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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. 11
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13
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Allmerica Select Separate Account of Allmerica Financial Life Insurance and
Annuity Company
(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 (May 1, 1997) 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, 1996 will be filed on or before February
28, 1997.
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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. . . . . . . . . . . . . . "Condensed Financial Information"; "Performance
Information"
5. . . . . . . . . . . . . . "Description of the Company, the Variable
Account, the Trust, Fidelity VIP, and T. Rowe
Price"
6. . . . . . . . . . . . . . "Charges and Deductions"
7. . . . . . . . . . . . . . "Description of the Contract"
8. . . . . . . . . . . . . . "Electing the Form of Annuity and the Annuity
Date"; "Description Of Variable Annuity Option";
"Annuity Benefit Payments"
9. . . . . . . . . . . . . . " Death Benefit"
10 . . . . . . . . . . . . . "Payments"; "Computation of Values";
"Distribution"
11 . . . . . . . . . . . . . "Surrender"; "Withdrawals"; "Charge for
Surrender and Withdrawal"; "Withdrawal
Without Surrender Charge" "Texas Optional
Retirement Program"
12 . . . . . . . . . . . . . "Federal Tax Considerations"
13 . . . . . . . . . . . . . "Legal Matters"
14 . . . . . . . . . . . . . "Statement of Additional Information-Table of
Contents"
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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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ALLMERICA SELECT RESOURCE II
VARIABLE ANNUITY CONTRACT
PROFILE THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT
MAY 1, 1997 YOU SHOULD KNOW AND CONSIDER BEFORE PURCHASING THE ALLMERICA SELECT
RESOURCE II VARIABLE ANNUITY CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED LATER IN THIS PROSPECTUS. PLEASE READ THE PROSPECTUS
CAREFULLY.
1. THE ALLMERICA SELECT RESOURCE II VARIABLE ANNUITY CONTRACT
The Allmerica Select Resource II variable annuity contract is a contract between
you and Allmerica Financial Life Insurance and Annuity Company. It is designed
to help you accumulate assets for your retirement or other important financial
goals on a tax-deferred basis.
Allmerica Select Resource II offers a diverse selection of money managers and
investment options. You may allocate your payments among any of 11 variable
investment portfolios, a number of Guarantee Period Accounts and the Fixed
Account. This range of investment choices enables you to allocate your money
to meet your particular investment needs. Transfers between accounts do not
create a taxable event.
Variable investments are subject to fluctuations in market value, and may
increase or decrease the value of your contract over time. Investments in
either the Fixed Account or the Guarantee Period Accounts offer rates of return
and protection of principal that are guaranteed by the Company.
Annuities typically have two phases; an ACCUMULATION PHASE and, if you
annuitize, an INCOME PHASE. During the ACCUMULATION PHASE you can make payments
into the contract on any frequency. Earnings from your investments accumulate on
a tax deferred basis. Withdrawals from your contract during the ACCUMULATION
PHASE are subject to taxes on earnings and any pre-tax payments made to the
contract when you withdraw them. A federal tax penalty may apply if you
withdraw prior to age 59 1/2.
The INCOME PHASE occurs when you begin receiving regular payments from your
contract. The amount of money you are able to accumulate in your contract
during the ACCUMULATION PHASE will determine the amount of your payments during
the INCOME PHASE. This accumulation is based on the amount of your payments,
and any gain or loss from your investments.
2. ANNUITY PAYMENTS TO YOU
Before beginning to receive your payments, you will want to decide the form
those payments will take. If you would like to receive a regular income from
your annuity, you may select one of six annuity options: (1) monthly payments
for your lifetime; (2) monthly payments for your lifetime, but not for less than
120 months; (3) monthly payments for your lifetime with the guarantee that if
payments to you are less than the accumulated value a refund of the remaining
value will be paid: (4) monthly payments for your lifetime and your survivor's
lifetime; (5) monthly payments for your lifetime and your survivor's lifetime
with the payment to the survivor being reduced to 2/3; and (6) monthly payments
for a specified period of 1 to 30 years.
You can also choose whether you want your annuity payments on a variable basis
(subject to fluctuation based on investment performance), on a fixed basis (with
benefit payments guaranteed at a fixed amount), or on a combination variable and
fixed basis. Once payments begin, the annuity option cannot be changed.
3. PURCHASING THIS CONTRACT
Allmerica Select contracts are sold through a network of independent financial
representatives. We suggest you and your representative review this information
and that your representative assist you in completing any forms. The initial
payment into this contract must be at least $1,000 and each subsequent payment
must be at least $50. Other than these conditions, there is no fixed schedule
for making payments, nor any limits as to payment frequency.
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4. INVESTMENT OPTIONS
You have full investment control over the contract and you may allocate money to
the following funds:
INTERNATIONAL FUNDS Select International Equity Fund
T. Rowe Price International Stock Portfolio
AGGRESSIVE GROWTH FUNDS Select Aggressive Growth Fund
Select Capital Appreciation Fund
GROWTH FUNDS Select Growth Fund
Fidelity VIP Growth Portfolio
GROWTH AND INCOME FUNDS Select Growth and Income Fund
Fidelity VIP Equity-Income Portfolio
INCOME FUNDS Fidelity VIP High Income Portfolio
Select Income Fund
MONEY MARKET FUND Money Market Fund
You may also allocate money among the Guarantee Period Accounts and the Fixed
Account. The Guarantee Period Accounts offer interest rates that are
guaranteed for a specific period of time. The Fixed Account guarantees a
minimum rate of interest which may vary from time to time but will not be less
than 3%.
5. EXPENSES
The Contract has insurance features and investment features, and there are costs
related to each. Each year a $30 contract fee is deducted from your Contract.
This charge is waived if the value of the Contract is at least $50,000. Also
insurance charges are deducted which total 1.40% of the average daily value of
your Contract allocated to the investment portfolios. There are also investment
management charges which range from 0.34% to 1.23% of the average daily value of
the investment portfolio depending upon the investment portfolio. When you make
a withdrawal or you begin receiving regular income payments from your annuity, a
state premium tax, which varies depending upon the state of residency, may
apply.
If a payment remains in your account for seven years or longer, you will not
incur any sales charge on that amount. However, a contingent deferred sales
charge may apply to withdrawals of amounts invested seven years or less on a
declining scale between 6.5% and 1%, depending on which year the withdrawal is
made.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" combines the $30 contract fee, the
1.40% insurance charges and the investment charges for each fund. The next two
columns show two examples of the charges you would pay in dollar amounts. The
examples assume you invest $1,000, earn 5% annually and withdraw your money: (1)
at the end of year 1, and (2) at the end of year 10. Year 1 includes Total
Annual Charges as well as the surrender charges. Year 10, shows the aggregate
of all the annual charges assessed for 10 years, with no surrender charge.
Premium tax is assumed to be 0% in both examples.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
TOTAL ANNUAL TOTAL ANNUAL TOTAL EXPENSES AT END OF
INSURANCE INVEST. MGMT. ANNUAL (1) (2)
FUND CHARGES FEES CHARGES 1 YEAR 10 YEARS
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<S> <C> <C> <C> <C> <C>
Select International Equity Fund 1.48% 1.23% 2.71%
T. Rowe Price International Stock Portfolio 1.48%
Select Aggressive Growth Fund 1.48% 1.08% 2.56%
Select Capital Appreciation Fund 1.48% 1.13% 2.61%
Select Growth Fund 1.48% 0.93% 2.41%
Fidelity VIP Growth Portfolio 1.48% 0.69% 2.17%
Select Growth and Income Fund 1.48% 0.83% 2.31%
Fidelity VIP Equity-Income Portfolio 1.48% 0.58% 2.06%
Fidelity VIP High Income Portfolio 1.48% 0.71% 2.19%
Select Income Fund 1.48% 0.74% 2.22%
Money Market Fund 1.48% 0.34% 1.82%
</TABLE>
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6. TAXES
Your earnings are not taxed until you take them out. Any withdrawals during
the accumulation phase will be first treated as earnings and are taxed as
income. If you take money out before age 59 1/2, you may be subject to a 10%
federal tax penalty on the earnings. Payments during the income phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. However, if this
contract is used as part of a qualified retirement program (such as a 401(k)
plan), then the entire income payment will be taxable.
7. WITHDRAWALS
The contract is structured as a long-term investment opportunity, which always
gives you access to your money. You may withdraw the greatest of: (1) 100% of
the accumulated earnings, (2) 10% of the total account value per calendar year,
or (3) an amount based on your life expectancy.
Amounts allocated to the Guarantee Period Account will be subject to a market
value adjustment, which may increase or decrease the value, if withdrawn before
the end of the guarantee period.
8. PERFORMANCE
The value of your contract will vary up or down depending on the investment
performance of the funds you choose. The following chart illustrates past
returns for each fund for the time period shown. The performance figures
reflect the contract fee, the insurance charges, the investment charges and all
other expenses of the fund. They do not reflect the surrender charges which, if
applied, would reduce such performance. Past performance is not a guarantee of
future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
FUND 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
9. DEATH BENEFIT
In addition to tax deferred growth, your contract provides valuable insurance
features. If the annuitant dies during the accumulation phase, we will pay the
beneficiary a death benefit. The death benefit is equal to the HIGHEST of: (1)
the accumulated value increased for any positive market value adjustment; (2)
your total investment(s) compounded daily at 5% per year, adjusted
proportionately to reflect any withdrawals or (3) the highest value of your
account on any previous contract anniversary (increased for subsequent payments
and decreased proportionately for any subsequent withdrawals). If the owner is
not the annuitant and dies during the accumulation phase, the death benefit will
be equal to (1) above.
10. ADDITIONAL FEATURES
FREE LOOK PERIOD: If you cancel your contract within 10 days after receiving it
(or whatever period is required by your state), we will pay you either an amount
equal to the value of your contract (which may be more or less than your
original payment) or in some cases return your original payment.
WITHDRAWAL WITHOUT A SALES CHARGE: All surrender charges are waived if after the
contract is issued, the Owner is diagnosed with a fatal illness, becomes
disabled (before age 65) or is in a medical care facility for 90 days after the
first year.
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DOLLAR COST AVERAGING: You may elect to automatically transfer money on a
periodic basis from the Money Market Fund, Select Income Fund or Fixed Account
to one or more of the other investment options.
AUTOMATIC ACCOUNT REBALANCING: You may elect to automatically have your
contract's accumulated value periodically reallocated ("rebalanced") among your
chosen investment options to maintain your designated percentage allocation mix.
There is no charge for this service.
11. INQUIRIES
If you need more information you may contact us at:
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln St.
Worcester, Massachusetts 01653
1-800-366-1492
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ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
COMBINATION DEFERRED VARIABLE AND FIXED ANNUITY CONTRACTS
ALLMERICA SELECT SEPARATE ACCOUNT
This Prospectus describes interests under flexible payment combination deferred
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 or
other long-term plans. (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 referred to herein collectively as the
"Contract(s)." 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 Separate Account. The assets of the
Variable Account are divided into Sub-Accounts, 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 also may 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
withdrawn or transferred prior to the end of the Guarantee Period, the value may
be increased or decreased by a Market Value Adjustment. Assets supporting
allocations 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 May 1, 1997, filed with the Securities and Exchange Commission and
incorporated herein by reference. The Table of Contents of the Statement of
Additional Information ("SAI") is on page 4 of this Prospectus. The SAI is
available upon request and without charge through Allmerica Investments, Inc.,
440 Lincoln Street, Worcester, MA 01653, Telephone 1-800-366-1492.
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. THE FIDELITY 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. INVESTMENTS IN THE
CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
DATED MAY 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 4
SPECIAL TERMS 5
SUMMARY 7
ANNUAL AND TRANSACTION EXPENSES 12
CONDENSED FINANCIAL INFORMATION 14
PERFORMANCE INFORMATION 15
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, THE TRUST,
FIDELITY VIP, and T. ROWE PRICE 17
INVESTMENT OBJECTIVES AND POLICIES 19
INVESTMENT ADVISORY SERVICES 20
DESCRIPTION OF THE CONTRACT 22
A. Payments 22
B. Right to Revoke Individual Retirement Annuity 23
C. Right to Revoke All Other Contracts 23
D. Transfer Privilege 23
Automatic Transfers and Automatic Account Rebalancing Options 24
E. Surrender 24
F. Withdrawals 25
Systematic Withdrawals 25
Life Expectancy Distributions 25
G. Death Benefit 26
Death of the Annuitant Prior to the Annuity Date 26
Death of an Owner Who is Not Also the Annuitant Prior to the Annuity Date 26
Payment of the Death Benefit Prior to the Annuity Date 26
Death of the Annuitant After the Annuity Date 27
H. The Spouse of the Owner as Beneficiary 27
I. Assignment 27
J. Electing the Form of Annuity and the Annuity Date 27
K. Description of Variable Annuity Options 28
L. Annuity Benefit Payments 29
The Annuity Unit 29
Determination of the First and Subsequent Annuity Benefit Payments 29
M. Norris Decision 30
N. Computation of Values 30
The Accumulation Unit 30
Net Investment Factor 31
CHARGES AND DEDUCTIONS 31
A. Variable Account Deductions 31
Mortality and Expense Risk Charge 31
Administrative Expense Charge 31
Other Charges 32
B. Contract Fee 32
C. Premium Taxes 32
D. Contingent Deferred Sales Charge 33
Charge for Surrender and Withdrawal 33
Reduction or Elimination of Surrender Charge 33
Withdrawal Without Surrender Charge 34
Surrenders 35
Charge at the Time Annuity Benefit Payments Begin 35
</TABLE>
3
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<TABLE>
<S> <C> <C>
E. Transfer Charge 35
GUARANTEE PERIOD ACCOUNTS 36
FEDERAL TAX CONSIDERATIONS 37
A. Qualified and Non-Qualified Contracts 38
B. Taxation of the Contract in General 38
Withdrawals Prior to Annuitization 38
Annuity Payouts After Annuitization 39
Penalty on Distribution 39
Assignments or Transfers 39
Non-Natural Owners 39
Deferred Compensation Plans of State and Local Governments and Tax-Exempt
Organizations 40
C. Tax Withholding 40
D. Provisions Applicable to Qualified Employer Plans 40
Corporate and Self-Employed Pension and Profit Sharing Plans 40
Individual Retirement Annuities 40
Tax Sheltered Annuities 41
Texas Optional Retirement Program 41
REPORTS 41
LOANS (QUALIFIED CONTRACTS ONLY) 41
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS 41
CHANGES TO COMPLY WITH LAW AND AMENDMENTS 42
VOTING RIGHTS 43
DISTRIBUTION 43
LEGAL MATTERS 43
FURTHER INFORMATION 43
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT A-1
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT A-2
APPENDIX C -- THE DEATH BENEFIT A-4
APPENDIX D -- DIFFERENCES UNDER THE ALLMERICA SELECT RESOURCE I
CONTRACT A-6
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
GENERAL INFORMATION AND HISTORY 2
TAXATION OF THE VARIABLE ACCOUNT AND THE COMPANY 3
SERVICES 3
UNDERWRITERS 4
ANNUITY BENEFIT PAYMENTS 5
EXCHANGE OFFER 7
PERFORMANCE INFORMATION 9
FINANCIAL STATEMENTS
</TABLE>
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS
4
<PAGE>
SPECIAL TERMS
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Sub-Accounts 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 Owner's interest in a Sub-Account 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 ANNUITY: an annuity payout option providing for annuity benefit payments
which remain fixed in amount throughout the annuity benefit payment period
selected.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate 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.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period 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.
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.
SUB-ACCOUNT: a subdivision of the Variable Account. Each Sub-Account available
under the Contract invests exclusively in the shares of a corresponding fund of
Allmerica Investment Trust, a corresponding portfolio of the Variable Insurance
Products Fund ("Fidelity VIP"), or the T. Rowe Price 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 (OR FUNDS): Select International Equity Fund of Allmerica
Investment Trust, T. Rowe Price International Stock Portfolio of T. Rowe Price
International Series, Inc., Select Aggressive Growth Fund, Select Capital
Appreciation Fund, and Select Growth Fund of Allmerica Investment Trust,
Fidelity VIP Growth Portfolio, Select Growth and Income Fund of Allmerica
Investment Trust, Fidelity VIP Equity-Income Portfolio, Fidelity VIP High Income
Portfolio, Select Income Fund, and 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 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 payment, withdrawal or surrender of a Contract was received)
when there is a sufficient
5
<PAGE>
degree of trading in an Underlying Fund's portfolio securities such that the
current net asset value of the Sub-Accounts may be affected materially.
VARIABLE ACCOUNT: Allmerica Select Separate 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 payout option providing for payments varying in
amount in accordance with the investment experience of certain of the Underlying
Funds.
6
<PAGE>
SUMMARY
WHAT IS THE ALLMERICA SELECT RESOURCE II VARIABLE ANNUITY?
The Allmerica Select Resource II variable annuity contract is an insurance
contract designed to help you, the Owner, 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
- - issue age up to 90.
The Contract has two phases, an accumulation phase and, if you choose to
annuitize, an annuity payout 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, to the
Guarantee Period Accounts, and to the Fixed Account. You select the investment
options most appropriate for your investment needs. As those needs change, you
may also change your allocation without incurring any tax consequences. Your
Contract's Accumulated Value is based on the investment performance of the Funds
and any accumulations in the Guarantee Period and Fixed Accounts. No income
taxes are paid on any earnings under the Contract unless and until Accumulated
Values are withdrawn. In addition, during the accumulation phase, your
beneficiaries receive certain protections and guarantees in the event of the
Annuitant's death. See discussion below "WHAT HAPPENS UPON DEATH DURING THE
ACCUMULATION PHASE?"
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity phase, the Annuitant can receive income based on several
annuity payout options. You choose the annuity payout option and the date for
annuity benefit payments to begin. You also decide whether you want variable
annuity benefit payments based on the investment performance of certain Funds,
fixed-amount annuity benefit payments with payment amounts guaranteed by the
Company, or a combination of fixed-amount and variable annuity benefit payments.
Among the payout options available during the annuity phase are:
- - periodic payments for your lifetime (assuming you are the Annuitant);
- - periodic payments for your life and the life of another person selected by
you;
- - periodic payments for your lifetime with guaranteed payments continuing to
your beneficiary for 10 years in the event that you die before the end of ten
years;
- - periodic payments over a specified number of years (1 to 30) -- under this
option you may reserve the right to convert remaining payments to a lump-sum
payout by electing a "commutable" option.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the Owner), and us, Allmerica Financial Life
Insurance and Annuity Company ("Company"). Each Contract has an Owner (or an
Owner and a Joint Owner, in which case one of the two must be the Annuitant), an
Annuitant and a beneficiary. As Owner, you make payments, choose investment
allocations and select the Annuitant and beneficiary. The Annuitant is the
individual who receives annuity benefit payments under the Contract. The
beneficiary is the person who receives any payment on the death of the Owner or
Annuitant.
7
<PAGE>
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, subject only to a $1,000
minimum for your initial payment and a $50 minimum for any additional payments.
(A lower initial payment amount is permitted for certain qualified plans and
where monthly payments are being forwarded directly from a financial
institution.) In addition, a minimum of $1,000 is always required to establish a
Guarantee Period Account.
WHAT ARE MY INVESTMENT CHOICES?
The Contract permits net payments to be allocated among eleven Funds, the
Guarantee Period Accounts, and the Fixed Account.
THE ELEVEN FUNDS ARE:
- - Select International Equity Fund
Managed by Bank of Ireland Asset Management
- - 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 Putnam Investment Management, Inc.
- - Fidelity VIP Growth Portfolio
Managed by Fidelity Management & Research Company
- - Select Growth and Income Fund
Managed by John A. Levin & Co., Inc.
- - Fidelity VIP Equity-Income Portfolio
Managed by Fidelity Management & Research Company
- - Fidelity 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.
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. Values and benefits calculated on the basis of
Guarantee Period Account allocations, however, are obligations of the Company's
General Account. Amounts allocated to a Guarantee Period Account earn a
Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company may offer up to nine Guarantee Periods ranging from two to ten years
in duration. Once declared, the Guaranteed Interest Rate will not change during
the duration of the Guarantee Period. If amounts allocated to a Guarantee Period
Account are transferred, surrendered or applied to any annuity option at any
time other than the day following 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."
8
<PAGE>
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."
THE FIXED ACCOUNT AND/OR THE GUARANTEE PERIOD ACCOUNTS MAY NOT BE AVAILABLE IN
ALL STATES.
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.
Allmerica Asset Management, Inc., an indirectly wholly owned subsidiary of First
Allmerica Financial Life Insurance Company ("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, quantitative and qualitative criteria,
with special emphasis on the Sub-Adviser's record in managing similar
portfolios. Ongoing 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. See "Investment Advisory Services to the Trust."
Fidelity Management & Research Company ("FMR") is the investment manager of
Fidelity VIP. FMR is one of America's largest investment management
organizations. Its principal business address is 82 Devonshire Street, Boston,
MA 02109. It is composed of a number of different companies which provide a
variety of financial services and products. FMR 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 International Stock Portfolio. 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 $25 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."
The first 12 transfers in a Contract year are guaranteed to be free of a
transfer charge. For each subsequent transfer in a Contract year, the Company
does not currently charge but reserves the right to assess a processing charge
guaranteed never to exceed $25.
WHAT IF I NEED MY MONEY BEFORE MY ANNUITY PAYOUT PHASE BEGINS?
You may surrender your Contract or make withdrawals any time before your annuity
payout phase begins. Each year you can take without a surrender charge the
greatest of 100% of cumulative earnings, 10% of the Contract's Accumulated Value
or, if you are both an Owner and the Annuitant, an amount based on
9
<PAGE>
your life expectancy. A 10% tax penalty may apply on all amounts deemed to be
earnings if you are under age 59 1/2. Additional amounts may be withdrawn at
anytime but may be subject to the surrender charge for payments that have not
been invested in the Contract for more than seven years. (A Market Value
Adjustment may apply to any withdrawal made from a Guarantee Period Account
prior to the expiration of the Guarantee Period.)
In addition, except where prohibited by state law, you may withdraw all or a
portion of your money without a surrender charge if, after the Contract is
issued, you are admitted to a medical care facility, become disabled or are
diagnosed with a fatal illness. For details and restrictions, see "Reduction or
Elimination of Surrender Charge."
WHAT HAPPENS UPON DEATH DURING MY ACCUMULATION PHASE?
If the Annuitant, 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
highest 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, and continuing throughout your
investments' entire accumulation phase, reduced proportionately to reflect
withdrawals; or
- - The highest Accumulated Value that would have been payable as a death benefit
on any Contract anniversary, increased for subsequent payments and reduced
proportionately to reflect withdrawals since that anniversary.
At the death of an Owner who is not also the Annuitant 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 CHARGES WILL I INCUR UNDER MY CONTRACT?
If the Accumulated Value is less than $50,000 on each Contract anniversary and
upon surrender, a $30 Contract fee will be deducted from your Contract. The
Contract fee is waived for Contracts issued to and maintained by a trustee of a
401(k) plan.
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
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."
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 prospectuses of the Funds, which accompany this Prospectus.
CAN I EXAMINE THE CONTRACT?
Yes. Your Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
cancelled. (There may be a longer period in certain states; see the "Right to
Examine" provision on the cover of your Contract.) If you cancel the Contract,
you will receive a refund of any amounts allocated to the Fixed and Guarantee
Period Accounts and the Accumulated Value of any amounts allocated to the
Sub-Accounts (plus any fees or charges that may have
10
<PAGE>
been deducted.) However, if state law requires or if your Contract was issued as
an Individual Retirement Annuity ("IRA"), you will receive the greater of the
amount described above or your entire payment. See "Right to Revoke Contract."
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 your allocation of payments.
- - You may make transfers of Contract value among your current investments
without any tax consequences.
- - You may cancel your Contract within ten days of delivery (or longer if
required by state law).
I HAVE THE ALLMERICA RESOURCE I CONTRACT -- ARE THERE ANY DIFFERENCES?
Yes. If your Contract is issued on Form No. A3020-92 ("Allmerica Select Resource
I"), it is basically similar to the Contract described in this Prospectus
("Allmerica Select Resource II") except as specifically indicated in APPENDIX D,
"DIFFERENCES UNDER THE ALLMERICA SELECT RESOURCE I CONTRACT." The form number is
located in the bottom left-hand corner of your Contract pages and may include
some numbers or letters in addition to A3020-92 in order to identify state
variations.
11
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The following tables show charges under the 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 are deducted as
described under "Premium Taxes."
CONTRACT CHARGES:
<TABLE>
<CAPTION>
YEARS FROM
DATE OF PAYMENT CHARGE
--------------- ---------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE:
This charge may be assessed upon surrender, withdrawal or 0-1 6.5%
annuitization under any commutable period certain option or a 2 6.0%
noncommutable period certain option of less than ten years. 3 5.0%
The charge is a percentage of payments applied to the amount 4 4.0%
surrendered (in excess of any amount that is free of surrender 5 3.0%
charge) within the indicated time period. 6 2.0%
7 1.0%
More than 7 0%
TRANSFER CHARGE:
The Company currently makes no charge for processing transfers None
and guarantees that the first 12 transfers in a Contract year
will not be 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 $30
Annuity Date when Accumulated Value is less than $50,000. The
fee is waived for Contracts issued to and maintained by the
trustee of a 401(k) plan.
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%
Total Asset Charge: 1.40%
FUND EXPENSES:
(annual basis as percentage of average daily net assets)
</TABLE>
<TABLE>
<CAPTION>
OTHER FUND
MANAGEMENT EXPENSES (AFTER ANY TOTAL FUND
FEE APPLICABLE REIMBURSEMENTS) EXPENSES
------------------ ----------------------------------- ----------------
<S> <C> <C> <C>
Select International Equity Fund................ 1.00% 0.23% (1) 1.23% (3)
T. Rowe Price International Stock Portfolio.....
Select Aggressive Growth Fund................... 1.00% 0.08% (1) 1.08%
Select Capital Appreciation Fund................ 1.00% 0.13% (1) 1.13%
Select Growth Fund.............................. 0.85% 0.08% (1) 0.93% (3)
Fidelity VIP Growth Portfolio................... 0.61% 0.08% 0.69% (2)
Select Growth and Income Fund................... 0.75% 0.08% (1) 0.83% (3)
Fidelity VIP Equity-Income Portfolio............ 0.51% 0.07% 0.58% (2)
Fidelity VIP High Income Portfolio.............. 0.59% 0.12% 0.71%
Select Income Fund.............................. 0.60% 0.14% (1) 0.74%
Money Market Fund............................... 0.28% 0.06% (1) 0.34%
</TABLE>
12
<PAGE>
(1) 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. The total operating expenses of the funds of the Trust were less
than their respective expense limitations throughout 1996. The declaration of a
voluntary expense limitation in any year does not bind Allmerica Investments to
declare future expense limitations with respect to these funds.
(2) A portion of the brokerage commissions the Portfolio paid was used to reduce
Fund expenses. Including these reductions, total operating expenses would have
been .56% for the Fidelity VIP Equity-Income Portfolio and .67% for the Fidelity
VIP Growth Portfolio.
(3) These Funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. Had these amounts been treated as reductions of
expenses the total operating expenses would have been 1.20% for the Select
International Equity Fund, 0.92% for the Select Growth Fund and 0.80% for the
Select Growth and Income Fund.
The following examples demonstrate the cumulative expenses which would be paid
by the 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 ("SEC"). Because the expenses of the Funds differ, separate examples
are used to illustrate the expenses incurred by an 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.
(1) If, at the end of the applicable period, you surrender your Contract or
annuitize* under a commutable period certain option or a non-commutable period
certain option of less than ten years, 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....................................... $ 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 VIP Growth Portfolio.......................................... $ 81 $ 113 $ 144 $ 250
Select Growth and Income Fund.......................................... $ 83 $ 120 $ 154 $ 272
Fidelity VIP Equity-Income Portfolio................................... $ 80 $ 110 $ 138 $ 239
Fidelity VIP High Income Portfolio..................................... $ 81 $ 114 $ 145 $ 252
Select Income Fund..................................................... $ 82 $ 117 $ 151 $ 265
Money Market Fund...................................................... $ 78 $ 106 $ 131 $ 226
</TABLE>
13
<PAGE>
(2) If, at the end of the applicable time period, you annuitize* under a life
option or a non-commutable 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 VIP Growth Portfolio.......................................... $ 22 $ 68 $ 117 $ 250
Select Growth and Income Fund.......................................... $ 24 $ 75 $ 128 $ 272
Fidelity VIP Equity-Income Portfolio................................... $ 21 $ 65 $ 111 $ 239
Fidelity 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 by the SEC, the Contract fee is reflected in
the examples by a method designated 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 any life
contingency options, or under a non-commutable period certain option of ten
years or longer.
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECT INTERNATIONAL EQUITY
Unit Value:
Beginning of Period............................................ 1.128 0.956 1.000 N/A N/A
End of Period.................................................. 1.357 1.128 0.956 N/A N/A
Units Outstanding at End of Period (in thousands)................ 60,304 35,558 22,183 N/A N/A
T. ROWE PRICE INTERNATIONAL STOCK
Unit Value:
Beginning of Period............................................ 1.065 1.000 N/A N/A N/A
End of Period.................................................. 1.203 1.065 N/A N/A N/A
Units Outstanding at End of Period (in thousands)................ 16,510 4,066 N/A N/A N/A
SELECT AGGRESSIVE GROWTH
Unit Value:
Beginning of Period............................................ 1.768 1.354 1.405 1.192 1.192
End of Period.................................................. 2.066 1.768 1.354 1.405 1.192
Units Outstanding at End of Period (in thousands)................ 64,262 51,006 36,330 17,538 5,123
SELECT CAPITAL APPRECIATION
Unit Value:
Beginning of Period............................................ 1.383 1.000 N/A N/A N/A
End of Period.................................................. 1.484 1.383 N/A N/A N/A
Units Outstanding at End of Period (in thousands)................ 24,257 5,424 N/A N/A N/A
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECT GROWTH
Unit Value:
Beginning of Period............................................ 1.315 1.069 1.101 1.104 1.000
End of Period.................................................. 1.582 1.315 1.069 1.101 1.104
Units Outstanding at End of Period (in thousands)................ 68,193 53,073 38,752 20,366 5,246
FIDELITY VIP GROWTH
Unit Value:
Beginning of Period............................................ 1.235 1.000 N/A N/A N/A
End of Period.................................................. 1.397 1.235 N/A N/A N/A
Units Outstanding at End of Period (in thousands)................ 24,745 6,677 N/A N/A N/A
SELECT GROWTH & INCOME
Unit Value:
Beginning of Period............................................ 1.382 1.074 1.082 0.994 1.000
End of Period.................................................. 1.652 1.382 1.074 1.082 0.994
Units Outstanding at End of Period (in thousands)................ 77,919 61,942 43,292 20,983 22,339
FIDELITY VIP EQUITY-INCOME
Unit Value:
Beginning of Period............................................ 1.191 1.000 N/A N/A N/A
End of Period.................................................. 1.342 1.191 N/A N/A N/A
Units Outstanding at End of Period (in thousands)................ 31,681 9,213 N/A N/A N/A
FIDELITY VIP HIGH INCOME
Unit Value:
Beginning of Period............................................ 1.096 1.000 N/A N/A N/A
End of Period.................................................. 1.233 1.096 N/A N/A N/A
Units Outstanding at End of Period (in thousands)................ 23,051 6,714 N/A N/A N/A
SELECT INCOME
Unit Value:
Beginning of Period............................................ 1.186 1.028 1.095 1.001 1.000
End of Period.................................................. 1.208 1.186 1.028 1.095 1.001
Units Outstanding at End of Period (in thousands)................ 58,751 46,845 32,823 18,320 5,372
MONEY MARKET
Unit Value:
Beginning of Period............................................ 1.091 1.045 1.019 1.003 1.000
End of Period.................................................. 1.133 1.091 1.045 1.019 1.003
Units Outstanding at End of Period (in thousands)................ 60,691 45,589 31,836 19,802 1,447
</TABLE>
PERFORMANCE INFORMATION
The Contracts first were offered to the public in 1996. The Company, however,
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 Sub-Accounts, the
underlying Funds, and assuming that the Contract is surrendered at the end of
the applicable period. (See TABLE 1).
The "total return" of a Sub-Account refers to the total of the income generated
by an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by certain charges, and expressed as a percentage of
the investment.
15
<PAGE>
The "yield" of the Sub-Account investing in the Money Market Fund of the Trust
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 withdrawn at the end of the specified
period.
The Company also may 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 in 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
withdrawn at the end of the specified period, the contingent deferred sales
charge is NOT included in the calculation of supplemental total return. (See
TABLE 2.)
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) 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 who rank such investment products on overall
performance or other criteria; or (3) the Consumer Price Index (a measure for
inflation) to assess the real rate of return from an investment in the
Sub-Account. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
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 Underlying Fund in which the Sub-Account invests, and
the market conditions during the given time period, and should not be considered
as a representation of what may be achieved in the future.
16
<PAGE>
TABLE 1
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1996
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR
ENDED SINCE
NAME OF UNDERLYING FUND 12/31/96 3 YEARS INCEPTION*
- ---------------------------------------------------------------------------- ----------- ----------- ---------------
<S> <C> <C> <C>
Select International Equity Fund............................................ 13.67% 10.45%
T. Rowe Price International Stock Portfolio................................. 6.46% 6.73%
Select Aggressive Growth Fund............................................... 10.32% 17.62%
Select Capital Appreciation Fund............................................ .93% 23.40%
Select Growth Fund.......................................................... 13.74% 10.51%
Fidelity VIP Growth Portfolio............................................... 6.53% 13.46%
Select Growth and Income Fund............................................... 13.00% 11.64%
Fidelity VIP Equity-Income Portfolio........................................ 6.11% 12.07%
Fidelity VIP High Income Portfolio.......................................... 5.87% 5.87%
Select Income Fund.......................................................... -4.17% 3.75%
Money Market Fund........................................................... -2.27% 4.31%
</TABLE>
TABLE 2
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1996
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR
ENDED SINCE
NAME OF UNDERLYING FUND 12/31/96 3 YEARS INCEPTION*
- ---------------------------------------------------------------------------- ------------ ----------- ---------------
<S> <C> <C> <C>
Select International Equity Fund............................................ 20.17% 12.01%
T. Rowe Price International Stock Portfolio................................. 12.96% 8.33%
Select Aggressive Growth Fund............................................... 16.82% 18.02%
Select Capital Appreciation Fund............................................ 7.21% 26.47%
Select Growth Fund.......................................................... 20.24% 11.00%
Fidelity VIP Growth Portfolio............................................... 13.03% 13.46%
Select Growth and Income Fund............................................... 19.50% 12.11%
Fidelity VIP Equity-Income Portfolio........................................ 12.61% 12.07%
Fidelity VIP High Income Portfolio.......................................... 12.37% 9.49%
Select Income Fund.......................................................... 1.79% 4.35%
Money Market Fund........................................................... 3.80% 4.34%
</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 Portfolio; 8/21/92 for Select Growth and Income Fund;
10/09/86 Fidelity VIP Equity-Income Portfolio; 9/19/85 for Fidelity VIP High
Income Portfolio; 8/21/92 for Select Income Fund; 4/29/85 for Money Market
Fund.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
THE TRUST, FIDELITY 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, MA 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
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<PAGE>
December 31, 1996, the Company had over $ billion in assets and over $ billion
of life insurance in force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirectly wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company and adopted its present name on
October 16, 1995. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1996, First Allmerica and its subsidiaries
(including the Company) had over $ billion in combined assets and over $
billion in life insurance in force.
ALLMERICA SELECT SEPARATE ACCOUNT. Allmerica Select Separate Account (the
"Variable Account") is a separate investment account of the Company with eleven
Sub-Accounts. The assets used to fund the variable portions of the Contract are
set aside in Sub-Accounts kept separate from the general assets of the Company.
Each Sub-Account is administered and accounted for as part of the general
business of the Company. The income, capital gains or capital losses of each
Sub-Account, however, are allocated to each Sub-Account, 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 SEC as a unit
investment trust under the Investment Company Act of 1940 ("the 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 Sub-Accounts.
ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust (the "Trust") is an
open-end, diversified, management investment company registered with the SEC
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
separate accounts established by the Company or other affiliated insurance
companies. Seven investment portfolios of the Trust currently are available
under the Contract, each issuing a series of shares: Select International Equity
Fund, Select Aggressive Growth Fund, Select Capital Appreciation Fund, Select
Growth Fund, Select Growth and Income Fund, Select Income Fund and the Money
Market 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 ("Fidelity
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 SEC under the 1940 Act. Three of its investment
portfolios are available under the Contract Fidelity VIP High Income Portfolio,
Fidelity VIP Equity-Income Portfolio, and Fidelity VIP Growth Portfolio.
Various Fidelity companies perform certain activities required to operate
Fidelity VIP. Fidelity Management & Research, Inc. ("Fidelity Management") is
one of America's largest investment management
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<PAGE>
organizations, and has its principal business address at 82 Devonshire Street,
Boston, Massachusetts. 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 Fidelity 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 SEC under
the 1940 Act. One of its investment portfolios is available under the Contract:
the T. Rowe Price International Stock Portfolio. See "Investment Advisory
Services to T. Rowe Price."
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 the 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.
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 Putnam Investment Management, Inc.
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 also may 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 also will consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield on the
securities
19
<PAGE>
comprising the S&P 500. 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.
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 Owner will
be notified of the change. If the 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 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 an agreement ("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 also is 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 ("the 1933 Act"), 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 changed materially
without the approval of a majority in interest of the shareholders of the
affected Fund.
Allmerica Asset Management, Inc., an indirectly 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
20
<PAGE>
borne by the Manager. RogersCasey Consulting, Inc. provides consulting services
to pension plans representing over $ billion in total assets and, in its
consulting capacity, monitors the investment performance of over 1,000
investment advisers. Each independent Sub-Adviser was selected by the Manager on
the basis of strict objective, quantitative and qualitative criteria, with
special emphasis on the Sub-Adviser's record in managing similar portfolios.
Ongoing 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: 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 SUB-ADVISER NET ASSET VALUE RATE
<S> <C> <C> <C>
Select International Equity Bank of Ireland Asset Management First $50 million 0.45%
Next $50 million 0.40%
Over $100 million 0.30%
Select Aggressive Growth Nicholas-Applegate Capital Mgmt. * 0.60%
Select Capital Appreciation Janus Capital Corporation First $100 million 0.60%
Over $100 million 0.55%
Select Growth Putnam Investment Management, Inc. 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%
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 Select Aggressive Growth Fund, Select Income Fund, and Money Market
Fund, each rate applicable to the Sub-Advisers does not vary according to the
level of assets in the Fund.
INVESTMENT ADVISORY SERVICES TO FIDELITY VIP. For managing investments and
business affairs, each Portfolio pays a monthly fee to Fidelity Management. The
prospectus of Fidelity VIP contains additional information about the Portfolios,
including information about additional expenses paid by the Portfolios, and
should be read in conjunction with this Prospectus.
The Fidelity VIP 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 will drop as the total assets in these funds rise.
2. An individual fund fee rate of 0.45% of the Fidelity VIP High Income
Portfolio's average net assets throughout the month. One-twelfth of the
annual management fee rate is applied to net assets
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<PAGE>
averaged over the most recent month, resulting in a dollar amount which is
the management fee for that month.
Both Fidelity VIP Growth and Fidelity VIP Equity-Income Portfolios' fee rates
are made up 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 will drop as the total assets in these funds
rise.
2. An individual Portfolio fee rate of 0.30% for the Fidelity VIP Growth
Portfolio and 0.20% for the Fidelity VIP 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 Fidelity VIP High Income Portfolio may have a fee as high as 0.82%.
The Fidelity VIP Growth Portfolio may have a fee of as high as 0.82% of its
average net assets. The Fidelity VIP 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.
DESCRIPTION OF THE CONTRACT
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 also may include the
proper completion of an application; however, where permitted, the Company may
issue a Contract without completion of an application and/or signature for
certain classes of 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
$1,000. 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 employer-sponsored
retirement plan is less than $600 but more than $300 annually, the Company may
issue a Contract on the employee, if the plan's average annual contribution per
eligible plan participant is at least $600. The 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. To
the extent permitted by state law, however, if the Contract is issued as an IRA
or is issued in Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina,
Oklahoma, Oregon, South Carolina, Texas, Utah, Washington or West Virginia, any
portion of the initial net payment and additional net payments received during
the Contract's first 15 days measured from the issue date, allocated to any
Sub-Account and/or any Guarantee Period Account, will be held in the Money
Market
22
<PAGE>
Fund of the Trust until the end of the 15-day period. Thereafter, these amounts
will be allocated as requested.
The Owner may change allocation instructions for new payments pursuant to a
written or telephone request. If telephone requests are elected by the 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 an 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. RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY.
An individual purchasing a Contract intended to qualify as an IRA may revoke the
Contract at any time within ten days after receipt of the Contract and receive a
refund. In order to revoke the Contract, the 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, MA 01653, or to an
authorized representative. Mailing or delivery must occur within ten 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 Funds for taxes, charges or fees.
The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.
C. RIGHT TO REVOKE ALL OTHER CONTRACTS.
In Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina, Oklahoma,
Oregon, South Carolina, Texas, Utah, Washington and West Virginia, any Owner may
revoke the Contract at any time within ten days (20 days 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, an Owner may return the Contract at any time within ten
days (or the number of days required by state law if more than ten) after
receipt of the Contract. The Company will pay to the Owner an amount equal to
the sum of (1) the difference between the amount paid, including fees, and any
amount allocated to the Variable Account, and (2) 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.
D. TRANSFER PRIVILEGE.
Prior to the Annuity Date, the Owner may transfer amounts among accounts at any
time upon written or telephone request to the Company. As discussed in "A.
Payments", a properly completed authorization form must be on file before
telephone requests will be honored. Transfer values will be based on the
Accumulated Value next computed after receipt of the transfer request.
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 Money Market Fund.
Currently, the Company makes no charge for transfers. The first 12 transfers in
a Contract year are guaranteed to be free of any transfer charge. For each
subsequent transfer in a Contract year, the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
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<PAGE>
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS. The Owner may elect automatic transfers of a predetermined dollar
amount, not less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually) from the Money Market Fund, the Select Income Fund or
the Fixed Account (the source account) to one or more Funds. Automatic transfers
may not be made into the Fixed Account, the Guarantee Period Accounts or, if
applicable, the Fund being used as the source account. If an automatic transfer
would reduce the balance in the source account to less than $100, the entire
balance will be transferred proportionately to the chosen Funds. Automatic
transfers will continue until the amount in the source account on a transfer
date is zero or the Owner's request to terminate the option is received by the
Company. If additional amounts are allocated to the source account after its
balance has fallen to zero, this option will not restart automatically and the
Owner must provide a new request to the Company.
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, quarterly, semi-annual or annual basis in accordance with percentage
allocations specified by the Owner. As frequently as specified by the Owner, the
Company will review the percentage allocations in the Funds and, if necessary,
transfer amounts to ensure conformity with the designated percentage allocation
mix. If the amount necessary to re-establish the mix on any scheduled date is
less than $100, no transfer will be made. Automatic Account Rebalancing will
continue until the Owner's request to terminate the option is received by the
Company.
The Company reserves the right to limit the number of funds that may be utilized
for automatic transfers and rebalancing, and to discontinue either option upon
advance written notice. Currently, Dollar Cost Averaging and Automatic Account
Rebalancing may not be in effect simultaneously. Either option may be elected
when the Contract is purchased or at a later date.
E. SURRENDER.
At any time prior to the Annuity Date, an Owner may surrender the Contract and
receive an amount equal to the Surrender Value. The Owner must return the
Contract and a signed, written request for surrender, satisfactory to the
Company, to the Principal Office. The amount payable to the 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 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 a commutable period certain
option was elected 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 withdrawals 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 the SEC, exists such that disposal of portfolio
securities or valuation of assets of a separate account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and withdrawals 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 Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program (Texas ORP) are
restricted; see "Tax Sheltered Annuities" and "Texas Optional Retirement
Program."
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<PAGE>
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
F. WITHDRAWALS.
At any time prior to the Annuity Date, an Owner may withdraw a portion of the
Accumulated Value of his or her Contract, subject to the limits stated below.
The Owner must submit a signed, written request for withdrawal, satisfactory to
the Company, to the Principal Office. The written request must indicate the
dollar amount the Owner wishes to receive and the accounts from which such
amount is to be withdrawn. The amount withdrawn equals the amount requested by
the Owner plus any applicable contingent deferred sales charge, as described
under "CHARGES AND DEDUCTIONS." In addition, amounts withdrawn 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
withdrawal may be allocated to each such account. A withdrawal from a
Sub-Account will result in cancellation of a number of units equivalent in value
to the amount withdrawn, computed as of the Valuation Date that the request is
received at the Principal Office.
Each withdrawal must be in a minimum amount of $100. No withdrawal will be
permitted if the Accumulated Value remaining under the Contract would be reduced
to less than $1,000. Withdrawals will be paid in accordance with the time
limitations described under "Surrender."
For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see "FEDERAL TAX
CONSIDERATIONS," "Tax Sheltered Annuities" and "Texas Optional Retirement
Program."
For important tax consequences which may result from withdrawals, see "FEDERAL
TAX CONSIDERATIONS."
SYSTEMATIC WITHDRAWALS. The Owner may elect an automatic schedule of
withdrawals (systematic withdrawals) from amounts in the Sub-Accounts and/or the
Fixed Account on a monthly, bi-monthly, quarterly, semi-annual or annual basis.
Systematic withdrawals from Guarantee Period Accounts are not available. The
minimum amount of each automatic withdrawal is $100, and will be subject to any
applicable withdrawal charges. If elected at the time of purchase, the Owner
must designate in writing the specific dollar amount of each withdrawal and the
percentage of this amount which should be taken from each designated Sub-Account
and/or the Fixed Account. Systematic withdrawals then will begin on the 16th day
following the issue date. If elected after the issue date, the Owner may elect,
by written request, a specific dollar amount and the percentage of this amount
to be taken from each designated Sub-Account and/or the Fixed Account, or the
Owner may elect to withdraw a specific percentage of the Accumulated Value
calculated as of the withdrawal dates, and may designate the percentage of this
amount which should be taken from each account. The first withdrawal will take
place on the date the written request is received at the Principal Office or, if
later, on a date specified by the Owner.
If a withdrawal would cause the remaining Accumulated Value to be less than
$1,000, systematic withdrawals will be discontinued. Systematic withdrawals will
cease automatically on the Annuity Date. The Owner may change or terminate
systematic withdrawals by written request to the Principal Office only.
LIFE EXPECTANCY DISTRIBUTIONS. Prior to the Annuity Date an Owner who also is
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 Principal Office. The LED option
permits the 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.
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<PAGE>
If an Owner elects the LED option, in each calendar year a fraction of the
Accumulated Value is withdrawn based on the 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 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 Owner may elect monthly, bi-monthly, quarterly,
semi-annual, or annual distributions, and may terminate the LED option at any
time. The Owner also may elect to receive distributions under an LED option
which is determined on the joint life expectancy of the Owner and a beneficiary.
The Company also may offer other systematic withdrawal options.
If an Owner makes withdrawals under the LED option prior to age 59 1/2, the
withdrawals may be treated by the Internal Revenue Service (IRS) as premature
distributions from the Contract. The payments then would 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."
G. DEATH BENEFIT.
In the event that the Annuitant, Owner or Joint Owner, if applicable, dies while
the Contract is in force, the Company will pay the beneficiary a death benefit,
except where the Contract is continued as provided in "H. The Spouse of the
Owner as Beneficiary." The amount of the death benefit and the time requirements
for receipt of payment may vary depending upon whether the Annuitant or an Owner
dies first, and whether death occurs prior to or after the Annuity Date.
DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE. At the death of the Annuitant
(including an Owner who is also the Annuitant), the benefit is equal to the
greatest of (1) the Accumulated Value under the Contract increased for any
positive Market Value Adjustment; (2) gross payments compounded daily at 5% per
year 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 (3) the highest Accumulated Value
that would have been payable as a death benefit on any Contract anniversary,
increased for subsequent payments received since that date and reduced
proportionately to reflect withdrawals after that date.
DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY 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 never will be reduced by a negative Market Value
Adjustment.
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum within seven business days
of the receipt of due proof of death at the Principal Office unless the Owner
has specified a death benefit annuity option. Instead of payment in one sum, the
beneficiary may, by written request, elect to:
(1) defer distribution of the death benefit for a period no more than five
years from the date of death; or
(2) receive a life annuity or an annuity for a period certain not extending
beyond the beneficiary's life expectancy, with annuity benefit payments
beginning one year from the date of death.
If distribution of the death benefit is deferred under (1) or (2), any value in
the Guarantee Period Accounts will be transferred to the Sub-Account investing
in the Money Market Fund. The excess, if any, of the death benefit over the
Accumulated Value also will be added to the Money Market Fund. The beneficiary
may, by written request, effect transfers and withdrawals during the deferral
period and prior to annuitization under (2), but may not make additional
payments. The death benefit will reflect any earnings or losses experienced
during the deferral period. If there are multiple beneficiaries, the consent of
all is required.
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With respect to the death benefit, the Accumulated Value under the Contract will
be based on the unit values next computed after due proof of the death has been
received.
DEATH OF THE ANNUITANT AFTER THE ANNUITY DATE. If the Annuitant's death occurs
on or after the Annuity Date but before completion of all guaranteed annuity
benefit payments, any unpaid amounts or installments will be paid to the
beneficiary. The Company must pay out the remaining payments at least as rapidly
as under the payment option in effect on the date of the Annuitant's death.
H. THE SPOUSE OF THE OWNER AS BENEFICIARY.
The 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
Owner. Upon such election, the spouse will become the Owner and Annuitant
subject to the following: (1) any value in the Guarantee Period Accounts will be
transferred to the Money Market Fund; (2) the excess, if any, of the death
benefit over the Contract's Accumulated Value also will be added to the Money
Market Fund. This value never will be subject to a surrender charge when
withdrawn. Additional payments may be made; however, a surrender charge will
apply to these amounts if they have not been invested in the Contract for more
than seven years. All other rights and benefits provided in the Contract will
continue, except that any subsequent spouse of such new Owner will not be
entitled to continue the Contract upon such new Owner's death.
I. ASSIGNMENT.
The Contract, other than one sold in connection with certain qualified plans,
may be assigned by the 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 Owner in full settlement of all liability under the
Contract. The interest of the Owner and of any beneficiary will be subject to
any assignment.
J. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
The Annuity Date is selected by the Owner. To the extent permitted in your
state, the Annuity Date may be the first day of any month (1) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Contract is 75 or under; or (2) within ten years from the issue date of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age on the
issue date is between 76 and 90. The Owner may elect to change the Annuity Date
by sending a 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, 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 ("the 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.
Subject to certain restrictions described below, the 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."
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Under a variable annuity payout, a payment equal to the value of the fixed
number of Annuity Units in the Sub-Account(s) is made monthly, quarterly,
semi-annually or annually. Since the value of an Annuity Unit in a Sub-Account
will reflect the investment performance of the Sub-Account, the amount of each
annuity benefit payment will vary.
The annuity option selected must produce an initial payment of at least $50 (a
lower amount may be required in some states). The Company reserves the right to
increase this minimum amount. If the annuity option(s) selected do(es) not
produce an initial payment which meet this minimum, a single payment may be
made. Once the Company begins making annuity benefit payments, the Annuitant
cannot make withdrawals or surrender the annuity benefit, except where the
Annuitant has elected a commutable period certain option. Beneficiaries entitled
to receive remaining payments under either a commutable or non-commutable
"period certain" option may elect instead to receive a lump sum settlement. See
"Description of Variable Annuity Options."
If the Owner does not elect otherwise, a variable life annuity with periodic
payments for ten 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.
K. DESCRIPTION OF VARIABLE ANNUITY OPTIONS.
The Company provides the variable annuity options described below. Currently,
variable annuity options may be funded through the Sub-Accounts 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 of the variable annuity options or the fixed-amount
options may be selected, or any of the variable annuity options may be selected
in combination with any of the fixed-amount annuity options. Other annuity
options may be offered by the Company. IRS regulations may not permit certain of
the available annuity options when used in connection with certain qualified
Contracts.
VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR TEN 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 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.
Payments will continue, however, 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, and
(2) is the number of payments paid prior to the death of the payee.
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to two payees during their joint lifetime, and then 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.
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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. The amount of each periodic
payment to the survivor, however, 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 and may be
commutable or noncommutable. A commutable option provides the Annuitant with the
right to request a lump sum payment of any remaining balance after annuity
payments have commenced. Under a noncommutable period certain option, the
Annuitant may not request a lump sum payment. See "Annuity Payment" in the SAI.
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 a 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.
L. ANNUITY BENEFIT PAYMENTS.
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 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.
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. Variable annuity benefit payments are due on the first of a
month, which is the date the payment is to be received by the Annuitant, and
currently are 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 contingency options and noncommutable period certain options of
ten 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 ten years, the value is
the Surrender Value less any premium tax. For a death benefit annuity, the
annuity value will be the amount of the death benefit. The annuity rates in the
Contract are based on a modification of the 1983 Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "M. 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 3.5% 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
Sub-Account(s) funding the annuity exceeds the equivalent of the assumed
interest rate for the period. Variable annuity benefit payments will decrease
over periods when the actual net investment result of the respective Sub-Account
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 noncommutable period certain options of ten 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,
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<PAGE>
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 ten 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 Sub-Account(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 Sub-Account(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.
From time to time, the Company may offer its Owners both fixed and variable
annuity rates more favorable than those contained in the Contract. Any such
rates will be applied uniformly to all Owners of the same class.
For an illustration of a variable annuity benefit payment calculation using a
hypothetical example, see "Annuity Payments" in the Statement of Additional
Information.
M. NORRIS DECISION
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a Contract issued in connection with an employer-sponsored benefit plan
affected by the NORRIS decision will be based on 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.
N. COMPUTATION OF VALUES.
THE ACCUMULATION UNIT. Each net payment is allocated to the account(s) selected
by the 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 net payment allocated to the
Sub-Account, divided by the dollar value of the applicable Accumulation Unit as
of the Valuation Date the payment is received at the 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
withdrawal, or surrender. 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 Underlying Funds. The value of an Accumulation Unit
was set at $1.00 on the first Valuation Date for each Sub-Account.
Allocations to the Guarantee Period Accounts 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.
The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the 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 and Guarantee Period
Accounts, if any.
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NET INVESTMENT FACTOR. The Net Investment Factor is an index that measures the
investment performance of a Sub-Account from one Valuation Period to the next.
This factor is equal to 1.000000 plus the result from dividing (1) by (2) and
subtracting (3) and (4) where:
(1) is the investment income of a Sub-Account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(2) is the value of that Sub-Account's assets at the beginning of the Valuation
Period;
(3) is a charge for mortality and expense risks equal to 1.25% on an annual
basis of the daily value of the Sub-Account's assets; and
(4) is an administrative charge of 0.15% on an annual basis of the daily value
of the Sub-Account's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of an Accumulation Unit calculation using a hypothetical
example see "Annuity Payments" in the SAI.
CHARGES AND DEDUCTIONS
Deductions under the Contract and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Funds are described in the prospectuses and SAIs of the Trust,
Fidelity VIP, and T. Rowe Price.
A. VARIABLE ACCOUNT DEDUCTIONS.
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a charge of 1.25% on an
annual basis of the daily value of each Sub-Account'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
phase and the annuity phase. 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 Sub-Account with a
daily charge at an annual rate of 0.15% of the average daily net assets of the
Sub-Account. The charge is imposed during both the accumulation phase and the
annuity phase. The daily Administrative Expense Charge is assessed to help
defray administrative expenses actually incurred in the administration of the
Sub-Account, without profits. There is no direct relationship, however, between
the amount of administrative expenses imposed on a given Contract and the amount
of expenses actually attributable to that Contract.
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Deductions for the Contract fee (see B below) 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 Contract include, but are not limited to, clerical,
accounting, actuarial and legal services, rent, postage, telephone, office
equipment and supplies, expenses of preparing and printing registration
statements, expense of preparing and typesetting prospectuses and the cost of
printing prospectuses not allocable to sales expense, filing and other fees.
OTHER CHARGES. Because the Sub-Accounts purchase shares of the Underlying
Funds, the value of the net assets of the Sub-Accounts will reflect the
investment advisory fee and other expenses incurred by the Underlying Funds. The
prospectuses and SAIs of the Trust, Fidelity 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 less than
$50,000. 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
Sub-Account will result in cancellation of a number of Accumulation Units equal
in value to the percentage of the charge deducted from that account.
Where permitted by law, the Contract fee also may be waived for Contracts where,
on the issue date, both the Owner and the Annuitant are within the following
classes of individuals: 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 Funds;
investment managers or sub-advisers; and the spouses of and immediate family
members residing in the same household with such eligible persons. "Immediate
family members" means children, siblings, parents and grandparents.
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 payments were received,
the premium tax charge is deducted on a pro-rata basis when 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 a Contract at the time 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 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. A contingent deferred sales charge, however, is deducted from the
Accumulated Value in the case of surrender and/or a withdrawal 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 withdrawn previously. For purposes of determining the amount of
any contingent deferred sales charge, surrenders will be deemed to be taken
first from accumulated earnings, then from the withdrawal without surrender
charge amount, if greater than earnings; then from Old Payments, and then from
New Payments. Earnings and any excess withdrawal without surrender charge
amount, if applicable, followed by 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 WITHDRAWAL. If a Contract is surrendered, or if New
Payments are withdrawn 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.
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 6.0%
3 5.0%
4 4.0%
5 3.0%
6 2.0%
7 1.0%
More than 7 0%
</TABLE>
The amount withdrawn equals the amount requested by the Owner plus the
contingent deferred sales charge, if any. The charge is applied as a percentage
of the New Payments withdrawn, 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, withdrawals, and annuitization.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE. Where permitted by state 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: (1) 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; (2) first diagnosed by a licensed physician as having a fatal
illness after the issue date of the Contract; or (3) 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 unless required by state law.
In addition, from time to time the Company may allow a reduction in or
elimination of the contingent deferred sales charges, the period during which
the charges apply, or both, and/or credit additional amounts on Contracts, when
Contracts are sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider factors such as the following:
(1) the size and type of group or class, and the persistency expected from that
group or class; (2) the total amount of payments to be received, and the manner
in which payments are remitted; (3) the purpose for which the Contracts are
being purchased, and whether that purpose makes it likely that costs and
expenses will be reduced; (4) other transactions where sales expenses are likely
to be reduced; or (5) the level of commissions paid to selling broker-dealers or
certain financial institutions with respect to Contracts within the same group
or class (for example, broker-dealers who offer this Contract in connection with
financial planning services offered on a fee-for-service basis). The Company
also may reduce or waive the contingent deferred sales charge, and/or credit
additional amounts on Contracts, where both the Owner and the Annuitant on the
issue date 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 of and immediate family members
residing in the same household with such eligible persons. "Immediate family
members" means children, siblings, parents and grandparents. Finally, contingent
deferred sales charge will be waived under 403(b) Contracts where the amount
withdrawn is being contributed to a life policy issued by the Company as part of
the individual's 403(b) plan.
Any reduction or elimination in the amount or duration of the contingent
deferred sales charge will not discriminate unfairly among 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 annuity
contracts for the Contract. See "Exchange Offer" in the SAI.
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: 100% of Cumulative Earnings (calculated as the Accumulated Value
as of the Valuation Date the Company receives the withdrawal
request, or the following day, reduced by total gross payments not
previously withdrawn);
Where (2) is: 10% of the Accumulated Value as of the Valuation Date the Company
receives the withdrawal request, or the following day, reduced by
the total amount of any prior withdrawals made in the same
calendar year to which no contingent deferred sales charge was
applied; and
Where (3) is: The amount calculated under the Company's life expectancy
distribution option (see "Life
Expectancy Distributions") whether or not the withdrawal was part of
such distribution (applies only if Annuitant is also an Owner).
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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:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge first will 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 withdrawn on a LIFO basis. If more than one withdrawal is made during
the year, on each subsequent withdrawal the Company will waive the contingent
deferred sales charge, if any, until the entire Withdrawal Without Surrender
Charge has been 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.
SURRENDERS. In the case of a complete surrender, the amount received by the
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 withdrawals, the Company
will not assess a contingent deferred sales charge on an amount equal to the
Withdrawal Without Surrender Charge Amount, described above.
Where an 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 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 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 withdrawal, including minimum limits on
amount withdrawn and amount remaining under the Contract in the case of
withdrawal, and important tax considerations, see "Surrender" and "Withdrawal"
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. A Market Value
Adjustment, however, may apply. See "GUARANTEE PERIOD ACCOUNTS." If the 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 12 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. For more
information, see "The Contract Transfer Privilege."
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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 1933 Act or
the 1940 Act. Accordingly, the staff of the SEC 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 Contract or any fixed benefits offered under these
accounts may be subject to the provisions of the 1933 Act relating to the
accuracy and completeness of statements made in the Prospectus.
INVESTMENT OPTIONS. In most jurisdictions, Guarantee Periods ranging from two
through ten years may be available. Each Guarantee Period established for the
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. Once an interest rate is in effect
for a Guarantee Period Account, however, the Company may not change it during
the duration of its 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 initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Owners may allocate net payments or make transfers from any of the Sub-Accounts,
the Fixed Account or an existing Guarantee Period Account to establish a new
Guarantee Period Account at any time prior to the Annuity Date. 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
Owner allocates or transfers amounts to a Guarantee Period 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
Owner may allocate amounts to any of the Guarantee Periods available.
At least 45 days, but not more than 75 days, prior to the end of a Guarantee
Period, the Company will notify the Owner in writing of the expiration of that
Guarantee Period. At the end of a 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 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 automatically
will be 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. Where amounts have
been renewed automatically in a new Guarantee Period, it is the Company's
current practice to give the Owner an additional 30 days to transfer out of the
Guarantee Period Account without application of a Market Value Adjustment. This
practice may be discontinued or changed at the Company's discretion.
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 its 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." All other
transfers, withdrawals, or a surrender prior to the end of a Guarantee Period
will be subject to a Market Value Adjustment, which may increase or decrease the
account value. 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
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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.
Based on the application of this formula, the value of a Guarantee Period
Account will increase after the Market Value Adjustment is applied if the then
current market rates are lower than the rate being credited to the Guarantee
Period Account. Similarly, the value of a Guarantee Period Account will decrease
after the Market Value Adjustment is applied if the then current market rates
are higher than the rate being credited to the Guarantee Period Account. The
Market Value Adjustment is limited, however, so that even if the account value
is decreased after application of a Market Value Adjustment, it will equal or
exceed the Owner's principal plus 3% earnings per year less applicable Contract
fees. Conversely, if the then current market rates are lower and the account
value is increased after the Market Value Adjustment is applied, the increase in
value is also affected by the minimum guaranteed rate of 3% such that the amount
that will be added to the Guarantee Period Account is limited to the difference
between the amount earned and the 3% minimum guaranteed earnings. For examples
of how the Market Value Adjustment works, See APPENDIX B.
WITHDRAWALS. Prior to the Annuity Date, the 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 "Withdrawals" and "Surrender." In addition, the following provisions also
apply to withdrawals from a Guarantee Period Account: (1) a Market Value
Adjustment will apply to all withdrawals, including Withdrawals Without
Surrender Charge, unless made at the end of the Guarantee Period; and (2) 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 withdrawals or
surrenders, on annuity benefit payments, and on the economic benefit to the
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 IRS. In
addition, this discussion does not address state or local tax consequences that
may be associated with the Contract.
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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 ALWAYS SHOULD 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 Contract, the Variable Account or the Sub-Accounts may have
upon its tax. The Variable Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes should the Variable
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
Owners and with respect to each separate account as though that separate account
were a separate taxable entity.
The Variable Account is considered 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 IRS has issued regulations relating to the diversification requirements for
variable annuity and variable life insurance contracts under Section 817(h) of
the Code. The regulations provide that the investments of a segregated asset
account underlying a variable annuity contract are adequately diversified if no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% by any two investments, no more than 80% by any three
investments, and no more than 90% by any four investments. If the investments
are not adequately diversified, the income on a contract, for any taxable year
of an owner, would be treated as ordinary income received or accrued by the
owner. It is anticipated that the Funds of the Allmerica Investment Trust, the
Portfolios of Fidelity VIP and VIP II, the Portfolio of T. Rowe Price and the
Series of DGPF will comply with the current diversification requirements. In the
event that future IRS regulations and/or rulings would require Contract
modifications in order to remain in compliance with the diversification
standards, the Company will make reasonable efforts to comply, and it reserves
the right to make such changes as it deems appropriate for that purpose.
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, or 408 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 withdrawals or surrenders will
vary, depending on 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 D below.
B. TAXATION OF THE CONTRACT IN GENERAL.
The Company believes that the Contracts described in this Prospectus will, with
certain exceptions (see "Non-Natural Owner" below), be considered annuity
contracts under Section 72 of the Code. This section governs the taxation of
annuities. The following discussion concerns annuities subject to Section 72.
WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in
the Contract's Accumulated Value is not taxable to the Owner until it is
withdrawn from the Contract. If the Contract is surrendered or amounts are
withdrawn prior to the Annuity Date, any withdrawal of investment gain in value
over the cost basis of the Contract will be taxed as ordinary income. Under the
current provisions of the Code, amounts received under an annuity contract prior
to annuitization (including payments made upon the death of the annuitant or
owner), generally are first attributable to any investment gains credited to the
contract over the taxpayer's "investment in the contract." Such amounts will be
treated as gross income subject to federal income taxation. "Investment in the
contract" is the total of all payments to the Contract which were not excluded
from the Owner's gross income less any amounts previously withdrawn which were
not included in income. Section 72(e)(11)(A)(ii) requires that all non-qualified
deferred annuity contracts
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issued by the same insurance company to the same owner during a single calendar
year be treated as one contract in determining taxable distributions.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments are
commenced under the Contract, generally a portion of each payment may be
excluded from gross income. The excludable portion generally is determined by a
formula that establishes the ratio that the investment in 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 the investment 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.
PENALTY ON DISTRIBUTION. 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 on withdrawals taken on or after age 59 1/2, or if the
withdrawal follows the death of the Owner (or, if the Owner is not an
individual, the death of the primary Annuitant, as defined in the Code) or, in
the case of the Owner's "total disability" (as defined in the Code).
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 Owner elects to have
distributions made over the Owner's life expectancy, or over the joint life
expectancy of the 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. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the Owner's age 59 1/2 or five years, will subject
the Owner to the 10% penalty tax on the prior distributions. In addition to the
exceptions above, the penalty tax will not apply to withdrawals from a qualified
Contract made to an employee who has terminated employment after reaching age
55.
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 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, therefore, were subject to the 10% federal penalty tax. This
Private Letter Ruling may be applicable to an 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.
ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the 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 any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions. Where the Owner and Annuitant are different
persons, the change of ownership of the Contract to the Annuitant on the Annuity
Date, as required under the Contract, is a gift and will be taxable to the Owner
as such; however, the Owner will not incur taxable income. Instead, the
Annuitant will incur taxable income upon receipt of annuity benefit payments as
discussed above.
NON-NATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"non-natural persons" (e.g., a corporation) are not treated as annuity contracts
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity contracts purchased with a single payment when the annuity date
is no later than a year from the issue date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other than employers, such as a trust, holding an
annuity as an agent for a natural person. This
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exception, however, will not apply in cases of any employer who is the owner of
an annuity contract under a non-qualified deferred compensation.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity contracts. Contributions and investment earnings
are not taxable to employees until distributed; however, with respect to
payments made after February 28, 1986, a Contract owned by a state or local
government or a tax-exempt organization will not be treated as an annuity under
Section 72 as well. In addition, plan assets are treated as property of the
employer, and are subject to the claims of the employer's general creditors.
C. TAX WITHHOLDING.
The Code requires withholding with respect to payments or distributions from
non-qualified 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.
The tax treatment of certain withdrawals or surrenders of the non-qualified
Contracts offered by this Prospectus will vary according to whether the amount
withdrawn 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 retirement plans, as defined by the Code,
are complex and vary according to the type of plan. Benefits under a qualified
plan may be subject to that plan's terms and conditions irrespective of the
terms and conditions of any annuity contract used to fund such benefits. As
such, the following is simply a general description of various types of
qualified plans that may use the Contract. Before purchasing any annuity
contract for use in funding a qualified plan, more specific information should
be obtained.
Qualified Contracts may include special provisions (endorsements) changing or
restricting rights and benefits otherwise available to non-qualified Owners.
Individuals purchasing a qualified Contract should carefully review any such
changes or limitations which may include restrictions to ownership,
transferability, assignability, contributions, and distributions.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS. Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Contracts
in connection with such plans should seek competent advice as to the suitability
of the Contract to their specific needs and as to applicable Code limitations
and tax consequences.
The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). IRA's are subject to limits on the
amounts that may be contributed, the persons who may be eligible, and on the
time when distributions may commence. In addition, certain distributions from
other types of retirement plans may be "rolled over," on a tax-deferred basis,
to an IRA. Purchasers of an IRA Contract will be provided with supplementary
information as may be required by the IRS or other appropriate agency, and will
have the right to revoke the Contract as described in this Prospectus. See
"Right to Revoke Individual Retirement Annuity."
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Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or SIMPLE IRA plans for their employees using
the IRAs. Employer contributions that may be made to such plans are larger than
the amounts that may be contributed to regular IRAs and may be deductible to the
employer.
TAX-SHELTERED ANNUITIES (TSA'S). Under the provisions of Section 403(b) of the
Code, payments made to 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 total annual payments do not exceed the
maximum contribution permitted under the Code. Purchasers of TSA contracts
should seek competent advice as to eligibility, limitations on permissible
payments and other tax consequences associated with the contracts.
Withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) made to a TSA contract after December
31, 1988, may not begin before the employee attains age 59 1/2, separates from
service, dies or becomes disabled. In the case of hardship, an 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 be subject to a 10%
penalty tax as a premature distribution, in addition to income tax.
TEXAS OPTIONAL RETIREMENT PROGRAM. Distributions under a TSA contract issued to
participants in the Texas Optional Retirement Program 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 additional
restrictions are imposed under the Texas Government Code and a prior opinion of
the Texas Attorney General.
REPORTS
An Owner is sent a report semi-annually which states certain financial
information about the Underlying Funds. The Company also will furnish an annual
report to the Owner containing a statement of his or her account, including
Accumulation 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 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 be withdrawn first from Sub-Account 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
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.
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
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Fund no longer are available for investment or if, in the Company's
judgment,
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further investment in any Underlying Fund should become inappropriate in view of
the purposes of the Variable Account or the affected Sub-Account, the Company
may withdraw 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 Sub-Account without notice to
the Owner and prior approval of the SEC 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 an Owner.
The Company also reserves the right to establish additional Sub-Accounts of the
Variable Account, each of which would invest in shares corresponding to a new
Underlying Fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required SEC approval,
the Company 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
Owners on a basis to be determined by the Company.
Shares of the Underlying Funds also are issued to variable accounts of the
Company and its affiliates which issue variable life contracts ("mixed
funding"). Shares of the Portfolios also are issued to other unaffiliated
insurance companies ("shared funding"). It is conceivable that in the future
such mixed funding or shared funding may be disadvantageous for variable life
owners or variable annuity owners. Although the Company, the Trust, Fidelity VIP
and T. Rowe Price do not currently foresee any such disadvantages to either
variable life insurance owners or variable annuity owners, the Company and the
respective trustees intend to monitor events in order to identify any material
conflicts between such owners, and to determine what action, if any, should be
taken in response thereto. If the trustees were to conclude that separate funds
should be established for variable life and variable annuity separate accounts,
the Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may endorse the
Contract to reflect the substitution or change, and will notify Owners of all
such changes. If the Company deems it to be in the best interest of Owners, and
subject to any approvals that may be required under applicable law, the Variable
Account or any Sub-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 the Company.
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from the Variable Account or any of its Sub-Accounts to
another of the Company's separate accounts or sub-accounts having assets of the
same class, (2) to operate the Variable Account or any Sub-Account as a
management investment company under the 1940 Act or in any other form permitted
by law, (3) to deregister the Variable Account under the 1940 Act in accordance
with the requirements of the 1940 Act, (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Sub-Account, 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
Sub-Account, (5) to change the methodology for determining the net investment
factor, and (6) to change the names of the Variable Account or of the
Sub-Accounts. In no event will the changes described above be made without
notice to Owners in accordance with the 1940 Act.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend sales
of the Contract as presently offered, and to make any change to provisions of
the Contract to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation, including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation.
42
<PAGE>
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Sub-Account in
accordance with instructions received from 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 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 also will vote shares in a Sub-Account 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 an 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
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
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 Sub-Account 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.
DISTRIBUTION
The Contract offered by this Prospectus may be purchased from certain
independent broker-dealers which are registered under the Securities and
Exchange Act of 1934 Act and members of the National Association of Securities
Dealers, Inc. ("NASD"). The Contract also is offered through Allmerica
Investments, Inc., which is the principal underwriter and distributor of the
Contracts. Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653,
is a registered broker-dealer, a member of the NASD and an indirectly wholly
owned subsidiary of First Allmerica.
The Company pays commissions not to exceed 6.0% of payments to broker-dealers
which sell the Contract. Alternative commission schedules are available with
lower initial commission amounts based on payments, plus ongoing annual
compensation of up to 1% of Contract value. To the extent permitted by NASD
rules, promotional incentives or payments also may 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 Contract, 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 Contract, including
additional incentives or payments, do not result in any additional charge to
Owners or to the Variable Account. Any contingent deferred sales charges
assessed on a Contract will be retained by the Company.
Owners may direct any inquiries to their financial representative or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, Telephone
1-800-366-1492.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party.
FURTHER INFORMATION
A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted in this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC's
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
43
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account generally are not subject to regulation under the
provisions of the 1933 Act or the 1940 Act. Disclosures regarding the fixed
portion of the annuity Contract and the Fixed Account may be subject to the
provisions of the 1933 Act concerning the accuracy and completeness of
statements made in this Prospectus. The disclosures in this APPENDIX A have not
been reviewed by the SEC.
The Fixed Account is part of the Company's General Account which is made up of
all of the general assets of the Company other than those allocated to a
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 Contract, 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 withdrawn, 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 Massachusetts, payments and transfers to the Fixed Account are subject to the
following restrictions:
If a Contract is 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 60th birthday, up
through and including 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.
In Oregon, no payments to the Fixed Account will be permitted if a Contract is
issued after the Annuitant's 81st birthday.
A-1
<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 issue date and no additional payments
are made. Assume there are no partial withdrawals and that the Withdrawal
Without Surrender Charge Amount is equal to the greater of 10% of the
Accumulated Value or the accumulated earnings in the Contract. The table below
presents examples of the surrender charge resulting from a full surrender, based
on Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
ACCOUNT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE CHARGE 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 6.0% 3,000.00
3 62,985.60 12,985.60 5.0% 2,500.00
4 68,024.45 18,024.45 4.0% 2,000.00
5 73,466.40 23,466.40 3.0% 1,500.00
6 79,343.72 29,343.72 2.0% 1,000.00
7 85,691.21 35,691.21 1.0% 500.00
8 92,546.51 42,546.51 0% 0.00
</TABLE>
WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume that the Withdrawal Without Surrender Charge Amount is equal to
the greater of 10% of the current Accumulated Value or the accumulated earnings
in the Contract and there are withdrawals as detailed below. The table below
presents examples of the surrender charge resulting from withdrawals, based on
Hypothetical Accumulated Values:
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
ACCOUNT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWALS CHARGE 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% 0.00
3 62,985.60 0.00 12,985.60 5.0% 0.00
4 68,024.45 30,000.00 18,024.45 4.0% 479.02
5 41,066.40 10,000.00 4,106.64 3.0% 176.80
6 33,551.72 5,000.00 3,355.17 2.0% 32.90
7 30,835.85 10,000.00 3,083.59 1.0% 69.16
8 22,502.72 15,000.00 2,250.27 0.0% 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 (2,555 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 or withdrawals affecting this Guarantee Period Account have
been made.
5. Surrender charges, if any, are calculated in the same manner as shown in
the examples in Part 1.
A-2
<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
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 = -.12054X$62,985.60
= -$7,592.11
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
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 = .06694X$62,985.60
= $4,216.26
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
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 (-.17454X$62,985.60 or -$8,349.25)
= Minimum-$10,993.51 or -$8,349.25)
= -$8,349.25
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
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%
The market value factor = Minimum of .13981X$62,985.60 or $8,349.25
= Minimum of $8,806.02 or $8,349.25
= $8,349.25
A-3
<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 issue date and no additional payments
are made. Assume there are no 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
ACCUMULATED MARKET VALUE DEATH DEATH DEATH HYPOTHETICAL
YEAR VALUE ADJUSTMENT BENEFIT (1) BENEFIT (2) BENEFIT (3) DEATH 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 (1) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (2) is the gross payments accumulated daily at
5% reduced proportionately to reflect withdrawals. Death Benefit (3) is the
death benefit that would have been 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 (1),
(2), or (3)
DEATH BENEFIT ASSUMING WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are 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 HYPOTHETICAL
ACCUMULATED MARKET VALUE DEATH DEATH DEATH HYPOTHETICAL
YEAR VALUE WITHDRAWALS ADJUSTMENT BENEFIT (1) BENEFIT (2) BENEFIT (3) DEATH 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 (1) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (2) is the gross payments accumulated daily at
the 5% reduced proportionately to reflect withdrawals. Death Benefit (3) is the
death benefit that would have been payable on the most recent Contract
anniversary, increased for subsequent payments, and decreased proportionately
for subsequent withdrawals.
A-4
<PAGE>
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (1),
(2), or (3)
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a payment of $50,000 is made on the issue date 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
ACCUMULATED MARKET VALUE HYPOTHETICAL
YEAR VALUE ADJUSTMENT DEATH 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
A-5
<PAGE>
APPENDIX D
DIFFERENCES UNDER THE ALLMERICA SELECT RESOURCE I CONTRACT
1. The Guarantee Period Accounts are not available under Allmerica Select
Resource I.
2. The waiver of surrender charge offered in Allmerica Select Resource II if you
become disabled prior to age 65, are diagnosed with a terminal illness or remain
confined in a nursing home for the later of one year after issue or 90 days (see
"Elimination or Reduction of Surrender Charges") is not available under
Allmerica Select Resource I.
3. The Withdrawal Without Surrender Charge privilege under Allmerica Select
Resource I does not provide access to cumulative earnings without charge. In
addition, the 10% free amount is based on the prior December 31 Accumulated
Value rather than 10% of the Accumulated Value as of the date the withdrawal
request is received.
4. The death benefit under Allmerica Select Resource I is the greatest of: 1)
Your total payments less any withdrawals; 2) the Accumulated Value of the
Contract; or 3) the amount that would have been payable as a death benefit on
the most recent fifth Contract anniversary, increased to reflect additional
payments and reduced to reflect withdrawals since that date.
5. Any payment to the Fixed Account offered under Allmerica Select Resource I
must be at least $500 and is locked in for one year from the date of deposit. At
the end of one year, a payment may be transferred or renewed in the Fixed
Account for another full year at the guaranteed rate in effect on that date. The
minimum guaranteed rate is 3 1/2%. The Fixed Account is not available to Owners
who purchased Allmerica Select Resource I in Oregon. The Fixed Account offered
under Allmerica Select Resource I in Massachusetts does not contain any age
restrictions. (See APPENDIX A. for discussion of Fixed Account under Allmerica
Select Resource II)
A-6
<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 ALLMERICA SELECT SEPARATE ACCOUNT
DATED MAY 1, 1997 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM
ALLMERICA INVESTMENTS, INC., 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS
01653, TELEPHONE 1-800-366-1492.
DATED: MAY 1, 1997
1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY ....................................... 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE COMPANY ....... 3
SERVICES .............................................................. 3
UNDERWRITERS .......................................................... 3
ANNUITY BENEFIT PAYMENTS .............................................. 4
EXCHANGE OFFER ........................................................ 5
PERFORMANCE INFORMATION ............................................... 7
FINANCIAL STATEMENTS .................................................. 9
GENERAL INFORMATION AND HISTORY
Allmerica Select Separate Account (the "Variable Account") is a separate
investment account of Allmerica Financial Life Insurance and Annuity Company
(the "Company") authorized by vote of its Board of Directors on March 5,
1992. The Company is a life insurance company organized under the laws of
Delaware in July 1974. Its principal office ("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, 1996, the Company had over $____
billion in assets and over $____billion of life insurance in force.
Effective October 1, 1995, the Company changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
The Company is an indirectly wholly owned subsidiary of First Allmerica
Financial Life Insurance Company ("First Allmerica") which, in turn, is a
wholly owned subsidiary of Allmerica Financial Corporation ("AFC"). First
Allmerica, originally organized under the laws of Massachusetts in 1844 as a
mutual life insurance company and known as State Mutual Life Assurance
Company of America, converted to a stock life insurance company and adopted
its present name on October 16, 1995. First Allmerica is the fifth oldest
life insurance company in America. As of December 31, 1996, First Allmerica
and its subsidiaries (including the Company) had over $____billion in
combined assets and over $____ billion in life insurance in force.
Currently, 11 Sub-Accounts of the Variable Account are available under the
Contract. Each Sub-Account invests in a corresponding investment portfolio
of Allmerica Investment Trust ("Trust"), Variable Insurance Products Fund
("Fidelity VIP") or T. Rowe Price International Series, Inc. ("T. Rowe
Price").
The Trust, Fidelity VIP and T. Rowe Price are open-end, diversified
management investment companies. Seven different funds of the Trust are
available under the Contract: 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 Fidelity VIP are available under the Contract:
Fidelity VIP High Income Portfolio, Fidelity VIP Equity-Income Portfolio, and
Fidelity VIP Growth Portfolio. One portfolio of T. Rowe Price is available
under the Contract: the T. Rowe Price International Stock Portfolio. Each
Fund, Portfolio and Series available under the Contract (together, the
"Underlying Funds") has its own investment objectives and certain attendant
risks.
2
<PAGE>
TAXATION OF THE CONTRACT, THE VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with
the Contract, other than for state and local premium taxes and similar
assessments when applicable. The Company reserves the right to impose a
charge for any other taxes that may become payable in the future in
connection with the Contract or the Variable Account.
The Variable Account is considered to be a part of and taxed with the
operations of the Company. The Company is taxed as a life insurance company
under subchapter L of the Internal Revenue Code (the "Code"), and files a
consolidated tax return with its parent and affiliated companies.
The Company reserves the right to make a charge for any effect which the
income, assets or existence of the Contract or the Variable Account may have
upon its tax. Such charge for taxes, if any, will be assessed on a fair and
equitable basis in order to preserve equity among classes of Contract Owners
("Owners"). The Variable Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Variable Account. Underlying Fund shares owned by the Sub-Accounts are held
on an open account basis. A Sub-Account's ownership of Underlying Fund shares
is reflected on the records of the Underlying Fund and is not represented by
any transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996,
and of Allmerica Select Separate Account as of December 31, 1996, 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 Contract.
UNDERWRITERS
Allmerica Investments, Inc. ("Allmerica Investments"), a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. ("NASD"), serves as
principal underwriter for the Contract pursuant to a contract with the
Company and the Variable Account. Allmerica Investments distributes the
Contract on a best-efforts basis. Allmerica Investments, Inc., 440 Lincoln
Street, Worcester, Massachusetts 01653, was organized in 1969 as a wholly
owned subsidiary of First Allmerica, and presently is indirectly wholly owned
by First Allmerica.
The Contract offered by this Prospectus is 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 the Contract are required to be licensed by their
respective state insurance authorities for the sale of variable annuity
contracts. The Company pays commissions, not to exceed 6.0% of purchase
payments, to entities which sell the Contract. To the extent permitted by
NASD rules, promotional incentives or payments also may 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 Contract, including the
recruitment and training of personnel, production of promotional literature
and similar services.
Commissions paid by the Company do not result in any charge to Owners or to
the Variable Account in
3
<PAGE>
addition to the charges described under "CHARGES AND DEDUCTIONS" in the
Prospectus. The Company intends to recoup the commission and other sales
expense through a combination of anticipated surrender, withdrawal and/or
annuitization charges, profits from the Company's general account, including
the investment earnings on amounts allocated to accumulate on a fixed basis
in excess of the interest credited on fixed accumulations by the Company, and
the profit, if any, from the mortality and expense risk charge.
The aggregate amount of commissions retained by Allmerica Investments for
sales of contracts funded by Allmerica Select Separate Account for the years
1994, 1995 and 1996 were $0 and $0, and $317,873.83, respectively.
The aggregate amount of commissions paid to independent broker-dealers for
the years 1994, 1995 and 1996 were $7,087,456.44, $8,250,976.36, and
$15,783,817.50, respectively.
ANNUITY BENEFIT PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "Computation of Values" in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE.
The Accumulation Unit calculation for a daily Valuation Period may be
illustrated by the following hypothetical example: Assume that the assets of
a Sub-Account at the beginning of a one-day Valuation Period were $5,000,000;
that the value of an Accumulation Unit on the previous date was $1.135000;
and that during the Valuation Period, the investment income and net realized
and unrealized capital gains exceed net realized and unrealized capital
losses by $1,675. The Accumulation Unit Value at the end of the current
Valuation Period would be calculated as follows:
(1) Accumulation Unit Value -- Previous Valuation Period ............ $ 1.135000
(2) Value of Assets -- Beginning of Valuation Period ................ $5,000,000
(3) Excess of Investment Income and Net Gains Over Capital Losses ... $1,675
(4) Adjusted Gross Investment Rate for the Valuation Period (3) + (2) 0.000335
(5) Annual Charge (one-day equivalent of 1.40% per annum) ........... 0.000039
(6) Net Investment Rate (4) - (5) ................................... 0.000296
(7) Net Investment Factor 1.000000 + (6) ........................... 1.000296
(8) Accumulation Unit Value -- Current Period (1) x (7) ............ $ 1.135336
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains of $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.134576.
The method for determining the amount of annuity benefit payments is
described in detail under "Determination of First and Subsequent Annuity
Benefit Payments" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY BENEFIT PAYMENT CALCULATION USING
HYPOTHETICAL EXAMPLE. The determination of the Annuity Unit value and the
variable annuity benefit payment may be illustrated by the following
hypothetical example: Assume an Annuitant has 40,000 Accumulation Units in
the Variable Account, and that the value of an Accumulation Unit on the
Valuation Date used to determine the amount of the first variable annuity
benefit payment is $1.120000. Therefore, the Accumulation Value of the
Contract is $44,800 (40,000 x $1.120000). Assume also that the Owner elects
an option for which the first monthly payment is $6.57 per $1,000 of
Accumulated Value applied. Assuming no premium tax or contingent deferred
sales
4
<PAGE>
charge, the first monthly payment would be 44.800 multiplied by $6.57, or
$294.34.
Next, assume that the Annuity Unit for the assumed rate of 3.5% 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 3.5% assumed interest rate used in the
annuity rate calculations. When the Annuity Unit value of $1.100000 is
divided into the first monthly payment the number of Annuity Units
represented by that payment is determined to be 267.5818. The value of this
same number of Annuity Units will be paid in each subsequent month under most
options. Assume further that the net investment factor for the Valuation
Period applicable to the next annuity benefit payment is 1.000190.
Multiplying this factor by .999906 (the one-day adjustment factor for the
assumed interest rate of 3.5% per annum) produces a factor of 1.000096. This
then is 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 then is 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 COMMUTED VALUE ON VARIABLE ANNUITY PERIOD CERTAIN
OPTIONS AND ILLUSTRATION USING HYPOTHETICAL EXAMPLE. The Contract offers
both commutable and non-commutable period certain annuity options. A
commutable option gives the Annuitant the right to exchange any remaining
payments for a lump sum payment based on the commuted value. The Commuted
Value is the present value of remaining payments calculated at 3.5% interest.
The determination of the Commuted Value may be illustrated by the following
hypothetical example.
Assume a commutable period certain option is elected. The number of Annuity
Units on which each payment is based would be calculated using the Surrender
Value less any premium tax. Assume this results in 250.0000 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 $300 a month for 60 months. The
present value at 3.5% of all remaining payments would be $16,560.72.
EXCHANGE OFFER
A. VARIABLE ANNUITY CONTRACT EXCHANGE OFFER
The Company will permit Owners of certain variable annuity contracts,
described below, to exchange their contracts at net asset value for the
variable annuity contracts described in the Prospectus which is issued on
Form No. A3025-96 or a state variation thereof ("new Contract"). The Company
reserves the right to suspend this exchange offer at any time.
This offer applies to the exchange of the Company's Elective Payment Variable
Annuity contracts issued on Forms A3012-79 and A3013-79 ("Elective Payment
Exchanged Contract," all such contracts having numbers with a "JQ" or "JN"
prefix), and Single Payment Variable Annuity contracts issued on Forms
A3014-79 and A3015-79 ("Single Payment Exchanged Contract," all such
contracts having numbers with a "KQ" or "KN" prefix). These contracts are
referred to collectively as the "Exchanged Contract." To effect an exchange,
the Company should receive (1) a completed application for the new Contract,
(2) the contract being exchanged, and (3) a signed Letter of Awareness.
CONTINGENT DEFERRED SALES CHARGE COMPUTATION. No surrender charge otherwise
applicable to the Exchanged Contract will be assessed as a result of the
exchange. Instead, the contingent deferred sales charge under the new
Contract will be computed as if the payments that had been made to the
Exchanged Contract were made to the new Contract as of the date of issue of
the Exchanged Contract. Any additional payments to the new Contract after
the exchange will be subject to the contingent deferred sales charge
computation outlined in the new Contract and the Prospectus; i.e., the charge
will be computed based on the number of years that the additional payment (or
portion of that payment) that is being withdrawn has been credited to the new
Contract.
5
<PAGE>
SUMMARY OF DIFFERENCES BETWEEN THE EXCHANGED CONTRACT AND THE NEW CONTRACT.
The new Contract and the Exchanged Contract differ substantially as
summarized below. There may be additional differences important to a person
considering an exchange, and the Prospectuses for the new Contract and the
Exchanged Contract should be reviewed carefully before the exchange request
is submitted to the Company.
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under
the new Contract, as described in the Prospectus, imposes higher charge
percentages against the excess amount redeemed than the Single Payment
Exchanged Contract. In addition, if an Elective Payment Exchanged Contract
was issued more than nine years before the date of an exchange under this
offer, additional payments to the Exchanged Contract would not be subject to
a surrender charge. New payments to the new Contract may be subject to a
charge if withdrawn prior to the surrender charge period described in the
Prospectus.
CONTRACT FEE. Under the new Contract, the Company deducts a $30 fee on each
Contract anniversary and at surrender if the Accumulated Value is less than
$50,000. This fee is waived if the new Contract is part of a 401(k) plan.
No Contract fees are charged on the Single Payment Exchanged Contract. A $9
semi-annual fee is charged on the Elective Payment Exchanged Contract if the
Accumulated Value is $10,000 or less.
VARIABLE ACCOUNT ADMINISTRATIVE EXPENSE CHARGE. Under the new Contract, the
Company assesses each Sub-Account a daily administrative expense charge at an
annual rate of 0.15% of the average daily net assets of the Sub-Account. No
administrative expense charge based on a percentage of Sub-Account assets is
imposed under the Exchanged Contract.
TRANSFER CHARGE. No charge for transfers is imposed under the Exchanged
Contract. Currently, no transfer charge is imposed under the new Contract;
however, the Company reserves the right to assess a charge not to exceed $25
for each transfer after the twelfth in any Contract year.
DEATH BENEFIT. The Exchanged Contract offers a death benefit that is
guaranteed to be the greater of a Contract's Accumulated Value or gross
payments made (less withdrawals). At the time an exchange is processed, the
Accumulated Value of the Exchanged Contract becomes the "payment" for the new
Contract. Therefore, prior purchase payments made under the Exchanged
Contract (if higher than the Exchanged Contract's Accumulated Value) no are
longer a basis for determining the death benefit under the new Contract.
Consequently, whether the initial minimum death benefit under the new
Contract is greater than, equal to, or less than, the death benefit of the
Exchanged Contract depends on whether the Accumulated Value transferred to
the new Contract is greater than, equal to, or less than, the gross payments
under the Exchanged Contract. In addition, under the Exchanged Contract, the
amount of any prior withdrawals is subtracted from the value of the death
benefit. Under the new Contract, where there is a reduction in the death
benefit amount due to a prior withdrawal, the value of the death benefit is
reduced in the same proportion that the new Contract's Accumulated Value was
reduced on the date of the withdrawal.
ANNUITY TABLES. The Exchanged Contract contains higher guaranteed annuity
rates.
INVESTMENTS. Accumulated Values and payments under the new Contract may be
allocated to significantly more investment options than are available under
the Exchanged Contract.
B. FIXED ANNUITY EXCHANGE OFFER.
This exchange offer also applies to all fixed annuity contracts issued by the
Company. A fixed annuity contract to which this exchange offer applies may
be exchanged at net asset value for the Contract described in this
Prospectus, subject to the same provisions for effecting the exchange and for
applying the new 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 new
Contract's value is not guaranteed, and will vary depending on the investment
performance of the Underlying Fund to which it is allocated. The new
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 the Company's
assumption of certain mortality and expense risks), administrative expense
charges, transfer
6
<PAGE>
charges (for transfers permitted among Sub-Accounts and the Fixed Account),
and expenses incurred by the Underlying Funds. Additionally, the interest
rates offered under the Fixed Account of the new Contract and the Annuity
Tables for determining minimum annuity benefit 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 new Contract and subsequently revoke the new Contract within the time
permitted, as described in the sections of this Prospectus captioned "Right
to Revoke Individual Retirement Annuity" and "Right to Revoke All Other
Contracts," 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 Fixed Account and
Sub-Accounts of the reinstated contract in the same proportion that the value
in the Fixed Account and the value in each Sub-Account bore to the
transferred Accumulated Value on the date of the exchange of the contract for
the new 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.
PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the Prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other material information on
various topics of interest to Owners and prospective 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 Contract and the
characteristics of and market for such financial instruments.
Contracts funded by Allmerica Select Separate Account have been offered to
the public since 1992. Total Return data, however, may be based on the period
of time that the Funds have been in existence. The results for any period
prior to the Contract being offered will be calculated as if the Contract had
been offered during that period of time, with all charges assumed to be those
applicable to the Contract.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment
in a Sub-Account and of the changes of value of the principal invested (due
to realized and unrealized capital gains or losses) for a specified period,
reduced by the Sub-Account's asset charge and any applicable contingent
deferred sales charge which would be assessed upon complete withdrawal of the
investment.
Total Return figures are calculated by standardized methods prescribed by
rules of the SEC. The quotations are computed by finding the average annual
compounded rates of return over the specified periods that would equate the
initial amount invested to the ending redeemable values, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment to the Variable Account of $1,000
T = average annual total return
7
<PAGE>
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
assets of the Sub-Account. This charge is 1.40% on an annual basis. The
calculation of ending redeemable value assumes (1) the Contract was issued at
the beginning of the period, and (2) a complete surrender of the Contract at
the end of the period. 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 Charge as Percentage of
Purchase Payment to New Purchase Payments
Date of Withdrawal Withdrawn*
0-1 6.5%
2 6.0%
3 5.0%
4 4.0%
5 3.0%
6 2.0%
Thereafter 0%
*Subject to the maximum limit described in the Prospectus.
No contingent deferred sales charge is deducted upon expiration of the
periods specified above. In all calendar years, a certain amount (withdrawn
without withdrawal charges, as described in the Prospectus) is not subject to
the contingent deferred sales charge.
The calculations of Total Return include the deduction of the $30 annual
Contract fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return Information in this section refers to the total
of the income generated by an investment in a Sub-Account and of the changes
of value of the principal invested (due to realized and unrealized capital
gains or losses) for a specified period reduced by the Sub-Account's asset
charges. It is assumed, however, that the investment is NOT withdrawn at the
end of each period.
The quotations of Supplemental Total Return are computed by finding the
average annual compounded rates of return over the specified periods that
would equate the initial amount invested to the ending values, according to
the following formula:
P(1 + T)n = EV
Where: P = a hypothetical initial payment to the Variable Account of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of the
specified period
The calculation of Supplemental Total Return reflects the 1.40% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
Contract is NOT surrendered at the end of the specified period, and therefore
there is no adjustment for the contingent deferred sales charge that would be
applicable
8
<PAGE>
if the Contract was surrendered at the end of the period.
The calculations of Supplemental Total Return include the deduction of the
$30 annual Contract fee.
YIELD AND EFFECTIVE YIELD -- MONEY MARKET SUB-ACCOUNT
Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven-day period ended December 31, 1996:
Yield %
Effective Yield %
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the SEC. Under those methods, the yield quotation is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing account having a balance of one
Accumulation Unit of the Sub-Account at the beginning of the period,
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 reflect the $30 annual Contract
fee.
FINANCIAL STATEMENTS
Financial Statements for Allmerica Financial Life Insurance and Annuity
Company and for its Allmerica Select Separate Account will be filed on or
before May 1, 1997 in a post-effective amendment to the Registration Statement
pursuant to Rule 485(b).
9
<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
None--Financials for the Company and for the Separate Account will be
included as part of a Post-Effective Amendment Pursuant to Rule 485(b) on
or before May 1, 1997
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 was filed on May 1, 1996
in Post-effective Amendment No. 9 and is incorporated by
reference herein.
Exhibit 5 - Specimen Generic Application Form A was previously filed on
August 14, 1992, and is incorporated herein by reference.
Specimen Application Form A was filed on May 1, 1996 in
Post-effective Amendment No. 9 and is incorporated by
reference herein.
<PAGE>
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 is filed herewith.
Exhibit 10 - Consent of Independent Accountants will be filed in a 485(b)
filing on or before May 1, 1997
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 will be filed in a 485(b) filing on or
before May 1, 1997.
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
The principal business address of all the following OFFICERS IS:
440 Lincoln Street
Worcester, Massachusetts 01653
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS WITH THE COMPANY
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING
WITH COMPANY PAST FIVE YEARS
Bruce C. Anderson, Director Director of First Allmerica since
1996; Vice President, First
Allmerica
Abigail M. Armstrong, Secretary and Secretary of First Allmerica since
Counsel 1996; Counsel, First Allmerica
John P. Kavanaugh, Director, Vice Director and Chief Investment
President and Chief Investment Officer of First Allmerica since
Officer 1996; Vice President, First
Allmerica since 1991
John F. Kelly, Director Director of First Allmerica since
1996; Senior Vice President,
General Counsel and Assistant
Secretary, First Allmerica
J. Barry May, Director Director of First Allmerica since
1996; Director and President, The
Hanover Insurance Company since
1996; Vice President, The Hanover
Insurance Company, 1993 to 1996
James R. McAuliffe, Director Director of First Allmerica since
1996; President and CEO, Citizens
Insurance Company of America since
1994; Vice President 1982 to 1994
and Chief Investment Officer, First
Allmerica 1986 to 1994
John F. O'Brien, Director and Director, Chairman of the Board,
Chairman of the Board President and Chief Executive
Officer, First Allmerica since 1989
Edward J. Parry, III, Director, Director and Chief Financial
Vice President, Chief Financial Officer of First Allmerica since
Officer and Treasurer 1996; Vice President and Treasurer,
First Allmerica since 1993
Richard M. Reilly, Director, Director of First Allmerica since
President and Chief Executive 1996; Vice President, First
Officer Allmerica since 1990; Director,
Allmerica Investments, Inc. since
1990; Director and President,
Allmerica Investment Management
Company, Inc. since 1990
Larry C. Renfro, Director Director of First Allmerica since
1996; Vice President, First
Allmerica since 1990
<PAGE>
Eric A. Simonsen, Director and Vice Director of First Allmerica since
President 1996; Vice President, First
Allmerica since 1990; Chief
Financial Officer, First Allmerica
1990 to 1996
Phillip E. Soule, Director Director of First Allmerica since
1996; Vice President, First
Allmerica
Item 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT. See attached
organization chart.
ALMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
Allmerica Asset Management 440 Lincoln Street Investment advisory services
Limited Worcester MA 01653
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Employees Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Financial Alliance 100 North Parkway Multi-line property and
Insurance Company Worcester MA 01605 casualty insurance
Allmerica Financial Benefit 100 North Parkway Multi-line property and
Insurance Company Worcester MA 01605 casualty insurance
Allmerica Financial Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Financial Insurance 440 Lincoln Street Insurance Broker
Brokers, Inc. Worcester MA 01653
Allmerica Financial Life Insurance 440 Lincoln Street Life insurance, accident and
and Annuity Company (formerly Worcester MA 01653 health insurance, annuities,
known as SMA Life Assurance variable annuities and
Company) variable life insurance
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester MA 01653
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding
Worcester MA 01653 vehicle for commercial paper
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica, Inc. 440 Lincoln Street Common employer for
Worcester MA 01653 Allmerica Financial
Corporation entities
Allmerica Institutional Services, 440 Lincoln Street Accounting, marketing and
Inc. Worcester MA 01653 shareholder services for
(formerly known as 440 Financial investment companies
Group of Worcester, Inc.)
Allmerica Investment 440 Lincoln Street Investment advisory services
Management Company, Inc. Worcester MA 01653
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Property & Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services Corporation 440 Lincoln Street Internal administrative
Worcester MA 01653 services provider to Allmerica
Financial Corporation entities
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national trust
Worcester MA 01653 company
AMGRO, Inc. 100 North Parkway Premium financing
Worcester MA 01605
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
Partnership Worcester MA 01653
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Citizens Insurance Company of 645 West Grand River Multi-line property and
America Howell MI 48843 casualty insurance
Citizens Insurance Company of 333 Pierce Road Multi-line property and
Illinois Itasca IL 60143 casualty insurance
Citizens Insurance Company of 3950 Priority Way Multi-line property and
the Midwest South Drive, Suite 200 casualty insurance
Indianapolis IN 46280
Citizens Insurance Company of 8101 N. High Street Multi-line property and
Ohio P.O. Box 342250 casualty insurance
Columbus OH 43234
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
First Allmerica Financial Life 440 Lincoln Street Life, pension, annuity,
Insurance Company (formerly Worcester MA 01653 accident and health insurance
State Mutual Life Assurance company
Company of America)
Greendale Special Placements 440 Lincoln Street Massachusetts Grantor Trust
Fund Worcester MA 01653
The Hanover American Insurance 100 North Parkway Multi-line property and
Company Worcester MA 01605 casualty insurance
The Hanover Insurance Company 100 North Parkway Multi-line property and
Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Attorney-in-fact for Hanover
Management Company, Inc. Road Lloyd's Insurance Company
Richardson TX 75081
Hanover Lloyd's Insurance 801 East Campbell Multi-line property and
Company Road casualty insurance
Richardson TX 75081
Linder Skokie Real Estate 440 Lincoln Street Real estate holding company
Corporation Worcester MA 01653
Lloyds Credit Corporation 440 Lincoln Street Premium financing service
Worcester MA 01653 franchises
Logan Wells Water Company, Inc. 603 Heron Drive Water Company serving land
Bridgeport NJ 08014 development investment
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Massachusetts Bay Insurance 100 North Parkway Multi-line property and
Company Worcester MA 01605 casualty insurance
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Somerset Square, Inc. 440 Lincoln Street Real estate holding company
Worcester MA 01653
Sterling Risk Management 440 Lincoln Street Risk management services
Services, Inc. Worcester MA 01653
</TABLE>
Item 27. NUMBER OF CONTRACT OWNERS.
As of December 31, 1996, there were 6,604 Contact Owners of qualified
Contracts and 8,671 Contract Owners 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, Inheiritage,
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, Separate Account
KG, KGC, Fulcrum, and Fulcrum Variable Life of Allmerica Financial
Life Insurance and Annuity Company
- Separate Account I, Separate Accounts VA-K and VA-P, Inheiritage
<PAGE>
Account, Allmerica Select Separate Account, VEL II Account, Group VEL,
Separate Accounts KG, KGC, Fulcrum, Fulcrum Variable Life of First
Allmerica Financial Life Insurance Company
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME POSITION OR OFFICE WITH
UNDERWRITER
Emil J. Aberizk Vice President and Chief Compliance Officer
Abigail M. Armstrong Secretary and Counsel
Richard F. Betzler, Jr. Vice President
Philip J. Coffey Vice President
Thomas P. Cunningham Vice President Chief Financial Officer and Controller
John F. Kelly Director
David J. Mueller Vice President
William F. Monroe, Jr. Vice President
John F. O'Brien Director
Stephen Parker President, Director and Chief Executive Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Mark Steinberg Senior Vice President
<PAGE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester, Massachusetts.
Item 31. MANAGEMENT SERVICES.
Effective March 31, 1995, the Company provides 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.
<PAGE>
(e) The Company hereby represents that the aggregate fees and charges under the
Contracts are reasonable in relation to the services rendered, expenses expected
to be incurred, and risks assumed by the Company.
Item 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(B)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.
Registrant, a separate account of Allmerica Financial Life Insurance and Annuity
Company ("Company"), states that it is (a) relying on Rule 6c-7 under the 1940
Act with respect to withdrawal restrictions under the Texas Optional Retirement
Program ("Program") and (b) relying on the "no-action" letter (Ref. No. IP-6-88)
issued on November 28, 1988 to the American Council of Life Insurance, in
applying the withdrawal restrictions of Internal Revenue Code Section
403(b)(11). Registrant has taken the following steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption withdrawal restrictions
imposed by the Program and by Section 403(b)(11) have been included in the
prospectus of each registration statement used in connection with the offer
of the Company's variable contracts.
2. Appropriate disclosures regarding the redemption withdrawal restrictions
imposed by the Program and by Section 403(b)(11) have been included in
sales literature used in connection with the offer of the Company's
variable contracts.
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
withdrawal restrictions imposed by the Program and by Section 403(b)(11)
to the attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (I) the
restrictions on redemption withdrawal imposed by the Program and by
Section 403(b)(11) and (ii) the investment alternatives available under
the employer's arrangement will be obtained from each participant who
purchases a variable annuity contract prior to or at the time of purchase.
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 Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Worcester, and
Commonwealth of Massachusetts, on the 13th day of February, 1997.
ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY COMPANY
ALLMERICA SELECT ACCOUNT
Attest: /s/ Abigail M. Armstrong.
------------------------------
Abigail M. Armstrong, Secretary.
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John F. O'Brien Director and Chairman of the Board
- ------------------------
John F. O'Brien
/s/ Bruce C. Anderson Director
- ------------------------
Bruce C. Anderson
/s/ John P. Kavanaugh Director February 13, 1997
- ------------------------
John P. Kavanaugh
/s/ John F. Kelly Director
- ------------------------
John F.Kelly
/s/ J. Barry May Director
- ------------------------
J. Barry May
/s/ James R. McAuliffe Director
- ------------------------
James R. McAuliffe
<PAGE>
/s/ Edward J. Parry, III Director,Vice President
- ------------------------ Treasurer and Chief Financial Officer
Edward J. Parry, III
/s/ Richard M. Reilly Director, President and
- ------------------------ Chief Executive Officer
Richard M. Reilly
/s/ Larry C Renfro Director
- ------------------------
Larry C. Renfro
/s/ Eric A. Simonsen Director
- ------------------------
Eric A. Simonsen
/s/ Phillip E. Soule Director
- ------------------------
Phillip E. Soule
<PAGE>
EXHIBIT TABLE
Exhibit 9 - Consent and Opinion of Counsel
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
February 13, 1997
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 Separate Account on Form N-4 under the Securities Act of 1933, with
respect to the Company's qualified and non-qualified variable annuity
products.
I am of the following opinion:
1. The Allmerica Select Separate 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 Separate 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 Allmerica
Select Separate Account on Form N-4 filed under the Securities Act of 1933.
Very truly yours,
/s/ Sylvia Kemp-Orino
-------------------------
Sylvia Kemp-Orino
Counsel
