
_______________________________________________________________________________
11. OPTIONAL BILLING REMINDERS
/ / I wish to receive periodic reminders that I can include with future
remittances.
PAYMENT REMINDER REQUEST (FORM SML-1203) MUST BE ATTACHED.
_______________________________________________________________________________
12. REMARKS
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
13. SIGNATURES
I/We represent to the best of my/our knowledge and belief that the
statements made in this application are true and complete. I/We agree to
all terms and conditions as shown on the front and back. It is indicated
and agreed that the only statements which are to be construed as the basis
of the contract are those contained in this application. I/We acknowledge
receipt of a current prospectus describing the contract applied for. I/WE
UNDERSTAND THAT ALL PAYMENTS AND VALUES BASED ON THE VARIABLE ACCOUNTS MAY
FLUCTUATE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT; AND ALL PAYMENTS AND
VALUES BASED ON THE GUARANTEE PERIOD ACCOUNTS ARE SUBJECT TO A MARKET
VALUE ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN EITHER AN
UPWARD OR DOWNWARD ADJUSTMENT. I/We understand that unless I/we elect
otherwise, the Annuity Date will be the earlier of the date, if any,
selected by the Owner, or the later of the Annuitant's 85th birthday or
the birthday following the tenth contract anniversary, not to exceed
age 90.
____________________________________ ___________________________________
Signature of Owner Signed at (City and State) Date
____________________________________
Signature of Joint Owner
_______________________________________________________________________________
14. REGISTERED REPRESENTATIVE/DEALER INFORMATION
Does the contract applied for replace an existing annuity or life
insurance policy?
/ / Yes / / No If yes, attach replacement form as required.
I CERTIFY THAT (1) THE INFORMATION PROVIDED BY THE OWNER HAS BEEN ACCURATELY
RECORDED; (2) A CURRENT PROSPECTUS WAS DELIVERED; (3) NO WRITTEN SALES
MATERIALS OTHER THAN THOSE APPROVED BY THE PRINCIPAL OFFICE WERE USED;
AND (4) I HAVE REASONABLE GROUNDS TO BELIEVE THE PURCHASE OF THE CONTRACT
APPLIED FOR IS SUITABLE FOR THE OWNER.
<TABLE>
<S> <C> <C> <C> <C> <C>
Date Signature of Registered Representative % TR Print Full Name Code Agency
_________________________________________________________________________________________________________________________
Date Signature of Registered Representative % TR Print Full Name Code Agency
_________________________________________________________________________________________________________________________
Date Signature of Registered Representative % TR Print Full Name Code Agency
_________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
Exhibit 9
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
May 6, 1996
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of Allmerica Financial Life Insurance and Annuity
Company (the "Company"), I have participated in the preparation of the Post-
Effective 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. 9 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
May 8, 1996
<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
<SHARES-COMMON-PRIOR> 36330151
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<EXPENSES-NET> 990950
<NET-INVESTMENT-INCOME> (990950)
<REALIZED-GAINS-CURRENT> 972280
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<DISTRIBUTIONS-OF-INCOME> 0
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<NET-CHANGE-IN-ASSETS> 40944193
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 70782143
<PER-SHARE-NAV-BEGIN> 1.355
<PER-SHARE-NII> (0.022)
<PER-SHARE-GAIN-APPREC> 0.435
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.768
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
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<TABLE> <S> <C>
<PAGE>
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<NAME> SMASE302
<S> <C>
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<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 58113474
<INVESTMENTS-AT-VALUE> 69778642
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<ASSETS-OTHER> 0
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<OTHER-ITEMS-LIABILITIES> 13707
<TOTAL-LIABILITIES> 13707
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 53073201
<SHARES-COMMON-PRIOR> 38751877
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11665168
<NET-ASSETS> 69764935
<DIVIDEND-INCOME> 10193
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<OTHER-INCOME> 0
<EXPENSES-NET> 810926
<NET-INVESTMENT-INCOME> (800733)
<REALIZED-GAINS-CURRENT> 322290
<APPREC-INCREASE-CURRENT> 11406894
<NET-CHANGE-FROM-OPS> 10928451
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 28311238
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 57923286
<PER-SHARE-NAV-BEGIN> 1.070
<PER-SHARE-NII> (0.018)
<PER-SHARE-GAIN-APPREC> 0.263
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.315
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
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<NAME> SMASE303
<S> <C>
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<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 74153065
<INVESTMENTS-AT-VALUE> 85590561
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<OTHER-ITEMS-LIABILITIES> 2867
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 61941968
<SHARES-COMMON-PRIOR> 43292464
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<ACCUMULATED-NET-GAINS> 0
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<ACCUM-APPREC-OR-DEPREC> 11437496
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