<PAGE>
File No. 333-63093
811-6632
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20
ALLMERICA SELECT SEPARATE ACCOUNT OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Exact Name of Registrant)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Name of Depositor)
440 Lincoln Street
Worcester, MA 01653
(Address of Depositor's Principal Executive Offices)
(508) 855-1000
(Depositor'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 Address of Agent for Service of Process)
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on (date) pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a) (1) of Rule 485
___ on (date) pursuant to paragraph (a) (1) of Rule 485
___ this post-effective amendment designates a new effective
___ date for a previously filed post-effective amendment
VARIABLE ANNUITY CONTRACTS
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940
("1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("1933 Act").
No filing fee is submitted as a filing fee is not required for this type of
filing.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall become effective in accordance with section 8(a) of the Securities Act
of 1933 or until this Registration Statement shall become effective on such
date or dates as the Commission, acting pursuant to said section 8(a), may
determine.
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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 Companies, 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 Payout Options;
Annuity Benefit Payments
9 ............... Death Benefit
10............... Payments; Computation of Values; Distribution
11............... Surrender; Withdrawals; Texas Optional Retirement
Program
12............... Federal Tax Considerations
13............... Legal Matters
14............... Statement of Additional Information - Table of Contents
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 Benefit Payments
23............... Financial Statements
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
ALLMERICA SELECT CHARTER
VARIABLE ANNUITY CONTRACT
PROFILE THIS PROFILE IS A SUMMARY OF SOME OF THE MORE
, IMPORTANT POINTS THAT YOU SHOULD KNOW AND CONSIDER
1998 BEFORE PURCHASING THE ALLMERICA SELECT CHARTER
VARIABLE ANNUITY CONTRACT. THE CONTRACT IS MORE
FULLY DESCRIBED LATER IN THIS PROSPECTUS. PLEASE
READ THE PROSPECTUS CAREFULLY.
1. THE ALLMERICA SELECT CHARTER VARIABLE ANNUITY CONTRACT
The Allmerica Select Charter variable annuity contract is a contract between you
and Allmerica Financial Life Insurance and Annuity Company (for contracts issued
in the District of Columbia, Puerto Rico, the Virgin Islands and any state
except Hawaii and New York) or First Allmerica Financial Life Insurance Company
(for contracts issued in Hawaii and New York). It is designed to help you
accumulate assets for your retirement or other important financial goals on a
tax-deferred basis.
The Allmerica Select Charter variable annuity contract offers a diverse
selection of money managers and investment options. You may allocate your
payments among any of 14 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 ANNUITY PAYOUT 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 take a withdrawal prior to age 59 1/2. The ANNUITY PAYOUT PHASE occurs when
you, or the payee you designate, begin receiving regular annuity benefit
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 the
annuity benefit payments during the ANNUITY PAYOUT PHASE. This accumulation is
based on the amount of your payments, and any gain or loss from your
investments.
2. ANNUITY PAYMENTS
Before you, or the payee you designate, begin to receive payments from your
annuity, you will want to decide the form those payments will take. For a
regular income from your annuity, you may select one of six annuity options: (1)
periodic payments for the annuitant's lifetime; (2) periodic payments for the
annuitant's lifetime, but not for less than 120 months; (3) periodic payments
for the annuitant's lifetime with the guarantee that if payments are less than
the accumulated value a refund of the remaining value will be paid: (4) periodic
payments for the annuitant's lifetime and one other individual's (i.e. the
beneficiary or a joint annuitant) lifetime;
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(5) periodic payments for the annuitant's lifetime and one other individual's
lifetime with the payment during the lifetime of the survivor being reduced to
2/3; and (6) periodic payments for a specified period of 1 to 30 years.
You can also choose whether you want the annuity benefit 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 annuity benefit payments begin, the annuity
option cannot be changed.
3. PURCHASING THIS CONTRACT
Allmerica Select Charter 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 $25,000 and each subsequent
payment must be at least $100. Other than these conditions, there is no fixed
schedule for making payments, nor any limits as to payment frequency.
4. INVESTMENT OPTIONS
You have full investment control over the contract and you may allocate money to
the following funds:
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER
--------------------------------------------- ---------------------------------------------
<S> <C> <C>
International Funds Select Emerging Markets Fund Schroder Capital Management International
Inc.
Select International Equity Fund Bank of Ireland Asset Management (U.S.)
Limited
T. Rowe Price International Stock Portfolio Rowe Price-Fleming International, Inc.
Aggressive Growth Funds Select Aggressive Growth Fund Nicholas-Applegate Capital Management, L.P.
Select Capital Appreciation Fund T. Rowe Price Associates, Inc.
Select Value Opportunity Fund Cramer Rosenthal McGlynn, LLC
Growth Funds Select Growth Fund Putnam Investment Management, Inc.
Select Strategic Growth Fund Cambiar Investors, Inc.
Fidelity VIP Growth Portfolio Fidelity Management & Research Company
Growth and Income Funds Select Growth and Income Fund John A. Levin & Co., Inc.
Fidelity VIP Equity-Income Portfolio Fidelity Management & Research Company
High Income Fund Fidelity VIP High Income Portfolio Fidelity Management & Research Company
Income Fund Select Income Fund Standish, Ayer & Wood, Inc.
Money Market Fund Money Market Fund Allmerica Asset Management, Inc.
</TABLE>
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%.
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5. EXPENSES
The contract has insurance features and investment features, and there are costs
related to each. Each year a $35 contract fee is deducted from your contract.
(This fee may vary by state. See your contract for more information.) This
charge is waived if the value of the contract is at least $75,000. Also,
insurance charges are deducted which total 1.40% of the average daily value of
amounts allocated to the investment portfolios.
There are also investment management charges which range from 0.35% to 2.00% of
the average daily value of the investment portfolio depending upon the
investment portfolio. When you make a withdrawal or you, or the payee you
designate, begin receiving regular annuity benefit payments from your annuity, a
state premium tax, which varies depending upon the state of residency, may
apply.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" combines the contract fee (which is
represented as 0.04%), 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 for one year. Year 10, shows the
aggregate of all the annual charges assessed for 10 years. Premium tax is
assumed to be 0% in both examples.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
EXAMPLES:
TOTAL ANNUAL
EXPENSES AT
END OF
------------------------
TOTAL ANNUAL TOTAL ANNUAL TOTAL ANNUAL (1) (2)
FUND INSURANCE CHARGES FUND CHARGES CHARGES 1 YEAR 10 YEARS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Select Emerging Markets Fund*........ 1.44% 2.00% 3.44% $ 34 $ 369
Select International Equity Fund..... 1.44% 1.12% 2.56% $ 26 $ 286
T. Rowe Price International Stock
Portfolio.......................... 1.44% 1.05% 2.49% $ 25 $ 279
Select Aggressive Growth Fund........ 1.44% 0.98% 2.42% $ 24 $ 272
Select Capital Appreciation Fund..... 1.44% 1.10% 2.54% $ 25 $ 284
Select Value Opportunity Fund........ 1.44% 1.04% 2.48% $ 25 $ 278
Select Growth Fund................... 1.44% 0.93% 2.37% $ 24 $ 267
Select Strategic Growth Fund*........ 1.44% 0.98% 2.42% $ 24 $ 272
Fidelity VIP Growth Portfolio........ 1.44% 0.69% 2.13% $ 21 $ 243
Select Growth and Income Fund........ 1.44% 0.77% 2.21% $ 22 $ 251
Fidelity VIP Equity-Income
Portfolio.......................... 1.44% 0.58% 2.02% $ 20 $ 231
Fidelity VIP High Income Portfolio... 1.44% 0.71% 2.15% $ 22 $ 245
Select Income Fund................... 1.44% 0.71% 2.15% $ 22 $ 245
Money Market Fund.................... 1.44% 0.35% 1.79% $ 18 $ 207
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* For newly formed funds, fund expenses have been estimated.
The charges reflect any applicable expense reimbursements and/or fee waivers.
They do not reflect the optional Enhanced Death Benefit Rider charge of 0.25%
which, if elected, would increase expenses. For more detailed information, see
the Fund Expense Table in the Prospectus.
6. TAXES
Your earnings are not taxed until you take them out under current tax rules. 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 annuity payout
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.
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7. WITHDRAWALS
You can make withdrawals from your contract any time during the accumulation
phase. The minimum withdrawal amount is $100.
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 the funds since the inception of each Sub-Account. 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 optional Enhanced
Death Benefit Rider charge of 0.25% which, if elected, would reduce performance.
Past performance is not a guarantee of future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
ALLMERICA FINANCIAL LIFE INSURANCE ---------------------------------------------------------------
AND ANNUITY COMPANY FUND 1997 1996 1995 1994 1993
- ----------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Select Emerging Markets Fund............................... N/A N/A N/A N/A N/A
Select International Equity Fund........................... 3.16% 20.20% 17.94% -4.30% N/A
T. Rowe Price International Stock Portfolio................ 1.63% 12.99% 9.57% N/A N/A
Select Aggressive Growth Fund.............................. 17.03% 16.85% 30.44% -3.52% 17.82%
Select Capital Appreciation Fund........................... 12.66% 7.24% N/A N/A N/A
Select Value Opportunity Fund.............................. N/A N/A N/A N/A N/A
Select Growth Fund......................................... 32.18% 20.27% 22.83% -2.95% -0.32%
Select Strategic Growth Fund............................... N/A N/A N/A N/A N/A
Fidelity VIP Growth Portfolio.............................. 21.74% 13.06% 33.41% N/A N/A
Select Growth and Income Fund.............................. 20.79% 19.53% 28.50% -0.78% 8.81%
Fidelity VIP Equity-Income Portfolio....................... 26.30% 12.64% 33.15% N/A N/A
Fidelity VIP High Income Portfolio......................... 16.01% 12.40% 18.98% N/A N/A
Select Income Fund......................................... 7.62% 1.82% 15.31% -6.16% 9.35%
Money Market Fund.......................................... 3.97% 3.83% 4.33% 2.51% 1.55%
</TABLE>
<TABLE>
<CAPTION>
CALENDAR YEAR
FIRST ALLMERICA FINANCIAL LIFE -------------------------------------
INSURANCE COMPANY FUND 1997 1996 1995
- ---------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Select Emerging Markets Fund...................................................... N/A N/A N/A
Select International Equity Fund.................................................. 3.16% 20.20% 17.94%
T. Rowe Price International Stock Portfolio....................................... 1.63% 12.99% 9.57%
Select Aggressive Growth Fund..................................................... 17.03% 16.85% 30.44%
Select Capital Appreciation Fund.................................................. 12.66% 7.24% N/A
Select Value Opportunity Fund..................................................... N/A N/A N/A
Select Growth Fund................................................................ 32.18% 20.27% 22.83%
Select Strategic Growth Fund...................................................... N/A N/A N/A
Fidelity VIP Growth Portfolio..................................................... 21.74% 13.06% 33.41%
Select Growth and Income Fund..................................................... 20.79% 19.53% 28.50%
Fidelity VIP Equity-Income Portfolio.............................................. 26.30% 12.64% 33.15%
Fidelity VIP High Income Portfolio................................................ 16.01% 12.40% 18.98%
Select Income Fund................................................................ 7.62% 1.82% 15.31%
Money Market Fund................................................................. 3.97% 3.83% 4.33%
</TABLE>
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9. DEATH BENEFIT
In addition to tax deferred growth, your contract provides valuable insurance
features. If you, a joint owner or (in the event that the owner is a non-natural
person) an annuitant dies during the accumulation phase, we will pay the
beneficiary a death benefit. The death benefit will be equal to the GREATER of:
(a) the accumulated value increased by any positive market value adjustment; or
(b) gross payments, decreased proportionately to reflect withdrawals. You may
also purchase a rider that will enhance the death benefit (see "Optional
Enhanced Death Benefit Rider" below).
10. ADDITIONAL FEATURES
OPTIONAL ENHANCED DEATH BENEFIT RIDER: This optional rider is available for a
separate monthly charge. Under this rider:
I. If an owner (or an annuitant if the owner is a non-natural person) dies
during the accumulation phase and before the oldest owner's 90th birthday, the
death benefit will be equal to the GREATEST of:
(a) the accumulated value increased by any positive market value adjustment (the
"accumulated value"); or
(b) gross payments compounded daily at an annual rate of 5%, starting on the
date each payment is applied, decreased proportionately to reflect
withdrawals (5% compounding not available in Hawaii and New York); or
(c) the highest accumulated value of all contract anniversaries, as determined
after the accumulated value of each contract anniversary is increased for
subsequent payments and decreased proportionately for subsequent
withdrawals.
The (c) value is determined on each contract anniversary. A snapshot is taken of
the current (a) value and compared to snapshots taken of the (a) value on all
prior contract anniversaries, AFTER all of the (a) values have been adjusted to
reflect subsequent payments and decreased proportionately for subsequent
withdrawals. The highest of all of these adjusted (a) values then becomes the
(c) value. This (c) value becomes the floor below which the death benefit will
not drop and is locked-in until the next contract anniversary. The values of (b)
and (c) will be decreased proportionately if withdrawals are taken.
II. If an owner (or an annuitant if the owner is a non-natural person) dies
during the accumulation phase but after the oldest owner's 90th birthday, the
death benefit will be equal to the GREATER of:
(a) the accumulated value increased by any positive market value adjustment; or
(b) the death benefit, as calculated under I, that would have been payable on
the contract anniversary immediately prior to the oldest owner's 90th
birthday, increased for subsequent payments and decreased proportionately
for subsequent withdrawals.
FREE LOOK PERIOD: If you cancel your contract within 10 days after receiving
it (or whatever period is required by your state), we will provide you with a
refund in accordance with the terms of the contract's "Right to Examine
Contract" provision.
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. There is no charge for this
service.
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.
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11. INQUIRIES
If you need more information you may contact us at 1-800-366-1492 or send
correspondence to:
Allmerica Select
Allmerica Financial
P.O. Box 8179
Boston, Massachusetts 02266-8179
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ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY, WORCESTER, MA
FIRST ALLMERICA LIFE INSURANCE COMPANY, WORCESTER, MA
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
(for contracts issued in the District of Columbia, Puerto Rico, the Virgin
Islands and any state except Hawaii and New York) or by First Allmerica
Financial Life Insurance Company (for contracts issued in Hawaii and New York)
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 while
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)." Unless otherwise specified, any
reference to the "Company" in this Prospectus shall refer exclusively to
Allmerica Financial Life Insurance and Annuity Company for contracts issued in
the District of Columbia, Puerto Rico, the Virgin Islands and any state except
Hawaii and New York, and exclusively to First Allmerica Financial Life Insurance
Company for contracts issued in Hawaii and New York. 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:
<TABLE>
<CAPTION>
Fund Investment Adviser
- ---------------------------------- ----------------------------------------
<S> <C>
SELECT EMERGING MARKETS FUND SCHRODER CAPITAL MANAGEMENT
INTERNATIONAL INC.
SELECT INTERNATIONAL EQUITY FUND BANK OF IRELAND ASSET MANAGEMENT (U.S.)
LIMITED
T. ROWE PRICE INTERNATIONAL STOCK ROWE PRICE-FLEMING INTERNATIONAL, INC.
PORTFOLIO
SELECT AGGRESSIVE GROWTH FUND NICHOLAS-APPLEGATE CAPITAL MANAGEMENT,
L.P.
SELECT CAPITAL APPRECIATION FUND T. ROWE PRICE ASSOCIATES, INC.
SELECT VALUE OPPORTUNITY FUND CRAMER ROSENTHAL MCGLYNN, LLC
SELECT GROWTH FUND PUTNAM INVESTMENT MANAGEMENT, INC.
SELECT STRATEGIC GROWTH FUND CAMBIAR INVESTORS, INC.
FIDELITY VIP GROWTH PORTFOLIO FIDELITY MANAGEMENT & RESEARCH COMPANY
SELECT GROWTH AND INCOME FUND JOHN A. LEVIN & CO., INC.
FIDELITY VIP EQUITY-INCOME FIDELITY MANAGEMENT & RESEARCH COMPANY
PORTFOLIO
FIDELITY VIP HIGH INCOME PORTFOLIO FIDELITY MANAGEMENT & RESEARCH COMPANY
SELECT INCOME FUND STANDISH, AYER & WOOD, INC.
MONEY MARKET FUND ALLMERICA ASSET MANAGEMENT, INC.
</TABLE>
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 Company's 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.
The Company offers other variable annuity contracts which also invest in many of
the same Funds. These contracts may have different charges that could affect
contract performance, and may offer different benefits more suitable to your
needs. To obtain information about these contracts, contact your financial
representative.
This Prospectus sets forth the information that a prospective investor ought to
know before investing. Additional information is contained in a Statement of
Additional Information dated , 1998, 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., Telephone 1-800-366-1492. In addition, the SEC
maintains a website, www.sec.gov., that contains the SAI as well as material
incorporated by reference related to this Prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
DATED , 1998
<PAGE>
THE CONTRACTS ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY (FOR CONTRACTS ISSUED IN THE DISTRICT OF COLUMBIA, PUERTO RICO, THE
VIRGIN ISLANDS AND ANY STATE EXCEPT HAWAII AND NEW YORK) OR FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY (FOR CONTRACTS ISSUED IN HAWAII AND NEW YORK),
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.
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.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS................................... 4
SPECIAL TERMS........................................................................... 5
SUMMARY................................................................................. 7
ANNUAL AND TRANSACTION EXPENSES......................................................... 13
CONDENSED FINANCIAL INFORMATION......................................................... 16
PERFORMANCE INFORMATION................................................................. 19
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNT, THE TRUST, FIDELITY VIP AND T. ROWE
PRICE.................................................................................. 22
INVESTMENT OBJECTIVES AND POLICIES...................................................... 24
INVESTMENT ADVISORY SERVICES............................................................ 26
DESCRIPTION OF THE CONTRACT............................................................. 28
A. Payments......................................................................... 28
B. Right to Cancel Individual Retirement Annuity.................................... 29
C. Right to Cancel All Other Contracts.............................................. 29
D. Transfer Privilege............................................................... 29
Automatic Transfers and Automatic Account Rebalancing Options................... 30
E. Surrender........................................................................ 31
F. Withdrawals...................................................................... 32
Systematic Withdrawals.......................................................... 32
Life Expectancy Distributions................................................... 32
G. Death Benefit.................................................................... 33
Death of an Owner Prior to the Annuity Date..................................... 33
Optional Enhanced Death Benefit Rider........................................... 33
Payment of the Death Benefit.................................................... 34
H. The Spouse of the Owner as Beneficiary........................................... 34
I. Assignment....................................................................... 35
J. Electing the Form of Annuity and the Annuity Date................................ 35
K. Description of Variable Annuity Payout Options................................... 36
L. Annuity Benefit Payments......................................................... 37
The Annuity Unit................................................................ 37
Determination of the First and Subsequent Annuity Benefit Payments.............. 37
M. NORRIS Decision................................................................... 38
N. Computation of Values............................................................ 38
The Accumulation Unit........................................................... 38
Net Investment Factor........................................................... 39
CHARGES AND DEDUCTIONS.................................................................. 39
A. Variable Account Deductions...................................................... 39
Mortality and Expense Risk Charge............................................... 39
Administrative Expense Charge................................................... 40
Other Charges................................................................... 40
B. Contract Fee..................................................................... 40
C. Optional Enhanced Death Benefit Rider Charge..................................... 40
D. Premium Taxes.................................................................... 41
E. Transfer Charge.................................................................. 41
GUARANTEE PERIOD ACCOUNTS............................................................... 41
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
FEDERAL TAX CONSIDERATIONS.............................................................. 43
A. Qualified and Non-Qualified Contracts............................................ 44
B. Taxation of the Contracts in General............................................. 44
Withdrawals Prior to Annuitization.............................................. 44
Annuity Payouts After Annuitization............................................. 45
Penalty on Distribution......................................................... 45
Assignments or Transfers........................................................ 45
Non-Natural Owners.............................................................. 45
Deferred Compensation Plans of State and Local Government and Tax-Exempt
Organizations................................................................... 45
C. Tax Withholding.................................................................. 46
D. Provisions Applicable to Qualified Employer Plans................................ 46
Corporate and Self-Employed Pension and Profit Sharing Plans.................... 46
Individual Retirement Annuities................................................. 46
Tax-Sheltered Annuities......................................................... 47
Texas Optional Retirement Program............................................... 47
REPORTS................................................................................. 47
LOANS (QUALIFIED CONTRACTS ONLY)........................................................ 47
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS....................................... 47
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................... 48
VOTING RIGHTS........................................................................... 48
DISTRIBUTION............................................................................ 49
SERVICES................................................................................ 49
LEGAL MATTERS........................................................................... 49
YEAR 2000 COMPLIANCE.................................................................... 50
FURTHER INFORMATION..................................................................... 51
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.................................. A-1
APPENDIX B -- THE MARKET VALUE ADJUSTMENT............................................... B-1
APPENDIX C -- THE DEATH BENEFIT......................................................... C-1
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
PERFORMANCE INFORMATION................................................................. 6
FINANCIAL STATEMENTS.................................................................... F-1
</TABLE>
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 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 continuation of life
annuity benefit payments involving life contingency depend. Joint Annuitants are
permitted and, unless otherwise indicated, any reference to Annuitant shall
include Joint Annuitants.
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 PAYOUT: 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 to a Guarantee Period Account.
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 to earnings in the
Guarantee Period Account 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
an Annuitant and, unless otherwise indicated, any reference to Owner shall
include Joint Owners.
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. ("T. Rowe Price").
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any Contract fee and Market Value Adjustment.
UNDERLYING FUNDS (OR FUNDS): Select Emerging Markets Fund and Select
International Equity Fund of Allmerica Investment Trust, T. Rowe Price
International Stock Portfolio of T. Rowe Price International
5
<PAGE>
Series, Inc., Select Aggressive Growth Fund, Select Capital Appreciation Fund,
Select Value Opportunity Fund, Select Growth Fund and Select Strategic Growth
Fund of Allmerica Investment Trust, Fidelity VIP Growth Portfolio of Variable
Insurance Products Fund, Select Growth and Income Fund of Allmerica Investment
Trust, Fidelity VIP Equity-Income Portfolio and Fidelity VIP High Income
Portfolio of Variable Insurance Products Fund, 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 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 PAYOUT: 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 CHARTER VARIABLE ANNUITY?
The Allmerica Select Charter 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;
- income that can be guaranteed for life;
- issue age up to the 90th birthday of the oldest person among the Owner(s)
and the Annuitant(s).
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 your
death. See discussion below "WHAT HAPPENS UPON DEATH DURING THE ACCUMULATION
PHASE?"
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, you, or the payee you designate, 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
payout phase are:
- periodic payments for the Annuitant's lifetime;
- periodic payments for the Annuitant's life and the life of another person
selected by you;
- periodic payments for the Annuitant's lifetime with guaranteed payments
continuing for 10 years in the event that the Annuitant dies 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 (for contracts issued in the District of Columbia,
Puerto Rico, the Virgin Islands and any state except Hawaii and New York) or
First Allmerica Financial Life Insurance Company (for contracts issued in Hawaii
and New York). Unless otherwise specified, any reference to the "Company" in
this Prospectus shall refer exclusively to Allmerica Financial Life Insurance
and Annuity Company for contracts issued in the District of Columbia, Puerto
Rico, the Virgin Islands and any state except Hawaii and New York and to First
7
<PAGE>
Allmerica Financial Life Insurance Company for contracts issued in Hawaii and
New York. Each Contract has an Owner (or an Owner and a Joint Owner, in which
case one of the two must be an Annuitant), an Annuitant (or an Annuitant and a
Joint Annuitant) and one or more beneficiaries. As Owner, you make payments,
choose investment allocations, receive annuity benefit payments (or designate
someone else to receive annuity benefit payments) and select the Annuitant and
beneficiary. When a Contract is owned jointly, the consent of both Owners is
required in order to exercise any ownership rights. The Annuitant is the
individual upon whose continuation of life annuity benefit payments involving
life contingency depend. An Annuitant may be changed at any time after issue of
the Contract and prior to the Annuity Date, unless (1) the Owner is a non-
natural person or (2) you are taking life expectancy distributions. For more
information about life expectancy distributions, see "F. Withdrawals." At all
times there must be at least one Annuitant. If an Annuitant dies and a
replacement is not named, you will become the new Annuitant. The beneficiary is
the person, persons or entity entitled to the death benefit prior to the Annuity
Date and who, under certain circumstances, may be entitled to annuity benefit
payments upon the death of an Owner on or after the Annuity Date.
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, subject only to a
$25,000 minimum for your initial payment and a $100 minimum for any additional
payments. In addition, a minimum of $1,000 is always required to establish a
Guarantee Period Account.
WHAT ARE MY INVESTMENT CHOICES?
The Contract currently permits net payments to be allocated among the
Sub-Accounts investing in the Funds, the Guarantee Period Accounts, and the
Fixed Account.
THE SUB-ACCOUNTS INVEST IN THE FOLLOWING FOURTEEN FUNDS:
- Select Emerging Markets Fund
Managed by Schroder Capital Management International Inc.
- Select International Equity Fund
Managed by Bank of Ireland Asset Management (U.S.) Limited
- T. Rowe Price International Stock Portfolio
Managed by Rowe Price-Fleming International, Inc.
- Select Aggressive Growth Fund
Managed by Nicholas-Applegate Capital Management, L.P.
- Select Capital Appreciation Fund
Managed by T. Rowe Price Associates, Inc.
- Select Value Opportunity Fund
Managed by Cramer Rosenthal McGlynn, LLC
- Select Growth Fund
Managed by Putnam Investment Management, Inc.
- Select Strategic Growth Fund
Managed by Cambiar Investors, Inc.
- Fidelity VIP Growth Portfolio
Managed by Fidelity Management & Research Company
8
<PAGE>
- 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.
CERTAIN FUNDS MAY NOT BE AVAILABLE IN ALL STATES.
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; however, this adjustment will never be applied against your
principal. In addition, earnings in the GPA after application of the Market
Value Adjustment will not be less than an effective annual rate of 3%. For more
information about the Guarantee Period Accounts and the Market Value Adjustment,
see "GUARANTEE PERIOD ACCOUNTS."
THE GUARANTEE PERIOD ACCOUNTS MAY NOT BE AVAILABLE IN ALL STATES.
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. The initial rate in effect
on the date an amount is allocated to the Fixed Account will be guaranteed for
one year from that date. For more information about the Fixed Account, see
APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
WHO ARE THE INVESTMENT ADVISERS OF THE FUNDS AND HOW ARE THEY SELECTED?
BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a pension consulting firm,
assists the Company in the selection of the Contract's Funds. In addition, BARRA
RogersCasey assists the Trust in the selection of investment advisers for the
Funds of the Trust. BARRA RogersCasey provides consulting services to pension
plans representing hundreds of billions of dollars in total assets and, in its
consulting capacity, monitors the investment performance of over 1000 investment
advisers. BARRA RogersCasey is wholly-controlled by BARRA, Inc. As a consultant,
BARRA RogersCasey has no discretionary or decision-making authority with respect
to the Funds, and has no responsibility for any investment advice or other
services provided to the Funds by Allmerica Financial Investment Management
Services, Inc. ("Manager") or the investment advisers.
9
<PAGE>
The Manager, an affiliate of the Company, is the investment manager of the
Trust. The Manager has entered into agreements with investment advisers
("Sub-Advisers") selected by the Manager and the Trustees in consultation with
BARRA RogersCasey. Each Sub-Adviser is selected by using strict objective,
quantitative, and qualitative criteria, with special emphasis on the
Sub-Adviser's record in managing similar portfolios. In consultation with BARRA
RogersCasey, a committee monitors and evaluates the ongoing performance of all
of the Funds. The committee may recommend the replacement of a Sub-Adviser of
one of the Funds of the Trust, or the addition or deletion of any other Funds.
The committee includes members who may be affiliated or unaffiliated with the
Company and the Trust. The Sub-Advisers (other than Allmerica Asset Management,
Inc.) are not affiliated with the Company or the Trust.
Fidelity Management & Research Company ("FMR") is the investment adviser of
Fidelity VIP. FMR is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire Street,
Boston MA. It is composed of a number of different companies, which provide a
variety of financial services and products. 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
adviser of T. Rowe Price. Price-Fleming, founded in 1979 as a joint venture
between T. Rowe Price Associates, Inc. and Roger Fleming Holdings, Limited, is
one of America's largest international mutual fund asset managers with
approximately $30 billion under management in its offices in Baltimore, London,
Tokyo, Hong Kong, Singapore and Buenos Aires.
The following are the investment advisers of the Funds:
<TABLE>
<CAPTION>
Fund Investment Adviser
- -----------------------------------------------------------------------------------------
<S> <C>
SELECT EMERGING MARKETS FUND SCHRODER CAPITAL MANAGEMENT INTERNATIONAL INC.
SELECT INTERNATIONAL EQUITY FUND BANK OF IRELAND ASSET MANAGEMENT (U.S.) LIMITED
T. ROWE PRICE INTERNATIONAL STOCK ROWE PRICE-FLEMING INTERNATIONAL, INC.
PORTFOLIO
SELECT AGGRESSIVE GROWTH FUND NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, L.P.
SELECT CAPITAL APPRECIATION FUND T. ROWE PRICE ASSOCIATES, INC.
SELECT VALUE OPPORTUNITY FUND CRAMER ROSENTHAL MCGLYNN, LLC
SELECT GROWTH FUND PUTNAM INVESTMENT MANAGEMENT, INC.
SELECT STRATEGIC GROWTH FUND CAMBIAR INVESTORS, INC.
FIDELITY VIP GROWTH PORTFOLIO FIDELITY MANAGEMENT & RESEARCH COMPANY
SELECT GROWTH AND INCOME FUND JOHN A. LEVIN & CO., INC.
FIDELITY VIP EQUITY-INCOME PORTFOLIO FIDELITY MANAGEMENT & RESEARCH COMPANY
FIDELITY VIP HIGH INCOME PORTFOLIO FIDELITY MANAGEMENT & RESEARCH COMPANY
SELECT INCOME FUND STANDISH, AYER & WOOD, INC.
MONEY MARKET FUND ALLMERICA ASSET MANAGEMENT, INC.
</TABLE>
CAN I MAKE TRANSFERS AMONG THE SUB-ACCOUNTS?
Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts
investing in 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. As of
the date of this Prospectus, transfers may be made to all of the current
Sub-Accounts during the life of the Contract and prior to the Annuity Date.
However, should additional Funds be added to the Contract, the Company reserves
the right to limit the number of Sub-Accounts to which transfers may be made.
10
<PAGE>
WHAT IF I NEED MY MONEY BEFORE THE ANNUITY PAYOUT PHASE BEGINS?
You may surrender your Contract or make withdrawals any time before the annuity
payout phase begins. A 10% tax penalty may apply on all amounts deemed to be
earnings if you are under age 59 1/2. (A Market Value Adjustment may apply to
any withdrawal made from a Guarantee Period Account prior to the expiration of
the Guarantee Period.)
WHAT HAPPENS UPON DEATH DURING THE ACCUMULATION PHASE?
If you, a Joint Owner or (in the event that the Owner is a non-natural person)
an Annuitant should die prior to the Annuity Date, a death benefit will be paid
to the beneficiary.
The standard death benefit will be equal to the GREATER of:
- The Accumulated Value increased by any positive Market Value Adjustment;
or
- Gross payments, decreased 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).
An optional Enhanced Death Benefit Rider is available for a separate monthly
charge. See "G. Death Benefit" under "DESCRIPTION OF THE CONTRACT." Under the
Enhanced Death Benefit Rider:
I. If an Owner (or an Annuitant if the Owner is a non-natural person) dies prior
to the Annuity Date and before the oldest Owner's 90th birthday, the death
benefit will be equal to the GREATEST of:
(a) the Accumulated Value increased by any positive Market Value Adjustment (the
"Accumulated Value"); or
(b) gross payments compounded daily at an annual rate of 5%, starting on the
date each payment is applied, decreased proportionately to reflect
withdrawals (5% compounding not available in Hawaii and New York); or
(c) the highest Accumulated Value of all Contract anniversaries, as determined
after the Accumulated Value of each contract anniversary is increased for
subsequent payments and decreased proportionately for subsequent
withdrawals.
The (c) value is determined on each Contract anniversary. A snapshot is taken of
the current (a) value and compared to snapshots taken of the (a) value on all
prior Contract anniversaries, AFTER all of the (a) values have been adjusted to
reflect subsequent payments and decreased proportionately for subsequent
withdrawals. The highest of all of these adjusted (a) values then becomes the
(c) value. This (c) value becomes the floor below which the death benefit will
not drop and is locked-in until the next Contract anniversary. The values of (b)
and (c) will be decreased proportionately if withdrawals are taken.
II. If an Owner (or an Annuitant if the Owner is a non-natural person) dies
prior to the Annuity Date but after the oldest Owner's 90th birthday, the death
benefit will be equal to the GREATER of:
(a) the Accumulated Value increased by any positive Market Value Adjustment; or
(b) the death benefit, as calculated under I, that would have been payable on
the Contract anniversary immediately prior to the oldest Owner's 90th
birthday, increased for subsequent payments and decreased proportionately
for subsequent withdrawals.
11
<PAGE>
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
If the Accumulated Value is less than $75,000 on each Contract anniversary and
upon surrender, a $35 Contract fee will be deducted from your Contract. (This
fee may vary by state. See your Contract for more information.)
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 a daily
Administrative Expense Charge Equal to an annual rate of 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 Underlying Funds, which
accompany this Prospectus.
An optional rider (Enhanced Death Benefit Rider) is available for an additional
charge equal to an annual rate of 0.25% which is deducted on the last day of
each month and on the date the rider is terminated. For more information, see
"G. Death Benefit" under "DESCRIPTION OF THE CONTRACT" and see "CHARGES AND
DEDUCTIONS."
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 been deducted.) However, if
state law requires, or if the Contract was issued as an Individual Retirement
Annuity (IRA) you will generally receive a refund of your entire payment. In
certain states this refund may be the greater of (1) your entire payment or (2)
the amounts allocated to the Fixed and the Guarantee Period Accounts plus the
Accumulated Value of amounts in the Sub-Accounts, plus any fees or charges
previously deducted. See "B. Right to Cancel Individual Retirement Annuity" and
"C. Right to Cancel All Other Contracts."
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 an Annuitant at any time after Contract issue and prior to
the Annuity Date, unless the Owner is a non-natural person and except
while taking life expectancy distributions.
- You may change the beneficiary, unless you have designated a beneficiary
irrevocably.
- You may change your allocation of payments.
- You may make transfers among your accounts prior to the Annuity Date
without any tax consequences.
- You may cancel your Contract within ten days of delivery (or longer if
required by state law).
12
<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."
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES: CHARGE
- -------------------------------------------------------- ------------
<S> <C> <C>
Sales Charge Imposed on Payments: None
Deferred Sales Charge: None
<CAPTION>
CONTRACT CHARGES:
- --------------------------------------------------------
<S> <C> <C>
TRANSFER CHARGE: None
The Company currently makes no charge for processing
transfers 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: $35 *
The fee is deducted annually and upon surrender prior to
the Annuity Date when Accumulated Value is less than
$75,000.
<CAPTION>
OPTIONAL RIDER CHARGE:
<S> <C> <C>
(on an annual basis as percentage of Accumulated Value)
Optional Enhanced Death Benefit Rider: 0.25%**
<CAPTION>
SUB-ACCOUNT EXPENSES:
- --------------------------------------------------------
<S> <C> <C>
(on annual basis as percentage of average daily net
assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.15%
-----
Total Asset Charge: 1.40%
</TABLE>
* This fee may vary by state. See your Contract for more information.
** If the rider is elected, this annual charge is deducted on a monthly basis at
the end of each month within which the rider was in effect.
13
<PAGE>
FUND EXPENSES: The following table shows the expenses of the Underlying Funds as
a percentage of average net assets for the year ended December 31, 1997.
<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER FUND
(AFTER ANY WAIVERS/ EXPENSES (AFTER ANY TOTAL FUND
FUND REIMBURSEMENTS) APPLICABLE REIMBURSEMENTS) EXPENSES
<S> <C> <C> <C>
Select Emerging Markets Fund@...................... 1.35% 0.65% 2.00%(1)
Select International Equity Fund................... 0.92%* 0.20% 1.12%(1)(3)
T. Rowe Price International Stock Portfolio........ 1.05% 0.00% 1.05%
Select Aggressive Growth Fund...................... 0.89%* 0.09% 0.98%(1)(3)
Select Capital Appreciation Fund................... 0.95%* 0.15% 1.10%(1)
Select Value Opportunity Fund...................... 0.90%** 0.14% 1.04%(1)(3)
Select Growth Fund................................. 0.85% 0.08% 0.93%(1)(3)
Select Strategic Growth Fund@...................... 0.85% 0.13% 0.98%(1)
Fidelity VIP Growth Portfolio...................... 0.60% 0.09% 0.69%(2)
Select Growth and Income Fund...................... 0.70%* 0.07% 0.77%(1)(3)
Fidelity VIP Equity-Income Portfolio............... 0.50% 0.08% 0.58%(2)
Fidelity VIP High Income Portfolio................. 0.59% 0.12% 0.71%
Select Income Fund................................. 0.58%* 0.13% 0.71%(1)
Money Market Fund.................................. 0.27% 0.08% 0.35%(1)
</TABLE>
@ These Portfolios commenced operations in February 1998. Expenses shown are
annualized and are based on estimated amounts for the current fiscal year.
Actual expenses may be greater or less than shown.
* Effective September 1, 1997, the management fee rates for these funds were
revised. The management fees ratios shown in the table above have been adjusted
to assume that the revised rates took effect on January 1, 1997.
** The Select Value Opportunity Fund was formerly known as the "Small-Mid Cap
Value Fund." Effective April 1, 1997, the management fee rate of the former
Small-Mid Cap Value Fund was revised. In addition, effective April 1, 1997 and
until further notice, the management fee for this fund has been voluntarily
limited to an annual rate of 0.90% of average daily net assets. The management
fee ratio shown above for the Select Value Opportunity Fund has been adjusted to
assume that the revised rate and the voluntary limitation took effect on January
1, 1997. Had the voluntary limitation of 0.90% not been effective on January 1,
1997 and had the management fee rate revision discussed above been effective on
January 1, 1997, the management fee ratio and the total fund expense ratio would
have been 0.95% and 1.09%, respectively.
(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. ("Manager"), under the Management Agreement with Allmerica Investment
Trust, has declared a voluntary expense limitation of 1.50% of average net
assets for Select International Equity Fund, 1.35% for Select Aggressive Growth
Fund and Select Capital Appreciation Fund, 1.25% for Select Value Opportunity
Fund, 1.20% for Select Strategic Growth and Select Growth Fund, 1.10% for Select
Growth and Income Fund, 1.00% for Select Income Fund and 0.60% for Money Market
Fund. In addition, the Manager has agreed to waive voluntarily its management
fee to the extent that expenses of the Select Emerging Markets Fund exceed 2.00%
of the Fund's average daily assets, except that such waiver shall not exceed the
net amount of management fees earned by the Manager from the fund after
subtracting fees paid by the Manager to Schroder Capital Management
International Inc. for sub-advisory fees. The total operating expenses of the
funds of the Trust were less than their respective expense limitations
throughout 1997. The declaration of a voluntary expense limitation in any year
does not bind the Manager 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. In addition, certain funds entered into arrangements with their
custodian and transfer agent whereby credits realized as a result of uninvested
cash balances were used to reduce custodian and transfer agent expenses.
Including these reductions, total operating expenses would have been 0.57% for
the Fidelity VIP Equity-Income Portfolio and 0.67% 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 1.10% for Select
International Equity Fund, 0.91% for Select Growth Fund, 0.74% for Select Growth
and Income Fund, 0.93% for Select Aggressive Growth, and 0.98% for Select Value
Opportunity Fund.
14
<PAGE>
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 with and without
the optional Enhanced Death Benefit Rider. 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").
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
(1) At the end of the applicable time period, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and no
optional Enhanced Death Benefit Rider:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund................................................. $ 34 $ 105 $ 177 $ 369
Select International Equity Fund............................................. $ 26 $ 79 $ 134 $ 286
T. Rowe Price International Stock Portfolio.................................. $ 25 $ 77 $ 131 $ 279
Select Aggressive Growth Fund................................................ $ 24 $ 74 $ 127 $ 272
Select Capital Appreciation Fund............................................. $ 25 $ 78 $ 133 $ 284
Select Value Opportunity Fund................................................ $ 25 $ 76 $ 130 $ 278
Select Growth Fund........................................................... $ 24 $ 73 $ 125 $ 267
Select Strategic Growth Fund................................................. $ 24 $ 74 $ 127 $ 272
Fidelity VIP Growth Portfolio................................................ $ 21 $ 66 $ 113 $ 243
Select Growth and Income Fund................................................ $ 22 $ 68 $ 117 $ 251
Fidelity VIP Equity-Income Portfolio......................................... $ 20 $ 62 $ 107 $ 231
Fidelity VIP High Income Portfolio........................................... $ 22 $ 66 $ 114 $ 245
Select Income Fund........................................................... $ 22 $ 66 $ 114 $ 245
Money Market Fund............................................................ $ 18 $ 55 $ 95 $ 207
</TABLE>
(2) At the end of the applicable time period, you would pay the following
expenses on a $1000 investment, assuming a 5% annual return on assets and an
optional Enhanced Death Benefit Rider:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund................................................. $37 $112 $189 $392
Select International Equity Fund............................................. $28 $86 $147 $310
T. Rowe Price International Stock Portfolio.................................. $27 $84 $143 $304
Select Aggressive Growth Fund................................................ $27 $82 $140 $297
Select Capital Appreciation Fund............................................. $28 $86 $146 $308
Select Value Opportunity Fund................................................ $27 $84 $143 $303
Select Growth Fund........................................................... $26 $80 $137 $292
Select Strategic Growth Fund................................................. $27 $82 $140 $297
Fidelity VIP Growth Portfolio................................................ $24 $73 $125 $268
Select Growth and Income Fund................................................ $25 $76 $129 $276
Fidelity VIP Equity-Income Portfolio......................................... $23 $70 $120 $257
Fidelity VIP High Income Portfolio........................................... $24 $74 $126 $270
Select Income Fund........................................................... $24 $74 $126 $270
Money Market Fund............................................................ $20 $63 $108 $233
</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 0.04%, and the amount of the Contract fee is assumed to
be $0.40 in the examples. The Contract fee is not deducted after annuitization.
15
<PAGE>
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECT INTERNATIONAL EQUITY
Unit Value:
Beginning of Period............................... 1.357 1.128 0.956 1.000 N/A N/A
End of Period..................................... 1.400 1.357 1.128 0.956 N/A N/A
Units Outstanding at End of Period
(in thousands)..................................... 93,170 60,304 35,558 22,183 N/A N/A
T. ROWE PRICE INTERNATIONAL STOCK
Unit Value:
Beginning of Period............................... 1.203 1.065 1.000 N/A N/A N/A
End of Period..................................... 1.223 1.203 1.065 N/A N/A N/A
Units Outstanding at End of Period
(in thousands)..................................... 33,977 16,510 4,066 N/A N/A N/A
SELECT AGGRESSIVE GROWTH
Unit Value:
Beginning of Period............................... 2.066 1.768 1.354 1.405 1.192 1.192
End of Period..................................... 2.419 2.066 1.768 1.354 1.405 1.192
Units Outstanding at End of Period
(in thousands)..................................... 81,233 64,262 51,006 36,330 17,538 5,123
SELECT CAPITAL APPRECIATION
Unit Value:
Beginning of Period............................... 1.484 1.383 1.000 N/A N/A N/A
End of Period..................................... 1.672 1.484 1.383 N/A N/A N/A
Units Outstanding at End of Period
(in thousands)..................................... 43,733 24,257 5,424 N/A N/A N/A
SELECT GROWTH
Unit Value
Beginning of Period............................... 1.582 1.315 1.069 1.101 1.104 1.000
End of Period..................................... 2.091 1.582 1.315 1.069 1.101 1.104
Units Outstanding at End of Period
(in thousands)..................................... 98,533 68,193 53,073 38,752 20,366 5,246
FIDELITY VIP GROWTH
Unit Value:
Beginning of Period............................... 1.397 1.235 1.000 N/A N/A N/A
End of Period..................................... 1.701 1.397 1.235 N/A N/A N/A
Units Outstanding at End of Period
(in thousands)..................................... 45,772 24,745 6,677 N/A N/A N/A
SELECT GROWTH AND INCOME
Unit Value:
Beginning of Period............................... 1.652 1.382 1.074 1.082 0.994 1.000
End of Period..................................... 1.996 1.652 1.382 1.074 1.082 0.994
Units Outstanding at End of Period
(in thousands)..................................... 106,800 77,919 61,942 43,292 20,983 22,339
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FIDELITY VIP EQUITY-INCOME
Unit Value:
Beginning of Period............................... 1.342 1.191 1.000 N/A N/A N/A
End of Period..................................... 1.696 1.342 1.191 N/A N/A N/A
Units Outstanding at End of Period
(in thousands)..................................... 65,130 31,681 9,213 N/A N/A N/A
FIDELITY VIP HIGH INCOME
Unit Value:
Beginning of Period............................... 1.233 1.096 1.000 N/A N/A N/A
End of Period..................................... 1.430 1.233 1.096 N/A N/A N/A
Units Outstanding at End of Period
(in thousands)..................................... 50,470 23,051 6,714 N/A N/A N/A
SELECT INCOME
Unit Value:
Beginning of Period............................... 1.208 1.186 1.028 1.095 1.001 1.000
End of Period..................................... 1.301 1.208 1.186 1.028 1.095 1.001
Units Outstanding at End of Period
(in thousands)..................................... 72,394 58,751 46,845 32,823 18,320 5,372
MONEY MARKET
Unit Value:
Beginning of Period............................... 1.133 1.091 1.045 1.019 1.003 1.000
End of Period..................................... 1.179 1.133 1.091 1.045 1.019 1.003
Units Outstanding at End of Period
(in thousands)..................................... 65,441 60,691 45,589 31,836 19,802 1,447
</TABLE>
No information is shown for Sub-Accounts that commenced operations after
December 31, 1997.
17
<PAGE>
CONDENSED FINANCIAL INFORMATION
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
1997 1996 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SELECT INTERNATIONAL EQUITY
Unit Value:
Beginning of Period................................................... 1.356 1.128 0.956 1.000
End of Period......................................................... 1.400 1.356 1.128 0.956
Units Outstanding at End of Period (in thousands)....................... 5,132 3,481 1,900 695
T. ROWE PRICE INTERNATIONAL STOCK
Unit Value:
Beginning of Period................................................... 1.203 1.065 1.000 N/A
End of Period......................................................... 1.223 1.203 1.065 N/A
Units Outstanding at End of Period (in thousands)....................... 1,693 1,170 265 N/A
SELECT AGGRESSIVE GROWTH
Unit Value:
Beginning of Period................................................... 1.526 1.305 1.044 1.000
End of Period......................................................... 1.786 1.526 1.305 1.044
Units Outstanding at End of Period (in thousands)....................... 5,305 4,013 2,393 756
SELECT CAPITAL APPRECIATION
Unit Value:
Beginning of Period................................................... 1.484 1.383 1.000 N/A
End of Period......................................................... 1.672 1.484 1.383 N/A
Units Outstanding at End of Period (in thousands)....................... 1,914 1,366 391 N/A
SELECT GROWTH
Unit Value
Beginning of Period................................................... 1.527 1.269 1.032 1.000
End of Period......................................................... 2.019 1.527 1.269 1.032
Units Outstanding at End of Period (in thousands)....................... 5,168 3,534 2,177 756
FIDELITY VIP GROWTH
Unit Value:
Beginning of Period................................................... 1.397 1.235 1.000 N/A
End of Period......................................................... 1.701 1.397 1.235 N/A
Units Outstanding at End of Period (in thousands)....................... 2,198 1,326 262 N/A
SELECT GROWTH AND INCOME
Unit Value:
Beginning of Period................................................... 1.584 1.324 1.030 1.000
End of Period......................................................... 1.913 1.584 1.324 1.030
Units Outstanding at End of Period (in thousands)....................... 7,897 5,670 3,673 1,724
FIDELITY VIP EQUITY-INCOME
Unit Value:
Beginning of Period................................................... 1.342 1.191 1.000 N/A
End of Period......................................................... 1.696 1.342 1.191 N/A
Units Outstanding at End of Period (in thousands)....................... 3,421 1,802 429 N/A
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FIDELITY VIP HIGH INCOME
Unit Value:
Beginning of Period................................................... 1.233 1.096 1.000 N/A
End of Period......................................................... 1.430 1.233 1.096 N/A
Units Outstanding at End of Period (in thousands)....................... 2,753 1,298 273 N/A
SELECT INCOME
Unit Value:
Beginning of Period................................................... 1.168 1.146 0.993 1.000
End of Period......................................................... 1.257 1.168 1.146 0.993
Units Outstanding at End of Period (in thousands)....................... 6,061 4,956 4,114 1,916
MONEY MARKET
Unit Value:
Beginning of Period................................................... 1.106 1.065 1.020 1.000
End of Period......................................................... 1.151 1.106 1.065 1.020
Units Outstanding at End of Period (in thousands)....................... 6,157 6,060 4,027 2,085
</TABLE>
No information is shown for Sub-Accounts that commenced operations after
December 31, 1997.
PERFORMANCE INFORMATION
The Contract was first offered to the public in 1999. The Company, however, may
advertise "total return" and "average annual total return" performance
information based on the periods that the Sub-Accounts have been in existence
and the periods that the Underlying Funds have been in existence. Performance
results for all periods shown below are calculated with all charges assumed to
be those applicable to the Sub-Accounts and the Underlying Funds. Both the total
return and yield figures are based on historical earnings and are not intended
to indicate future performance.
The total return of a 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 Variable Account charges, and expressed as a
percentage.
The average annual total return represents the average annual percentage change
in the value of an investment in the Sub-Account over a given period of time. It
represents averaged figures as opposed to the actual performance of a
Sub-Account, which will vary from year to year.
The yield of the Sub-Account investing in the Money Market Fund 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 yield of a Sub-Account investing in a Fund other than the Money Market Fund
refers to the annualized income generated by an investment in the Sub-Account
over a specified 30-day or one-month period. The yield is calculated by assuming
that the income generated by the investment during that 30-day or one-month
period is generated each period over a 12-month period and is shown as a
percentage of the investment.
19
<PAGE>
Quotations of average annual total return as shown in Tables 1A and 1B are
calculated in the manner prescribed by the SEC and show the percentage rate of
return of a hypothetical initial investment of $1,000 for the most recent one,
five and ten year period or for a period covering the time the Sub-Account has
been in existence, if less than the prescribed periods. The calculation is
adjusted to reflect the deduction of the annual Sub-Account asset charge of
1.40%, the annual Contract fee and the Underlying Fund charges. The calculation
is not adjusted to reflect the deduction of the optional Enhanced Death Benefit
Rider charge of 0.25% which, if elected, would reduce performance.
The performance shown in Table 2A is calculated in exactly the same manner as
those in Tables 1A and 1B; however, the period of time is based on the
Underlying Fund's lifetime, which may predate the Sub-Accounts' inception dates.
These performance calculations are based on the assumption that the Sub-Account
corresponding to the applicable Underlying Fund was actually in existence
throughout the stated period and that the contractual charges and expenses
during that period were equal to those currently assessed under the Contract.
For more detailed information about these performance calculations, including
actual formulas, see the Statement of Additional Information.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS 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.
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 separate accounts or other investment
products tracked by Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds and other investment products by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons, 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.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Funds.
20
<PAGE>
TABLE 1A
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND 12/31/97 5 YEARS SUB-ACCOUNT
<S> <C> <C> <C>
Select Emerging Markets Fund......................... N/A N/A N/A
Select International Equity Fund..................... 3.16 % N/A 9.58 %
T. Rowe Price International Stock Portfolio.......... 1.63 % N/A 7.80 %
Select Aggressive Growth Fund........................ 17.03 % 15.15 % 18.06 %
Select Capital Appreciation Fund..................... 12.66 % N/A 21.19 %
Select Value Opportunity Fund........................ N/A N/A N/A
Select Growth Fund................................... 32.18 % 13.58 % 14.87 %
Select Strategic Growth Fund......................... N/A N/A N/A
Fidelity VIP Growth Portfolio........................ 21.74 % N/A 21.97 %
Select Growth and Income Fund........................ 20.79 % 14.92 % 13.87 %
Fidelity VIP Equity-Income Portfolio................. 26.30 % N/A 21.83 %
Fidelity VIP High Income Portfolio................... 16.01 % N/A 14.31 %
Select Income Fund................................... 7.62 % 5.34 % 5.04 %
Money Market Fund.................................... 3.97 % 3.22 % 3.17 %
</TABLE>
TABLE 1B
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND 12/31/97 5 YEARS SUB-ACCOUNT
<S> <C> <C> <C>
Select Emerging Markets Fund......................... N/A N/A N/A
Select International Equity Fund..................... 3.16 % N/A 9.58 %
T. Rowe Price International Stock Portfolio.......... 1.63 % N/A 7.80 %
Select Aggressive Growth Fund........................ 17.03 % N/A 16.96 %
Select Capital Appreciation Fund..................... 12.66 % N/A 21.13 %
Select Value Opportunity Fund........................ N/A N/A N/A
Select Growth Fund................................... 32.18 % N/A 20.90 %
Select Strategic Growth Fund......................... N/A N/A N/A
Fidelity VIP Growth Portfolio........................ 21.74 % N/A 21.99 %
Select Growth and Income Fund........................ 20.79 % N/A 19.14 %
Fidelity VIP Equity-Income Portfolio................. 26.30 % N/A 21.84 %
Fidelity VIP High Income Portfolio................... 16.01 % N/A 14.32 %
Select Income Fund................................... 7.62 % N/A 6.35 %
Money Market Fund.................................... 3.97 % N/A 3.79 %
</TABLE>
21
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
<TABLE>
<CAPTION>
SINCE
FOR YEAR INCEPTION OF
ENDED UNDERLYING
NAME OF UNDERLYING FUND 12/31/97 5 YEARS FUND*
<S> <C> <C> <C>
Select Emerging Markets Fund......................... N/A N/A N/A
Select International Equity Fund..................... 3.16 % N/A 9.54 %
T. Rowe Price International Stock Portfolio.......... 1.63 % N/A 6.51 %
Select Aggressive Growth Fund........................ 17.03 % 15.15 % 17.85 %
Select Capital Appreciation Fund..................... 12.66 % N/A 21.13 %
Select Value Opportunity Fund........................ 24.81 % N/A 16.89 %
Select Growth Fund................................... 32.18 % 13.58 % 14.70 %
Select Strategic Growth Fund......................... N/A N/A N/A
Fidelity VIP Growth Portfolio........................ 21.74 % 16.30 % 15.51 %
Select Growth and Income Fund........................ 20.79 % 14.92 % 13.70 %
Fidelity VIP Equity-Income Portfolio................. 26.30 % 18.43 % 15.04 %
Fidelity VIP High Income Portfolio................... 16.01 % 12.27 % 11.19 %
Select Income Fund................................... 7.62 % 5.34 % 4.98 %
Money Market Fund.................................... 3.97 % 3.22 % 4.27 %
</TABLE>
* The inception dates for the Underlying Funds are 2/20/98 for Select Emerging
Markets Fund; 5/2/94 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; 4/30/93 for Select Value
Opportunity Fund; 8/21/92 for Select Growth Fund; 2/20/98 for Select Strategic
Growth Fund; 10/9/86 for Fidelity VIP Growth Portfolio; 8/21/92 for Select
Growth and Income Fund; 10/9/86 for Fidelity VIP Equity-Income Portfolio;
9/19/85 for Fidelity VIP High Income Portfolio; 8/21/92 for Select Income Fund
and 4/29/85 for Money Market Fund.
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNT,
THE TRUST, FIDELITY VIP, AND T. ROWE PRICE
THE COMPANIES. Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial") 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. Allmerica Financial 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, Allmerica
Financial is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1997, the
Company had over $9.4 billion in assets and over $26.6 billion of life insurance
in force.
Effective October 1, 1995, Allmerica Financial changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
Allmerica Financial is an indirectly wholly owned subsidiary of First Allmerica
Financial Life Insurance Company which, in turn, is a wholly owned subsidiary of
Allmerica Financial Corporation ("AFC").
First Allmerica Financial Life Insurance Company ("First Allmerica") organized
under the laws of Massachusetts in 1844, is the fifth oldest life insurance
company in America. As of December 31, 1997, First Allmerica and its
subsidiaries had over $16.3 billion in combined assets and over $43.8 billion of
life insurance in force. Effective October 16, 1995, First Allmerica converted
from a mutual life insurance company known as State Mutual Life Assurance
Company of America to a stock life insurance company and
22
<PAGE>
adopted its present name. First Allmerica is a wholly owned subsidiary of AFC.
First Allmerica's principal office ("Principal Office") is located at 440
Lincoln Street, Worcester MA 01653, Telephone 508-855-1000.
First Allmerica is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, First Allmerica is subject to the insurance laws
and regulations of other states and jurisdictions in which it is licensed to
operate.
Both companies are charter members of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
ALLMERICA SELECT SEPARATE ACCOUNT. Each Company maintains a separate account
called the Allmerica Select Separate Account (the "Variable Account"). Unless
otherwise specified, any reference to the "Company" in this Prospectus shall
refer exclusively to Allmerica Financial for contracts issued in the District of
Columbia, Puerto Rico, the Virgin Islands and any state except Hawaii and New
York and to First Allmerica for contracts issued in Hawaii and New York.
Obligations under the contracts are obligations of the Company. The Allmerica
Select Separate Account is a separate investment account of the Company with
fourteen 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 and Massachusetts 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 of Allmerica Financial was authorized by vote of the Board
of Directors of the Company on March 5, 1992 and the Variable Account of First
Allmerica was authorized by vote of the Board of Directors of the Company on
August 20, 1991. The Variable Accounts meet the definition of "separate account"
under federal securities laws and are registered with the SEC as unit investment
trusts 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 Accounts 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. Ten investment portfolios of the Trust currently are available under
the Contract, each issuing a series of shares: Select Emerging Markets Fund,
Select International Equity Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Value Opportunity Fund, Select Growth Fund, Select
Strategic 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 Financial Investment Management Services, Inc. ("Manager") serves as
the investment adviser of the Trust and 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."
23
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND. Variable Insurance Products Fund ("Fidelity
VIP"), managed by Fidelity Management & Research, Inc., 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. ("FMR") is one of America's
largest investment management 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. 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. The Portfolios of Fidelity VIP as part of their operating
expenses pay an investment management fee to FMR. See "Investment Advisory
Services to Fidelity 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." One of its affiliates, T. Rowe Price Associates,
Inc., serves as the Sub-Adviser to the Select Capital Appreciation Fund.
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, FIDELITY 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 EMERGING MARKETS FUND -- seeks long-term growth of capital by investing
in the world's emerging markets. The Sub-Adviser for the Select Emerging Markets
Fund is Schroder Capital Management International Inc.
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 (U.S.) Limited.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO -- seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies. The manager of the Portfolio is Rowe Price-Fleming International,
Inc.
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, L.P.
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 T. Rowe Price Associates, Inc.
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<PAGE>
SELECT VALUE OPPORTUNITY FUND -- seeks long-term growth of capital by investing
principally in diversified portfolio of common stocks of small and mid-size
companies whose securities at the time of purchase are considered by the
Sub-Adviser to be undervalued. The Sub-Adviser for the Select Value Opportunity
Fund is Cramer Rosenthal McGlynn, LLC.
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.
SELECT STRATEGIC GROWTH FUND -- seeks long-term growth of capital by investing
primarily in common stocks of established companies. The Sub-Adviser for the
Select Strategic Growth Fund is Cambiar Investors, 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 comprising the S&P 500.
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 the
Fidelity 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.
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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 Financial
Investment Management Services, 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 of the Trust. The Manager also performs 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 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.
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 of the Trust as follows:
<TABLE>
<CAPTION>
FUND NET ASSET VALUE RATE
- --------------------------------------- ---------------------------------------------- ---------
<S> <C> <C>
Select Emerging Markets Fund * 1.35%
Select International Equity Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Aggressive Growth Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Capital Appreciation Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Value Opportunity Fund First $100 million 1.00%
Next $150 million 0.85%
Next $250 million 0.80%
Next $250 million 0.75%
Over $750 million 0.70%
Select Growth Fund First $250 million 0.85%
Next $250 million 0.80%
Next $250 million 0.75%
Over $750 million 0.70%
Select Strategic Growth Fund * 0.85%
Select Growth and Income Fund First $100 million 0.75%
Next $150 million 0.70%
Over $250 million 0.65%
Select Income Fund First $50 million 0.60%
Next $50 million 0.55%
Over $100 million 0.45%
Money Market Fund First $50 million 0.35%
Next $200 million 0.25%
Over $250 million 0.20%
</TABLE>
* For the Select Emerging Markets Fund and Select Strategic Growth Fund, the
rate applicable to the Manager does not vary according to the level of assets in
the Fund.
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<PAGE>
Under the Management Agreement with the Trust, the Manager has entered into
agreements with investment advisers ("Sub-Advisers") selected by the Manager and
Trustees in consultation with BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a
pension consulting firm. The cost of such consultation services is borne by the
Manager. BARRA RogersCasey provides consulting services to pension plans
representing hundreds of billions of dollars in total assets and, in its
consulting capacity, monitors the investment performance of over 1000 investment
advisers. BARRA RogersCasey is wholly-controlled by BARRA, Inc. As a consultant,
BARRA RogersCasey has no discretionary or decision-making authority with respect
to the Funds, and has no responsibility for any investment advice or other
services provided to the Funds by the Manager or the Sub-Advisers.
Each independent Sub-Adviser is selected by using strict objective,
quantitative, and qualitative criteria, with special emphasis on the
Sub-Adviser's record in managing similar portfolios. In consultation with BARRA
RogersCasey, a committee monitors and evaluates the ongoing performance of all
of the Funds. The committee may recommend the replacement of a Sub-Adviser of
one of the Funds of the Trust, or the addition or deletion of any other Funds.
The committee includes members who may be affiliated or unaffiliated with the
Company and the Trust. The Sub-Advisers (other than Allmerica Asset Management,
Inc.) are not affiliated with the Company or the Trust.
Under each Sub-Adviser agreement, the Sub-Adviser is authorized to engage in
portfolio transactions on behalf of the Fund, subject to the Trustees'
instructions. The terms of a Sub-Adviser agreement cannot be materially changed
without the approval of a majority in interest of the shareholders of the Fund.
The prospectus of the Trust contains additional information concerning the
Funds, including information about additional expenses paid by the Funds, and
should be read in conjunction with the Prospectus.
INVESTMENT ADVISORY SERVICES TO FIDELITY VIP. For managing investments and
business affairs, each Portfolio pays a monthly fee to Fidelity Management &
Research, Inc. ("FMR"). 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 FMR 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 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.
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<PAGE>
Thus, the Fidelity VIP High Income Portfolio may have a fee as high as 0.82% of
its average net assets. 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
Rowe Price-Fleming International, Inc. a single, all-inclusive fee of 1.05% of
its average daily net assets.
DESCRIPTION OF THE CONTRACT
Unless otherwise specified, any reference to the "Company" in this Prospectus
shall refer exclusively to Allmerica Financial Life Insurance and Annuity
Company for contracts issued in the District of Columbia, Puerto Rico, the
Virgin Islands and any state except Hawaii and New York and exclusively to First
Allmerica Financial Life Insurance Company for contracts issued in Hawaii and
New York.
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 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 and allocated among the
requested accounts 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 on the basis
of accumulation unit value next determined after receipt.
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
$25,000. Each subsequent payment must be at least $100. The minimum allocation
to a Guarantee Period Account is $1,000. If the Owner requests an allocation of
less than $1,000 to a Guarantee Period Account, the Company reserves the right
to apply that amount to the Money Market Fund of the Trust.
From time to time, where permitted by law, the Company may credit amounts to
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 may also credit amounts to Contracts, where
either the Owner or the Annuitant on the issue date is within the following
class 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; employees of the Company, its affiliates
and subsidiaries; 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.
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<PAGE>
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. As
of the date of this Prospectus, payments to the Contract may be allocated among
all of the current Sub-Accounts during the life of the Contract and prior to the
Annuity Date. However, should additional Funds be added to the Contract, the
Company reserves the right to limit the number of Sub-Accounts among which
payments may be allocated. 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 CANCEL INDIVIDUAL RETIREMENT ANNUITY.
An individual purchasing a Contract intended to qualify as an IRA may cancel the
Contract at any time within ten days after receipt of the Contract and receive a
refund. In order to cancel 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 cancellation to be effective.
Within seven days the Company will provide a refund equal to the gross
payment(s) received. In some states, however, the refund may equal the greater
of (a) gross payments or (b) any amounts allocated to the Fixed and the
Guarantee Period Accounts plus the Accumulated Value of amounts allocated to the
Variable Account plus any amounts deducted under the Contract or by the Funds
for taxes, charges or fees. At the time the Contract is issued, the "Right to
Examine" provision on the cover of the Contract will specifically indicate
whether the refund will be equal to gross payments or equal to the greater of
(a) or (b) as set forth above.
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 CANCEL ALL OTHER CONTRACTS.
An Owner may cancel the Contract at any time within ten days after receipt of
the Contract (or longer if required by state law) and receive a refund.
Generally, 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 or purchased in a state that requires a full refund, the IRA
revocation right described above may be utilized in lieu of the special
surrender right. At the time the Contract is issued, the "Right to Examine"
provision on the cover of the Contract will specifically indicate what the
refund will be and the time period allowed to exercise the right to cancel.
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.
29
<PAGE>
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. Transfers from a Guarantee
Period Account prior to the expiration of the Guarantee Period will be subject
to a Market Value Adjustment.
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. As of the date of this Prospectus, transfers may be made
to all of the current Sub-Accounts during the life of the Contract and prior to
the Annuity Date. However, should additional Funds be added to the Contract, the
Company reserves the right to limit the number of Sub-Accounts to which
transfers may be made.
The Company also reserves the right to restrict transfer privileges when
exercised by a market timing firm or any other third party authorized to
initiate allocations, transfers or exchanges on behalf of multiple Contract
owners, if the execution of such transactions may disadvantage or potentially
impair the Contract rights of other Contract owners. The Company may, among
other things, not accept (1) the transfer or exchange instructions of any agent
acting under a power of attorney on behalf of more than one Contract owner, or
(2) the transfer or exchange instructions of individual Contract owners who have
executed pre-authorized transfer or exchange forms which are submitted by market
timing firms or other third parties on behalf of more than one Contract owner at
the same time.
ASSET ALLOCATION MODEL REALLOCATIONS. If an Owner elects to follow an asset
allocation strategy, the Owner may preauthorize transfers in accordance with the
chosen strategy. The Company may provide administrative or other support
services to independent third parties who provide recommendations as to such
allocation strategies. However, the Company does not engage any third parties to
offer investment allocation services of any type under this Contract, does not
endorse or review any investment allocation recommendations made by such third
parties and is not responsible for the investment allocations and transfers
transacted on the Owner's behalf. The Company does not charge for providing
additional asset allocation support services. Additional information concerning
asset allocation programs for which the Company is currently providing support
services may be obtained from a registered representative or the Company.
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.
To the extent permitted by state law, the Company reserves the right, from time
to time, to credit an enhanced interest rate to certain initial and/or
subsequent payments deposited into the Fixed Account and utilizing the Fixed
Account as the source account from which to process automatic transfers. For
more information see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
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
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<PAGE>
Rebalancing will continue until the Owner's request to terminate or change the
option is received by the Company. As such, subsequent payments allocated in a
manner different from the percentage allocation mix in effect on the date the
payment is received will be reallocated in accordance with the existing mix on
the next scheduled date unless the Owner's timely request to change the mix or
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. The first automatic transfer or rebalancing and all
subsequent transfers or rebalancings of that request in the same Contract year
count as one transfer towards the 12 transfers which are guaranteed to be free
of a transfer charge in each Contract year. There currently is no charge for
either program. 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 less any applicable tax
withholding. 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. The Contract fee will be deducted upon
surrender of the Contract.
After the Annuity Date, only Contracts under which a commutable period certain
annuity option was elected may be surrendered. The Surrender Amount is the
commuted value of any unpaid annuity benefit payments, computed on the basis of
the assumed interest rate incorporated in such annuity benefit payments.
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 Company reserves the right 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."
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. 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 important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
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<PAGE>
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. Amounts withdrawn from a Guarantee Period Account
prior to the end of the applicable Guarantee Period will be subject to a Market
Value Adjustment against the remaining value, 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 "E. 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. 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 the 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. While an
LED is in effect, the Owner must remain the Annuitant.
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
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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. Under contracts issued in Hawaii and New
York, the LED option will terminate automatically on the maximum Annuity Date
permitted under the Contract at which time an Annuity Option must be elected.
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.
Where the Owner is a trust or other non-natural person, the Owner may elect the
LED option based on the Annuitant's life expectancy.
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."
The Company may discontinue or change the LED option at any time, but not with
respect to election of the option made prior to the date of any change in the
LED option.
G. DEATH BENEFIT.
In the event that an Owner or (in the event the Owner is a non-natural person)
an Annuitant dies prior to the Annuity Date, 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."
DEATH OF AN OWNER PRIOR TO THE ANNUITY DATE. Upon the death of an Owner (or of
an Annuitant if the Owner is a non-natural person), a death benefit will be
paid. The standard death benefit will be equal to the GREATER of (a) the
Accumulated Value under the Contract increased by any positive Market Value
Adjustment; or (b) gross payments, decreased 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).
ENHANCED DEATH BENEFIT RIDER. At the time of application for the Contract, the
Owner may elect an optional Enhanced Death Benefit Rider. Under the Enhanced
Death Benefit Rider:
I. If an Owner (or an Annuitant if the Owner is a non-natural person) dies prior
to the Annuity Date and before the oldest Owner's 90th birthday, the death
benefit will be equal to the GREATEST of:
(a) the Accumulated Value increased by any positive Market Value Adjustment (the
"Accumulated Value"); or
(b) gross payments compounded daily at an annual rate of 5%, starting on the
date each payment is applied, decreased proportionately to reflect
withdrawals (5% compounding not available in Hawaii and New York); or
(c) the highest Accumulated Value of all Contract anniversaries, as determined
after the Accumulated Value of each contract anniversary is increased for
subsequent payments and decreased proportionately for subsequent
withdrawals.
The (c) value is determined on each Contract anniversary. A snapshot is taken of
the current (a) value and compared to snapshots taken of the (a) value on all
prior Contract anniversaries, AFTER all of the (a) values have been adjusted to
reflect subsequent payments and decreased proportionately for subsequent
withdrawals. The highest of all of these adjusted (a) values then becomes the
(c) value. This (c) value becomes the floor below
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which the death benefit will not drop and is locked-in until the next Contract
anniversary. The values of (b) and (c) will be decreased proportionately if
withdrawals are taken.
II. If an Owner (or an Annuitant if the Owner is a non-natural person) dies
prior to the Annuity Date but after the oldest Owner's 90th birthday, the death
benefit will be equal to the GREATER of:
(a) the Accumulated Value increased by any positive Market Value Adjustment; or
(b) the death benefit, as calculated under I, that would have been payable on
the Contract anniversary immediately prior to the oldest Owner's 90th
birthday, increased for subsequent payments and decreased proportionately
for subsequent withdrawals.
See APPENDIX C, "THE DEATH BENEFIT" for specific examples of death benefit
calculations.
A separate charge is made for an optional Enhanced Death Benefit Rider. On the
last day of each month and on the date the Rider is terminated, a charge equal
to 1/12th of an annual rate of 0.25% is made against the Accumulated Value of
the Contract at that time. The charge is deducted in arrears through a pro-rata
reduction (based on relative values) of Accumulation Units in the Sub-Accounts,
of dollar amounts in the Fixed Account, and of dollar amounts in the Guarantee
Period Accounts.
PAYMENT OF THE DEATH BENEFIT. 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 transferred to the Sub-Account investing in 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.
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.
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. The spouse will then become the Owner and Annuitant subject to the
following: (1) any value in the Guarantee Period Accounts will be transferred to
the Sub-Account investing in 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 Sub-Account investing in the Money Market Fund. Additional payments may be
made. 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.
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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 prior to
the death of an Owner (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 by state law,
the Annuity Date may be the first day of any month (1) before the Owner's 85th
birthday, if the Owner's age on the issue date of the Contract is 75 or under;
or (2) within ten years from the issue date of the Contract and before the
Owner's 90th birthday, if the Owner'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 Annuity Date. To the extent
permitted by state law, the new Annuity Date must be the first day of any month
occurring before the Owner's 99th birthday. If there are Joint Owners, the age
of the younger will determine the Annuity Date. 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 benefit payment option is selected, Accumulated
Value will be transferred to the Fixed Account of the Company, and the annuity
benefit payments will be fixed in amount. See APPENDIX A, "MORE INFORMATION
ABOUT THE FIXED ACCOUNT."
Under a variable annuity payout, a payment to the Owner, or the payee the Owner
designates, 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 Owner cannot
make withdrawals or surrender the annuity benefit, except where the Owner 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 "K. Description
of Variable Annuity Payout 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.
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If the owner of a fixed annuity contract issued by the Company wishes to elect a
variable annuity option after annuitization, the Company may permit such owner
to exchange the fixed contract for a Contract offered in this Prospectus. The
proceeds of the fixed contract 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.
K. DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS.
The Company provides the variable annuity payout options described below.
Currently, variable annuity payout 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 currently also provides these same options funded through the Fixed
Account (fixed-amount annuity payout 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.
If the Owner (or, if there are Joint Owners, the surviving Joint Owner) dies on
or after the Annuity Date, the beneficiary will become the Owner of the contract
and any remaining annuity benefit payments will continue to the beneficiary in
accordance with the terms of the annuity benefit payment option selected prior
to the Annuity Date. If there are Joint Owners on or after the Annuity Date,
upon the first Owner death, any remaining annuity benefit payments will continue
to the surviving Joint Owner in accordance with the terms of the annuity benefit
payment option selected prior to the Annuity Date.
If the Owner selects an annuity payout option which provides for the
continuation of payments after the death of an Annuitant, upon the death of an
Annuitant on or after the Annuity Date, any remaining payments will continue to
be paid to the Owner or the payee the Owner has designated.
VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR TEN YEARS. This variable
annuity is payable periodically during the lifetime of the Annuitant with the
guarantee that if the Annuitant should die before the guaranteed number of
payments have been made, the remaining guaranteed payments will continue to be
paid.
VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING LIFETIME OF THE ANNUITANT
ONLY. This variable annuity is payable during the Annuitant's life. It would be
possible under this option for the Owner 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 Annuitant, no matter how long he
or she lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is an annuity payable periodically
during the lifetime of the Annuitant with the guarantee that if the Annuitant
dies and (1) exceeds (2), then periodic variable annuity benefit payments will
continue 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 Annuitant.
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
during the joint lifetime of the Annuitant and another individual (i.e. the
beneficiary or a Joint Annuitant), and then continues thereafter during the
lifetime of the survivor. The amount of each payment during the lifetime of the
survivor is based on the same number of Annuity Units which applied during their
joint lifetime. 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 during the joint lifetime of the Annuitant and one other individual
(i.e. the beneficiary or a Joint Annuitant), and then continues thereafter
during the lifetime of the survivor. The amount of each periodic payment during
the lifetime of the survivor, however, is based upon two-thirds of the number of
Annuity Units which applied during their joint lifetime. 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 non-commutable. If the Annuitant dies before the end of the
period, remaining payments will continue to to be paid. A commutable option
provides the Owner with the right to request a lump sum payment of any remaining
balance after annuity payments have commenced. Under a non-commutable period
certain option, the Owner may not request a lump sum payment. See "Annuity
Benefit Payments" 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 monthly annuity benefit payments under a variable annuity
option. The value of an Annuity Unit in each Sub-Account on its inception date
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 non-commutable period certain options of
ten or more years (six or more years under New York Contracts), 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 (less than six years under New York
Contracts), 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 Annuity 2000
Mortality Table.
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/or beneficiary, if applicable, 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.
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The dollar amount of the first periodic annuity benefit payment under life
annuity options and non-commutable period certain options of ten or more years
(six or more years under New York Contracts) is determined by multiplying (1)
the Accumulated Value applied under that option (after application of any Market
Value Adjustment and less premium tax, if any) divided by $1,000, by (2) the
applicable amount of the first monthly payment per $1,000 of value. For
commutable period certain options and any period certain option of less than ten
years (less than six years under New York Contracts), 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 Benefit Payments" in the SAI.
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
at inception 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 MARKET VALUE ADJUSTMENT."
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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.
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 equal to 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 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 individual) 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
intends to recoup commissions and other sales expenses through profits from the
Company's General Account, which may include amounts derived from mortality and
expense risk charges.
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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.
Deductions for the Contract fee (see "B. Contract Fee" 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 $35 Contract fee currently is deducted on the Contract anniversary and upon
full surrender of the Contract if the Accumulated Value on any of these dates is
less than $75,000. (This fee may vary by state. See your Contract for more
information.) 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, either the Owner or the Annuitant is within the following
class of individuals: employees and registered representatives of any
broker-dealer which has entered into a sales agreement with the Company to sell
the Contract; employees of the Company, its affiliates and subsidiaries;
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. OPTIONAL ENHANCED DEATH BENEFIT RIDER CHARGE.
Subject to state availability, the Company offers an optional Enhanced Death
Benefit Rider that may be elected by the Owner. A separate monthly charge is
made for the rider. On the last day of each month and on the date the rider is
terminated, a charge equal to 1/12th of an annual rate of 0.25% is made against
the Accumulated Value of the Contract at that time. The charge is deducted in
arrears through a pro-rata reduction (based on relative values in Accumulation
Units of the Sub-Accounts, of dollar amounts in the Fixed Account, and of dollar
amounts in the Guarantee Period Accounts).
For a description of this rider, see "G. Death Benefit" under "DESCRIPTION OF
THE CONTRACT," above.
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D. 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.
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 "D. Transfer Privilege."
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
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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 its
expiration date, or (2) 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 Sub-Account investing in 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. Under contracts issued in New York, the Company will transfer monies
out of the Guarantee Period Account without application of a Market Value
Adjustment if the Owner's request is received within ten days of the renewal
date.
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. However, a positive Market Value
Adjustment, if any, will increase the value of the death benefit when based on
the Contract's Accumulated Value. See "G. 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 taken from each Guarantee Period Account 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
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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, "THE MARKET VALUE
ADJUSTMENT."
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 "F. Withdrawals" and "E. 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, 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.
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 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.
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.
Under Section 817(h) of the Code a variable annuity contract will not be treated
as an annuity contract for any period during which the investments made by the
Separate Account or Underlying Fund are not adequately diversified in accordance
with regulations prescribed by the Treasury Department. If a Contract is not
treated as an annuity contract, the income on a contract, for any taxable year
of an owner, would be treated as ordinary income received or accrued by the
owner. 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
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90% by any four investments. It is anticipated that the Funds of the Allmerica
Investment Trust, the Portfolios of Fidelity VIP and the Portfolio of T. Rowe
Price 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.
In addition, in order for a variable annuity contract to qualify for tax
deferral, the Company, and not the variable contract owner, must be considered
to be the owner for tax purposes of the assets in the segregated asset account
underlying the variable annuity contract. In certain circumstances, however,
variable annuity contract owners may be considered the owners of these assets
for federal income tax purposes. Specifically, the IRS has stated in published
rulings that a variable annuity contract owner may be considered the owner of
segregated account assets if the contract owner possesses incidents of ownership
in those assets, such as the ability to exercise investment control over the
assets. The Treasury Department has also announced, in connection with the
issuance of regulations concerning investment diversification, that those
regulations "do not provide guidance governing the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement also
states that guidance would be issued by way of regulations or rulings on the
"extent to which policyholders may direct their investments to particular
sub-accounts without being treated as owners of the underlying assets." As of
the date of this Prospectus, no such guidance has been issued. The Company
therefore additionally reserves the right to modify the Contract as necessary in
order to attempt to prevent a contract owner from being considered the owner of
a pro rata share of the assets of the segregated asset account underlying the
variable annuity contracts.
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 CONTRACTS 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. Please note, however, if the Owner
chooses an Annuity Date beyond the Owner's 85th birthday, it is possible that
the Owner will be taxed on the annual increase in the Accumulated Value. The
Owner should consult tax and financial advisors for more information. 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 issued by the same insurance company to the same
owner during a single calendar year be treated as one contract in determining
taxable distributions.
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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 to the Owner, whether
or not the Owner is receiving the payments. If an Owner dies before cost basis
is recovered, a deduction for the difference is allowed on the Owner'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 an 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 Owner.
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.
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 exception, however, will not
apply in cases of any employer who is the owner of an annuity contract under a
non-qualified deferred compensation plan.
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
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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 owners of non-qualified
Contracts. 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"). Note: This term covers all IRAs permitted
under Section 408(b) of the Code, including Roth IRAs. IRAs 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 "B. Right to Revoke Individual Retirement Annuity."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or SIMPLE IRA plans for their employees using
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.
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TAX-SHELTERED ANNUITIES ("TSAS"). 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, 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
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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. The Company also reserves the right 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. Any such changes will apply uniformly to all Contracts that are affected.
You will be given written notice of such changes.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Sub-Account in
accordance with instructions received from Owners. 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.
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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 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 Owner will be determined by dividing the reserve held in
each Sub-Account for the Owner's Variable Annuity by the net asset value of one
Underlying Fund share. Ordinarily, the Owner'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 1.0% of payments to broker-dealers
which sell the Contract, plus ongoing annual compensation of up to 1.0% 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.
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.
SERVICES
The Company receives fees from the investment advisers or other service
providers of certain Underlying Funds in return for providing certain services
to Owners. Currently, the Company receives service fees with respect to the
Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio, and
Fidelity VIP High Income Portfolio, at an annual rate of 0.10% of the aggregate
net asset value, respectively, of the shares of such Underlying Funds held by
the Variable Account. With respect to the T. Rowe Price International Stock
Portfolio, the Company receives service fees at an annual rate of 0.15% per
annum of the aggregate net asset value of shares held by the Variable Account.
The Company may in the future render services for which it will receive
compensation from the investment advisers or other service providers of other
Underlying Funds.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account, its
principal underwriter or the Company is a party.
49
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
Based on a third party assessment, the Company determined that significant
portions of its software required modification or replacement to enable its
computer systems to properly process dates beyond December 31, 1999. The Company
is presently completing the process of modifying or replacing existing software
and believes that this action will resolve the Year 2000 issue. However, if such
modifications and conversions are not made, or are not completed timely, or
should there be serious unanticipated interruptions from unknown sources, the
Year 2000 issue could have a material adverse impact on the operations of the
Company. Specifically, the Company could experience, among other things, an
interruption in its ability to collect and process premiums, process claim
payments, safeguard and manage its invested assets, accurately maintain
policyholder information, accurately maintain accounting records, and perform
customer service. Any of these specific events, depending on duration, could
have a material adverse impact on the results of operations and the financial
position of the Company.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issue. The Company's total Year 2000 project cost and estimates to complete the
project include the estimated costs and time associated with the impact of a
third party's Year 2000 issue, and are based on presently available information.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have material adverse effect on the Company. The
Company does not believe that it has material exposure to contingencies related
to the Year 2000 issue for the products it has sold. Although the Company does
not believe that there is a material contingency associated with the Year 2000
project, there can be no assurance that exposure for material contingencies will
not arise.
The Company will utilize both internal and external resources to reprogram or
replace, and test both information technology and embedded technology systems
for Year 2000 modifications. The Company plans to complete the mission critical
elements of the Year 2000 by December 31, 1998. The cost of the Year 2000
project will be expensed as incurred over the next two years and is being funded
primarily through a reallocation of resources from discretionary projects.
Therefore, the Year 2000 project is not expected to result in any significant
incremental technology cost and is not expected to have a material effect on the
results of operations. Through September 30, 1998, the Company and its
subsidiaries and affiliates have incurred and expensed approximately $47 million
related to the assessment of, and preliminary efforts in connection with, the
project and the development of a remediation plan. The total remaining cost of
the project is estimated at between $30-40 million.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
50
<PAGE>
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.
51
<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 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.
To the extent permitted by state law, the Company reserves the right, from time
to time, to credit an enhanced interest rate to certain initial and/or
subsequent payments ("eligible payments") which are deposited into the Fixed
Account under an Automatic Transfer Option (Dollar Cost Averaging election) that
uses the Fixed Account as the source account from which automatic transfers are
then processed. The following are not considered eligible payments: amounts
transferred into the Fixed Account from the Variable Account and/or the
Guarantee Period Accounts; amounts already in the Fixed Account at the time an
eligible payment is deposited and amounts transferred to the Contract from
another annuity contract issued by the Company.
An eligible payment must be automatically transferred out of the Fixed Account
over a continuous six month period. The enhanced rate will apply during the six
month period to any portion of the eligible payment remaining in the Fixed
Account. Amounts automatically transferred out of the Fixed Account will no
longer earn the enhanced rate of interest and, as of the date of transfer, will
be subject to the variable investment performance of the Sub-Account(s)
transferred into. If the automatic transfer option is terminated prior to the
end of the six month period, the enhanced rate will no longer apply. The Company
reserves the right to extend the period of time that the enhanced rate will
apply.
A-1
<PAGE>
APPENDIX B
THE MARKET VALUE ADJUSTMENT
MARKET VALUE ADJUSTMENT -- The following are examples of how the Market Value
Adjustment works:
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.
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
<TABLE>
<C> <C> <S>
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 = the market value factor multiplied by the withdrawal
adjustment
= -.12054 X $62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<C> <C> <S>
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 = the market value factor multiplied by the withdrawal
adjustment
= .06694 X $62,985.60
= $4,216.26
</TABLE>
B-1
<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)](n/365) - 1
= [(1+.08)/(1+.11)] - 1
= (.97297)(7) - 1
= -.17454
The market value = Minimum of the market value factor multiplied by the
adjustment withdrawal or the negative of the excess interest earned over
3%
= Minimum of (-.17454 X $62,985.60 or -$8,349.25)
= Minimum of (-$10,993.51 or -$8,349.25)
= -$8,349.25
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<C> <C> <S>
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 = Minimum of the market value factor multiplied by the
adjustment withdrawal or the excess interest earned over 3%
= Minimum of (.13981 X $62,985.60 or $8,349.25)
= Minimum of ($8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
B-2
<PAGE>
APPENDIX C
THE DEATH BENEFIT
The Hypothetical Accumulated Values assumed below are for purposes of example
only, in order to demonstrate how the death benefit is calculated. They are not
intended to represent past or future investment rates of return.
PART 1: DEATH OF THE OWNER -- WITHOUT ENHANCED DEATH BENEFIT RIDER
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a payment of $100,000 is made on the issue date and no additional
payments are made. Assume there are no withdrawals. The table below presents
examples of the death benefit based on the Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE HYPOTHETICAL
YEAR VALUE ADJUSTMENT VALUE (a) VALUE (b) DEATH BENEFIT
- ------------- -------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
1 $ 106,000.00 $ 0.00 $ 106,000.00 $ 100,000.00 $ 106,000.00
2 107,060.00 1,000.00 108,060.00 100,000.00 108,060.00
3 117,766.00 0.00 117,766.00 100,000.00 117,766.00
4 105,989.40 1,000.00 106,989.40 100,000.00 106,989.40
5 116,588.34 0.00 116,588.34 100,000.00 116,588.34
6 128,247.18 1,000.00 129,247.18 100,000.00 129,247.18
7 141,071.90 0.00 141,071.90 100,000.00 141,071.90
8 155,179.08 1,000.00 156,179.08 100,000.00 156,179.08
9 170,696.98 0.00 170,696.98 100,000.00 170,696.98
10 187,766.68 0.00 187,766.68 100,000.00 187,766.68
</TABLE>
Value (a) is the Accumulated Value increased by any positive Market Value
Adjustment.
Value (b) is the gross payments reduced proportionately to reflect withdrawals.
The Hypothetical Death Benefit is equal to the greater of Values (a) and (b).
DEATH BENEFIT ASSUMING WITHDRAWALS
Assume a payment of $100,000 is made on the issue date and no additional
payments are made. Assume there are withdrawals. The table below presents
examples of the death benefit based on the Hypothetical Accumulated Value.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE HYPOTHETICAL
YEAR VALUE WITHDRAWALS ADJUSTMENT VALUE (a) VALUE (b) DEATH BENEFIT
- ------------- -------------- -------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 106,000.00 $ 0.00 $ 0.00 $ 106,000.00 $ 100,000.00 $ 106,000.00
2 107,060.00 0.00 1,000.00 108,060.00 100,000.00 108,060.00
3 7,766.00 100,000.00 0.00 7,766.00 7,206.35 7,766.00
4 6,989.40 0.00 1,000.00 7,989.40 7,206.35 7,989.40
5 7,688.34 0.00 0.00 7,688.34 7,206.35 7,688.34
6 8,457.18 0.00 1,000.00 9,457.18 7,206.35 9,457.18
7 9,302.90 0.00 0.00 9,302.90 7,206.35 9,302.90
8 10,233.18 0.00 1,000.00 11,233.18 7,206.35 11,233.18
9 11,256.50 0.00 0.00 11,256.50 7,206.35 11,256.50
10 1,382.14 10,000.00 0.00 1,382.14 875.07 1,382.14
</TABLE>
Value (a) is the Accumulated Value increased by any positive Market Value
Adjustment.
Value (b) is the gross payments reduced proportionately to reflect withdrawals.
The Hypothetical Death Benefit is equal to the greater of Values (a) and (b).
C-1
<PAGE>
PART 2: DEATH OF THE OWNER -- WITH ENHANCED DEATH BENEFIT RIDER (FOR CONTRACTS
OTHER THAN THOSE ISSUED IN HAWAII AND NEW YORK)
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a payment of $100,000 is made on the issue date and no additional
payments are made. Assume there are no withdrawals. 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 VALUE (a) VALUE (b) VALUE (c) DEATH BENEFIT
--- -------------- ------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 106,000.00 $ 0.00 $ 106,000.00 $ 105,000.00 $ 106,000.00 $ 106,000.00
2 107,060.00 1,000.00 108,060.00 110,250.00 108,060.00 110,250.00
3 117,766.00 0.00 117,766.00 115,762.50 117,766.00 117,766.00
4 105,989.40 1,000.00 106,989.40 121,550.63 117,766.00 121,550.63
5 116,588.34 0.00 116,588.34 127,628.16 117,766.00 127,628.16
6 128,247.18 1,000.00 129,247.18 134,009.56 129,247.18 134,009.56
7 141,071.90 0.00 141,071.90 140,710.04 141,071.90 141,071.90
8 155,179.08 1,000.00 156,179.08 147,745.54 156,179.08 156,179.08
9 170,696.98 0.00 170,696.98 155,132.82 170,696.98 170,696.98
10 187,766.68 0.00 187,766.68 162,889.46 187,766.68 187,766.68
</TABLE>
Value (a) is the Accumulated Value increased by any positive Market Value
Adjustment.
Value (b) is the gross payments compounded daily at an annual rate of 5%,
decreased proportionately to reflect prior withdrawals.
Value (c) is the highest Accumulated Value increased by any positive Market
Value Adjustment of all Contract anniversaries, increased for subsequent
payments and decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Values (a), (b) or
(c).
DEATH BENEFIT ASSUMING WITHDRAWALS
Assume a payment of $100,000 is made on the issue date and no additional
payments are made. Assume there are withdrawals as detailed in the table below.
The table below presents examples of the death benefit based on the hypothetical
Accumulated Value.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE HYPOTHETICAL
YEAR VALUE WITHDRAWAL ADJUSTMENT VALUE (a) VALUE (b) VALUE (c) DEATH BENEFIT
--- -------------- -------------- ------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 106,000.00 $ 0.00 $ 0.00 $ 106,000.00 $ 105,000.00 $ 106,000.00 $ 106,000.00
2 107,060.00 0.00 1,000.00 108,060.00 110,250.00 108,060.00 110,250.00
3 7,766.00 100,000.00 0.00 7,766.00 8,342.26 7,787.19 8,342.26
4 6,989.40 0.00 1,000.00 7,989.40 8,759.37 7,787.19 8,759.37
5 7,688.34 0.00 0.00 7,688.34 9,197.34 7,787.19 9,197.34
6 8,457.18 0.00 1,000.00 9,457.18 9,657.20 7,787.19 9,657.20
7 9,302.90 0.00 0.00 9,302.90 10,140.06 7,787.19 10,140.06
8 10,233.18 0.00 1,000.00 11,233.18 10,647.07 7,787.19 11,233.18
9 11,256.50 0.00 0.00 11,256.50 11,179.42 7,787.19 11,256.50
10 1,382.14 10,000.00 0.00 1,382.14 1,425.40 945.60 1,425.40
</TABLE>
Value (a) is the Accumulated Value increased by any positive Market Value
Adjustment.
C-2
<PAGE>
Value (b) is the gross payments compounded daily at an annual rate of 5%,
decreased proportionately to reflect prior withdrawals.
Value (c) is the highest Accumulated Value increased by any positive Market
Value Adjustment of all Contract anniversaries, increased for subsequent
payments and decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Values (a), (b) or
(c).
PART 3: DEATH OF THE OWNER -- WITH ENHANCED DEATH BENEFIT RIDER (FOR CONTRACTS
ISSUED IN HAWAII AND NEW YORK)
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a payment of $100,000 is made on the issue date and no additional
payments are made. Assume there are no withdrawals. 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 VALUE (a) VALUE (b) VALUE (c) DEATH BENEFIT
--- -------------- ------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 106,000.00 $ 0.00 $ 106,000.00 $ 100,000.00 $ 106,000.00 $ 106,000.00
2 107,060.00 1,000.00 108,060.00 100,000.00 108,060.00 108,060.00
3 117,766.00 0.00 117,766.00 100,000.00 117,766.00 117,766.00
4 105,989.40 1,000.00 106,989.40 100,000.00 117,766.00 117,766.00
5 116,588.34 0.00 116,588.34 100,000.00 117,766.00 117,766.00
6 128,247.18 1,000.00 129,247.18 100,000.00 129,247.18 129,247.18
7 141,071.90 0.00 141,071.90 100,000.00 141,071.90 141,071.90
8 155,179.08 1,000.00 156,179.08 100,000.00 156,179.08 156,179.08
9 170,696.98 0.00 170,696.98 100,000.00 170,696.98 170,696.98
10 187,766.68 0.00 187,766.68 100,000.00 187,766.68 187,766.68
</TABLE>
Value (a) is the Accumulated Value increased by any positive Market Value
Adjustment.
Value (b) is the gross payments, decreased proportionately to reflect prior
withdrawals.
Value (c) is the highest Accumulated Value increased by any positive Market
Value Adjustment of all Contract anniversaries, increased for subsequent
payments and decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Values (a), (b) or
(c).
C-3
<PAGE>
DEATH BENEFIT ASSUMING WITHDRAWALS
Assume a payment of $100,000 is made on the issue date and no additional
payments are made. Assume there are withdrawals as detailed in the table below.
The table below presents examples of the death benefit based on the hypothetical
Accumulated Value.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE HYPOTHETICAL
YEAR VALUE WITHDRAWAL ADJUSTMENT VALUE (a) VALUE (b) VALUE (c) DEATH BENEFIT
--- -------------- -------------- ------------ -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 106,000.00 $ 0.00 $ 0.00 $ 106,000.00 $ 100,000.00 $ 106,000.00 $ 106,000.00
2 107,060.00 0.00 1,000.00 108,060.00 100,000.00 108,060.00 108,060.00
3 7,766.00 100,000.00 0.00 7,766.00 7,206.35 7,787.19 7,787.19
4 6,989.40 0.00 1,000.00 7,989.40 7,206.35 7,787.19 7,989.40
5 7,688.34 0.00 0.00 7,688.34 7,206.35 7,787.19 7,787.19
6 8,457.18 0.00 1,000.00 9,457.18 7,206.35 7,787.19 9,457.18
7 9,302.90 0.00 0.00 9,302.90 7,206.35 7,787.19 9,302.90
8 10,233.18 0.00 1,000.00 11,233.18 7,206.35 7,787.19 11,233.18
9 11,256.50 0.00 0.00 11,256.50 7,206.35 7,787.19 11,256.50
10 1,382.14 10,000.00 0.00 1,382.14 875.07 945.60 1,382.14
</TABLE>
Value (a) is the Accumulated Value increased by any positive Market Value
Adjustment.
Value (b) is the gross payments, decreased proportionately to reflect prior
withdrawals.
Value (c) is the highest Accumulated Value increased by any positive Market
Value Adjustment of all Contract anniversaries, increased for subsequent
payments and decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Values (a), (b) or
(c).
C-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
SUB-ACCOUNTS OF
ALLMERICA SELECT SEPARATE ACCOUNT
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS OF ALLMERICA SELECT SEPARATE ACCOUNT
DATED ___________, 1998 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED
FROM ANNUITY CLIENT SERVICES, ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY, 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653, TELEPHONE
1-800-366-1492.
DATED ___________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY.................................. 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE COMPANY... 3
SERVICES......................................................... 3
UNDERWRITERS..................................................... 3
ANNUITY BENEFIT PAYMENTS......................................... 4
PERFORMANCE INFORMATION.......................................... 6
FINANCIAL STATEMENTS............................................. F-1
</TABLE>
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 (the "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,
1997, the Company had over $9.4 billion in assets and over $26.6 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, 1997, First Allmerica and its subsidiaries
(including the Company) had over $16.3 billion in combined assets and over $43.8
billion in life insurance in force.
Currently, 14 Sub-Accounts of the Variable Account are available under
Contract Form 3027-98 (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 is managed by
Allmerica Financial Investment Management Services, Inc. Fidelity VIP is
managed by Fidelity Management & Research Company ("FMR"). The T. Rowe
Price International Stock Portfolio of T. Rowe Price is managed by Rowe
Price-Fleming International, Inc.
The Trust, Fidelity VIP and T. Rowe Price are open-end, diversified management
investment companies. Ten
2
<PAGE>
different funds of the Trust are available under the Contract: the Select
Emerging Markets Fund, Select International Equity Fund, Select Aggressive
Growth Fund, Select Capital Appreciation Fund, Select Value Opportunity Fund,
Select Growth Fund, Select Strategic Growth Fund, Select Growth and Income
Fund, Select Income Fund and Money Market Fund. Three portfolios of Fidelity
VIP are available under the Contract: the Fidelity VIP High Income Portfolio,
Fidelity VIP Equity-Income Portfolio, and Fidelity VIP Growth Portfolio. One
portfolio of T. Rowe Price is available under the Contract: the T. Rowe Price
International Stock Portfolio. Each Fund and Portfolio available under the
Contract (together, the "Underlying Funds") has its own investment objectives
and certain attendant risks.
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, 1997 and
1996 and for each of the two years in the period ended December 31, 1997, and
the financial statements of the Allmerica Select Separate Account of the
Company as of December 31, 1997 and for the periods indicated, included in
this Statement of Additional Information constituting part of this
Registration Statement, have been so included in reliance on the reports 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 and general distributor for the Contract pursuant to a contract with
Allmerica Investments, 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.
3
<PAGE>
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 1.0% 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 addition to the charges described under "CHARGES AND
DEDUCTIONS" in the Prospectus.
No underwriting commissions were paid for sales of Contract Form 3027-98
since it was not offered until January, 1998.
The aggregate amount of underwriting commissions retained by Allmerica
Investments for sales of all other contracts funded by Allmerica Select
Separate Account for the years 1995, 1996 and 1997 were $0, $317,873.83, and
$74,730.61, respectively. The aggregate amount of underwriting commissions
paid to independent broker-dealers for the years 1995, 1996 and 1997 were
$8,250,976.36, $15,783,817.50 and $26,335,059.37, 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:
<TABLE>
<S> <C> <C>
(1) Accumulation Unit Value -- Previous Valuation Period............... $ 1.135000
(2) Value of Assets -- Beginning of Valuation Period................... $ 5,000,000
(3) Excess of Investment Income and Net Gains Over Capital Losses...... $ 1,675
(4) Adjusted Gross Investment Rate for the Valuation Period (3)
divided by (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
4
<PAGE>
<S> <C> <C>
(8) Accumulation Unit Value -- Current Period (1) x (7)................ $ 1.135336
</TABLE>
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 a Variable Account, and that the
value of an Accumulation Unit on the Valuation Date used to determine the amount
of the first variable annuity 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 charge, the first monthly payment would be $44,800 multiplied by
$6.57, or $294.34.
Next, assume that the Annuity Unit Value for the assumed rate of 3.5% 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 rather than the Accumulated Value. 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.
5
<PAGE>
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. Total return
data and supplemental total return information may be advertised based on the
period of time that an Underlying Fund and an underlying Sub-Account have
been in existence, even if longer than the period of time that the Contract
has been offered. The results for any period prior to a 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.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission (the "SEC"). The quotations are
computed by finding the average annual compounded rates of return over the
specified period that would equate the initial amount invested to the ending
redeemable values, according to the following formula:
P(1 + T) (n) = ERV
Where: P = a hypothetical initial payment to the Variable Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end
of the specified period
The calculation of Total Return includes the annual charges against the 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 calculations of Total Return include the deduction of the $35 (or lower,
depending on the state of contract issue) annual Contract fee.
6
<PAGE>
YIELD AND EFFECTIVE YIELD - THE 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, 1997:
Yield 4.95%
Effective Yield 5.08%
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 $35 (or lower,
depending on the state of contract issue) annual Contract fee.
7
<PAGE>
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Allmerica Select Separate Account.
8
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Allmerica Financial Life Insurance and Annuity Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholder's equity, and of cash
flows present fairly, in all material respects, the financial position of
Allmerica Financial Life Insurance and Annuity Company at December 31, 1997 and
1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
February 3, 1998
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
----------------------------------------------- --------- ---------
<S> <C> <C>
REVENUES
Premiums..................................... $ 22.8 $ 32.7
Universal life and investment product
policy fees.............................. 212.2 176.2
Net investment income...................... 164.2 171.7
Net realized investment gains (losses)..... 2.9 (3.6)
Other income............................... 1.4 0.9
--------- ---------
Total revenues......................... 403.5 377.9
--------- ---------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 187.8 192.6
Policy acquisition expenses................ 2.8 49.9
Loss from cession of disability income
business................................. 53.9 --
Other operating expenses................... 101.3 86.6
--------- ---------
Total benefits, losses and expenses.... 345.8 329.1
--------- ---------
Income before federal income taxes............. 57.7 48.8
--------- ---------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 13.9 26.9
Deferred................................... 7.1 (9.8)
--------- ---------
Total federal income tax expense....... 21.0 17.1
--------- ---------
Net income..................................... $ 36.7 $ 31.7
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
-------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,340.5 and $1,660.2)............................ $1,402.5 $1,698.0
Equity securities at fair value (cost of $34.4 and
$33.0)............................................ 54.0 41.5
Mortgage loans...................................... 228.2 221.6
Real estate......................................... 12.0 26.1
Policy loans........................................ 140.1 131.7
Other long term investments......................... 20.3 7.9
---------- ----------
Total investments............................... 1,857.1 2,126.8
---------- ----------
Cash and cash equivalents............................. 31.1 18.8
Accrued investment income............................. 34.2 37.7
Deferred policy acquisition costs..................... 765.3 632.7
Reinsurance receivables on paid and unpaid losses,
benefits and unearned premiums...................... 251.1 81.5
Other assets.......................................... 10.7 8.2
Separate account assets............................... 7,567.3 4,524.0
---------- ----------
Total assets.................................... $10,516.8 $7,429.7
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $2,097.3 $2,171.3
Outstanding claims, losses and loss adjustment
expenses.......................................... 18.5 16.1
Unearned premiums................................... 1.8 2.7
Contractholder deposit funds and other policy
liabilities....................................... 32.5 32.8
---------- ----------
Total policy liabilities and accruals........... 2,150.1 2,222.9
---------- ----------
Expenses and taxes payable............................ 77.6 77.3
Reinsurance premiums payable.......................... 4.9 --
Deferred federal income taxes......................... 75.9 60.2
Separate account liabilities.......................... 7,567.3 4,523.6
---------- ----------
Total liabilities............................... 9,875.8 6,884.0
---------- ----------
Commitments and contingencies (Note 13)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,521 and 2,518 shares issued and
outstanding......................................... 2.5 2.5
Additional paid in capital............................ 386.9 346.3
Unrealized appreciation on investments, net........... 38.5 20.5
Retained earnings..................................... 213.1 176.4
---------- ----------
Total shareholder's equity...................... 641.0 545.7
---------- ----------
Total liabilities and shareholder's equity...... $10,516.8 $7,429.7
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
----------------------------------------------- --------- ---------
<S> <C> <C>
COMMON STOCK
Balance at beginning of period............. $ 2.5 $ 2.5
Issued during year......................... -- --
--------- ---------
Balance at end of period................... 2.5 2.5
--------- ---------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of period............. 346.3 324.3
Contribution from Parent................... 40.6 22.0
--------- ---------
Balance at end of period................... 386.9 346.3
--------- ---------
RETAINED EARNINGS
Balance at beginning of period............. 176.4 144.7
Net income................................. 36.7 31.7
--------- ---------
Balance at end of period................... 213.1 176.4
--------- ---------
NET UNREALIZED APPRECIATION ON INVESTMENTS
Balance at beginning of period............. 20.5 23.8
Net appreciation (depreciation) on
available for sale securities............ 27.0 (5.1)
(Provision) benefit for deferred federal
income taxes............................. (9.0) 1.8
--------- ---------
Balance at end of period................... 38.5 20.5
--------- ---------
Total shareholder's equity............. $641.0 $545.7
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
-------------------------------------------- ---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 36.7 $ 31.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized gains.................. (2.9) 3.6
Net amortization and depreciation... -- 3.5
Loss from cession of disability
income business................... 53.9 --
Deferred federal income taxes....... 7.1 (9.8)
Payment related to cession of
disability income business........ (207.0) --
Change in deferred acquisition
costs............................. (181.3) (66.8)
Change in premiums and notes
receivable, net of reinsurance
payable........................... 3.9 (0.2)
Change in accrued investment
income............................ 3.5 1.2
Change in policy liabilities and
accruals, net..................... (72.4) (39.9)
Change in reinsurance receivable.... 22.1 (1.5)
Change in expenses and taxes
payable........................... 0.2 32.3
Separate account activity, net...... 0.4 10.5
Other, net.......................... (7.5) (0.2)
---------- ----------
Net used in operating
activities.................... (343.3) (35.6)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 909.7 809.4
Proceeds from disposals of equity
securities............................ 2.4 1.5
Proceeds from disposals of other
investments........................... 23.7 17.4
Proceeds from mortgages matured or
collected............................. 62.9 34.0
Purchase of available-for-sale fixed
maturities............................ (579.7) (795.8)
Purchase of equity securities........... (3.2) (13.2)
Purchase of other investments........... (79.4) (36.2)
Other investing activities, net......... -- (2.0)
---------- ----------
Net cash provided by investing
activities........................ 336.4 15.1
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
capital paid in....................... 19.2 22.0
---------- ----------
Net cash provided by financing
activities........................ 19.2 22.0
---------- ----------
Net change in cash and cash equivalents..... 12.3 1.5
Cash and cash equivalents, beginning of
period..................................... 18.8 17.3
---------- ----------
Cash and cash equivalents, end of period.... $ 31.1 $ 18.8
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ -- $ 3.4
Income taxes paid....................... $ 5.4 $ 16.5
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC" or the
"Company") is organized as a stock life insurance company, and is a wholly-owned
subsidiary of SMA Financial Corporation ("SMAFCO"), which is wholly owned by
First Allmerica Financial Life Insurance Company ("FAFLIC"). FAFLIC is a
wholly-owned subsidiary of Allmerica Financial Corporation ("AFC").
The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company and its results of operations
for the month of December, 1997. Somerset Square, Inc. was transferred from
SMAFCO effective November 30, 1997. (See Significant Transactions.)
The Statutory stockholder's equity of the Company is being maintained at a
minimum level of 5% of general account assets by FAFLIC in accordance with a
policy established by vote of FAFLIC's Board of Directors.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Certain reclassifications have been
made to the 1996 financial statements in order to conform to the 1997
presentation.
B. VALUATION OF INVESTMENTS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115 ("Statement No. 115"), "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES", the Company is required to classify its investments into one
of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by management to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which management believes may not be collectible in
full. In establishing reserves, management considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. As a result of this decision real estate held by the
Company and real estate joint ventures were written down to the estimated fair
value less cost to sell. Depreciation is not recorded on these assets while they
are held for disposal.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
or a group of investments is determined, a realized investment loss is recorded.
Changes in the valuation allowance for mortgage loans and real estate are
included in realized investment gains or losses.
C. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities, and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
E. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Acquisition costs related to universal life products, variable annuities and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits from investment yields, mortality, surrender charges and
expense margins over the expected life of the contracts. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods based upon the
same assumptions used in estimating the liability for future policy benefits.
Deferred acquisition costs for each product are reviewed to determine if they
are recoverable from future income, including investment income. If such costs
are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, management believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
F. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains, and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.
G. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. The liabilities associated with
traditional life insurance products are computed using the net level premium
method for individual life and annuity policies, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits for individual life insurance and
annuity policies are computed using interest rates ranging from 2 1/2% to 6% for
life insurance and 2% to 9 1/2% for
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
annuities. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life include deposits received from customers and investment earnings
on their fund balances, less administrative charges. Universal life fund
balances are also assessed mortality and surrender charges. Individual health
benefit liabilities for active lives are estimated using the net level premium
method, and assumptions as to future morbidity, withdrawals and interest which
provide a margin for adverse deviation. Benefit liabilities for disabled lives
are estimated using the present value of benefits method and experience
assumptions as to claim terminations, expenses and interest.
Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made for reported claims and estimates of claims
incurred but not reported. These liabilities are determined using case basis
evaluations and statistical analyses and represent estimates of the ultimate
cost of all claims incurred but not paid. These estimates are continually
reviewed and adjusted as necessary; such adjustments are reflected in current
operations.
Premiums for individual accident and health insurance are reported as earned on
a pro-rata basis over the contract period.
The unexpired portion of these premiums is recorded as unearned premiums.
Contractholder deposit funds and other policy liabilities include
investment-related products and consist of deposits received from customers and
investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, management
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
H. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and health insurance and individual annuity
products, excluding universal life and investment-related products, are
considered revenue when due. Individual accident and health insurance premiums
are recognized as revenue over the related contract periods. Benefits, losses
and related expenses are matched with premiums, resulting in their recognition
over the lives of the contracts. This matching is accomplished through the
provision for future benefits, estimated and unpaid losses and amortization of
deferred policy acquisition costs. Revenues for investment-related products
consist of net investment income and contract charges assessed against the fund
values. Related benefit expenses primarily consist of net investment income
credited to the fund values after deduction for investment and risk charges.
Revenues for universal life and group variable universal life products consist
of net investment income, and mortality, administration and surrender charges
assessed against the fund values. Related benefit expenses include universal
life benefits in excess of fund values and net investment income credited to
universal life fund values. Certain policy charges that represent compensation
for services to be provided in future periods are deferred and amortized over
the period benefited using the same assumptions used to amortize capitalized
acquisition costs.
I. FEDERAL INCOME TAXES
AFC, its life insurance subsidiaries, FAFLIC and AFLIAC, and its non-life
insurance domestic subsidiaries file a life-nonlife consolidated United States
Federal income tax return. Entities included within the consolidated group are
segregated into either a life insurance or non-life insurance company subgroup.
The consolidation of these subgroups is subject to certain statutory
restrictions on the percentage of eligible non-life insurance company taxable
operating losses that can be applied to offset life insurance company taxable
income. Allmerica P&C and its subsidiaries will be included in the AFC
consolidated return as part of the
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
non-life insurance company subgroup for the period July 17, 1997 through
December 31, 1997. For the period January 1, 1997 through July 16, 1997,
Allmerica P&C and its subsidiaries will file a separate consolidated United
States Federal income tax return.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate Federal Income Tax allocation policies and
procedures, which are subject to written agreement between the companies. The
Federal income tax for all subsidiaries in the consolidated return of AFC is
calculated on a separate return basis. Any current tax liability is paid to AFC.
Tax benefits resulting from taxable operating losses or credits of AFC's
subsidiaries are not reimbursed to the subsidiary until such losses or credits
can be utilized by the subsidiary on a separate return basis.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). These differences result primarily from loss reserves, policy acquisition
expenses, and unrealized appreciation/depreciation on investments.
J. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This statement establishes standards for
the way that public enterprises report information about operating segments in
annual financial statements and requires that selected information about those
operating segments be reported in interim financial statements. This statement
supersedes Statement No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. Statement No. 131 requires that all public enterprises report
financial and descriptive information about their reportable operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for fiscal years beginning
after December 15, 1997. The Company anticipates no impact from the adoption of
Statement No. 131.
In June 1997, the FASB also issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME, which established standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are to be reported in
a financial statement that is displayed with the same prominence as other
financial statements. This statement stipulates that comprehensive income
reflect the change in equity of an enterprise during a period from transactions
and other events and circumstances from non-owner sources. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
anticipates that the adoption of Statement No. 130 will result primarily in
reporting the changes in unrealized gains and losses on investments in debt and
equity securities in comprehensive income.
2. SIGNIFICANT TRANSACTIONS
On April 14, 1997, the Company entered into an agreement in principle to
transfer the Company's individual disability income under a 100% coinsurance
agreement to Metropolitan Life Insurance Company. The coinsurance agreement
became effective October 1, 1997. The transaction has resulted in the
recognition of a $53.9 million pre-tax loss in the first quarter of 1997.
During the 4th quarter of 1997, SMAFCO contributed $40.6 million of additional
paid in capital to the Company. The nature of the contribution was $19.2 million
in cash and $21.4 million in other assets including Somerset Square, Inc.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective January 1, 1998, the Company entered into an agreement with
Reinsurance Group of America, Inc. to reinsure the mortality risk on the
universal life and variable universal life blocks of business. Management
believes that this agreement will not have a material effect on the results of
operations or financial position of the Company.
3. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with the provisions of SFAS No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 6.3 $ .5 $-- $ 6.8
States and political subdivisions....... 2.8 .2 -- 3.0
Foreign governments..................... 50.1 2.0 -- 52.1
Corporate fixed maturities.............. 1,147.5 58.7 3.3 1,202.9
Mortgage-backed securities.............. 133.8 5.2 1.3 137.7
---------- -------- --------- --------
Total fixed maturities
available-for-sale..................... $1,340.5 $66.6 $ 4.6 $1,402.5
---------- -------- --------- --------
Equity securities....................... $ 34.4 $19.9 $ 0.3 $ 54.0
---------- -------- --------- --------
---------- -------- --------- --------
1996
--------------------------------------------
U.S. Treasury securities and U.S.
government and agency securities....... $ 15.7 $ 0.5 $ 0.2 $ 16.0
States and political subdivisions....... 8.9 1.6 -- 10.5
Foreign governments..................... 53.2 2.9 -- 56.1
Corporate fixed maturities.............. 1,437.2 38.6 6.1 1,469.7
Mortgage-backed securities.............. 145.2 2.2 1.7 145.7
---------- -------- --------- --------
Total fixed maturities
available-for-sale..................... $1,660.2 $45.8 $ 8.0 $1,698.0
---------- -------- --------- --------
Equity securities....................... $ 33.0 $10.2 $ 1.7 $ 41.5
---------- -------- --------- --------
---------- -------- --------- --------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding liabilities of AFLIAC for New
York policyholders, claimants and creditors. At December 31, 1997, the amortized
cost and market value of these assets on deposit were $276.8 million and $291.7
million, respectively. At December 31, 1996, the amortized cost and market value
of these assets on deposit were $284.9 million and $292.2 million, respectively.
In addition, fixed maturities, excluding those securities on deposit in New
York, with an amortized cost of $4.2 million were on deposit with various state
and governmental authorities at December 31, 1997 and 1996.
There were no contractual fixed maturity investment commitments at December 31,
1997 and 1996, respectively.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1997
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 63.0 $ 63.5
Due after one year through five years....................... 328.8 343.9
Due after five years through ten years...................... 649.5 679.9
Due after ten years......................................... 299.2 315.2
--------- ---------
Total....................................................... $1,340.5 $1,402.5
--------- ---------
--------- ---------
</TABLE>
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
PROCEEDS
FROM
FOR THE YEARS ENDED DECEMBER 31, VOLUNTARY GROSS GROSS
(IN MILLIONS) SALES GAINS LOSSES
- ------------------------------------------------------------ ---------- ------ ------
<S> <C> <C> <C>
1997
Fixed maturities............................................ $702.9 $ 11.4 $ 5.0
Equity securities........................................... $ 1.3 $ 0.5 $ --
1996
Fixed maturities............................................ $496.6 $ 4.3 $ 8.3
Equity securities........................................... $ 1.5 $ 0.4 $ 0.1
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEAR ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
1997
Net appreciation, beginning of year......................... $ 12.7 $ 7.8 $ 20.5
Net appreciation on available-for-sale securities........... 24.3 12.5 36.8
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (9.8) -- (9.8)
Provision for deferred federal income taxes................. (5.1) (3.9) (9.0)
---------- ----- ------
9.4 8.6 18.0
---------- ----- ------
Net appreciation, end of year............................... $ 22.1 $ 16.4 $ 38.5
---------- ----- ------
---------- ----- ------
</TABLE>
(1) Includes net appreciation on other investments of $11.1 million in 1997, and
$2.2 million in 1996.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
Net appreciation, beginning of year......................... $ 20.4 $ 3.4 $ 23.8
Net (depreciation) appreciation on available-for-sale
securities................................................. (20.8) 6.7 (14.1)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 9.0 -- 9.0
Benefit (provision) for deferred federal income taxes....... 4.1 (2.3) 1.8
---------- ----- ------
(7.7) 4.4 (3.3)
---------- ----- ------
Net appreciation, end of year............................... $ 12.7 $ 7.8 $ 20.5
---------- ----- ------
---------- ----- ------
</TABLE>
(1) Includes net appreciation on other investments of $11.1 million in 1997, and
$2.2 million in 1996.
B. MORTGAGE LOANS AND REAL ESTATE
AFLIAC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Mortgage loans.............................................. $228.2 $221.6
Real estate:
Held for sale............................................. 12.0 26.1
Held for production of income............................. -- --
---------- ------
Total real estate....................................... $ 12.0 $ 26.1
---------- ------
Total mortgage loans and real estate........................ $240.2 $247.7
---------- ------
---------- ------
</TABLE>
Reserves for mortgage loans were $9.4 million and $9.5 million at December 31,
1997 and 1996, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. As a result, real estate assets with a carrying
amount of $15.7 million were written down to the estimated fair value less cost
to sell of $12.0 million, and a net realized investment loss of $3.7 million was
recognized. Depreciation is not recorded on these assets while they are held for
disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1997. During 1996, non-cash investing
activities included real estate acquired through foreclosure of mortgage loans,
which had a fair value of $0.9 million.
At December 31, 1997, contractual commitments to extend credit under commercial
mortgage loan agreements amounted to approximately $18.7 million. These
commitments generally expire within one year.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Property type:
Office building........................................... $101.7 $ 86.1
Residential............................................... 19.3 39.0
Retail.................................................... 42.2 55.9
Industrial/warehouse...................................... 61.9 52.6
Other..................................................... 24.5 25.3
Valuation allowances...................................... (9.4) (11.2)
---------- ------
Total....................................................... $240.2 $247.7
---------- ------
---------- ------
Geographic region:
South Atlantic............................................ $ 68.7 $ 72.9
Pacific................................................... 56.6 37.0
East North Central........................................ 61.4 58.3
Middle Atlantic........................................... 29.8 35.0
West South Central........................................ 6.9 5.7
New England............................................... 12.4 21.9
Other..................................................... 13.8 28.1
Valuation allowances...................................... (9.4) (11.2)
---------- ------
Total....................................................... $240.2 $247.7
---------- ------
---------- ------
</TABLE>
At December 31, 1997, scheduled mortgage loan maturities were as follows: 1998
- -- $52.0 million; 1999 -- $17.1 million; 2000 -- $46.3 million; 2001 -- $7.0
million; 2002 -- $11.7 million; and $94.1 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1997, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the balance sheet and changes thereto
are shown below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 ADDITIONS DEDUCTIONS DECEMBER 31
- ------------------------------------------------------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1997
Mortgage loans.............................................. $ 9.5 $ 1.1 $ 1.2 $ 9.4
Real estate................................................. 1.7 3.7 5.4 --
----- --- --- -----
Total................................................... $ 11.2 $ 4.8 $ 6.6 $ 9.4
----- --- --- -----
----- --- --- -----
1996
Mortgage loans.............................................. $ 12.5 $ 4.5 $ 7.5 $ 9.5
Real estate................................................. 2.1 -- 0.4 1.7
----- --- --- -----
Total................................................... $ 14.6 $ 4.5 $ 7.9 $ 11.2
----- --- --- -----
----- --- --- -----
</TABLE>
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deductions of $5.4 million to the investment valuation allowance related to real
estate in 1997 primarily reflect writedowns to the estimated fair value less
cost to sell pursuant to the aforementioned 1997 plan of disposal.
The carrying value of impaired loans was $20.6 million and $21.5 million, with
related reserves of $7.1 million and $7.3 million as of December 31, 1997 and
1996, respectively. All impaired loans were reserved as of December 31, 1997 and
1996.
The average carrying value of impaired loans was $19.8 million and $26.3
million, with related interest income while such loans were impaired of $2.2
million and $3.4 million as of December 31, 1997 and 1996, respectively.
D. OTHER
At December 31, 1997, AFLIAC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Fixed maturities............................................ $130.0 $137.2
Mortgage loans.............................................. 20.4 22.0
Equity securities........................................... 1.3 0.7
Policy loans................................................ 10.8 10.2
Real estate................................................. 3.9 6.2
Other long-term investments................................. 1.0 0.8
Short-term investments...................................... 1.4 1.4
---------- ------
Gross investment income..................................... 168.8 178.5
Less investment expenses.................................... (4.6) (6.8)
---------- ------
Net investment income....................................... $164.2 $171.7
---------- ------
---------- ------
</TABLE>
At December 31, 1997, mortgage loans on non-accrual status were $2.8 million,
which were all restructured loans. There were no fixed maturities on non-accrual
status at December 31, 1997. The effect of non-accruals, compared with amounts
that would have been recognized in accordance with the original terms of the
investment, had no impact in 1997, and reduced net income by $0.1 million in
1996.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $21.1 million and $25.4 million at December 31, 1997 and 1996,
respectively. Interest income on restructured mortgage loans that would have
been recorded in accordance with the original terms of such loans amounted to
$1.9 million and $3.6 million in 1997 and 1996, respectively. Actual interest
income on these loans included in net investment income aggregated $2.1 million
and $2.2 million in 1997 and 1996, respectively.
There were no fixed maturities or mortgage loans which were non-income producing
for the twelve months ended December 31, 1997.
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Fixed maturities............................................ $ 3.0 $ (3.3)
Mortgage loans.............................................. (1.1) (3.2)
Equity securities........................................... 0.5 0.3
Real estate................................................. (1.5) 2.5
Other....................................................... 2.0 0.1
---------- ------
Net realized investment losses.............................. $ 2.9 $ (3.6)
---------- ------
---------- ------
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about certain financial instruments
(insurance contracts, real estate, goodwill and taxes are excluded) for which it
is practicable to estimate such values, whether or not these instruments are
included in the balance sheet. The fair values presented for certain financial
instruments are estimates which, in many cases, may differ significantly from
the amounts which could be realized upon immediate liquidation. In cases where
market prices are not available, estimates of fair value are based on discounted
cash flow analyses which utilize current interest rates for similar financial
instruments which have comparable terms and credit quality.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REINSURANCE RECEIVABLES
The carrying amount of the reinsurance receivable for outstanding claims, losses
and loss adjustment expenses reported in the balance sheet approximates fair
value.
POLICY LOANS
The carrying amount reported in the balance sheet approximates fair value since
policy loans have no defined maturity dates and are inseparable from the
insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under investment type contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 31.1 $ 31.1 $ 18.8 $ 18.8
Fixed maturities.......................................... 1,402.5 1,402.5 1,698.0 1,698.0
Equity securities......................................... 54.0 54.0 41.5 41.5
Mortgage loans............................................ 228.2 239.8 221.6 229.3
Policy loans.............................................. 140.1 140.1 131.7 131.7
Reinsurance receivables................................... 251.1 251.1 72.5 72.5
--------- --------- --------- ---------
$2,107.0 $2,118.6 $2,184.1 $2,191.8
--------- --------- --------- ---------
--------- --------- --------- ---------
FINANCIAL LIABILITIES
Individual annuity contracts.............................. 876.0 850.6 910.2 885.9
Supplemental contracts without life contingencies......... 15.3 15.3 15.9 15.9
Other individual contract deposit funds................... 0.3 0.3 0.3 0.3
--------- --------- --------- ---------
$ 891.6 $ 866.2 $ 926.4 $ 902.1
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. DEBT
In 1997 the Company incurred no debt. During 1996, the Company utilized
repurchase agreements to finance certain investments.
Interest expense was $3.4 million in 1996, relating to the repurchase
agreements, and is recorded in other operating expenses.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of SFAS No. 109. A summary of the federal income tax expense
(benefit) in the statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- ------
<S> <C> <C>
Federal income tax expense (benefit)
Current................................................... $ 13.9 $ 26.9
Deferred.................................................. 7.1 (9.8)
----- -----
Total....................................................... $ 21.0 $ 17.1
----- -----
----- -----
</TABLE>
The provision for federal income taxes does not materially differ from the
amount of federal income tax determined by applying the appropriate U.S.
statutory income tax rate to income before federal income taxes. The deferred
tax (assets) liabilities are comprised of the following at December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Deferred tax (assets) liabilitie
Loss reserves............................................. $(175.8) $(137.0)
Deferred acquisition costs................................ 226.4 186.9
Investments, net.......................................... 27.0 14.2
Bad debt reserve.......................................... (2.0) (1.1)
Other, net................................................ 0.3 (2.8)
---------- -------------
Deferred tax liability, net............................... $ 75.9 $ 60.2
---------- -------------
---------- -------------
</TABLE>
Gross deferred income tax liabilities totaled $253.7 million and $201.1 million
at December 31, 1997 and 1996. Gross deferred income tax assets totaled $177.8
million and $140.9 at December 31, 1997 and 1996.
Management believes, based on the Company's recent earnings history and its
future expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, management considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary.
The Company's federal income tax returns are routinely audited by the IRS, and
provisions are routinely made in the financial statements in anticipation of the
results of these audits. The IRS has examined the life-nonlife consolidated
group's federal income tax returns through 1991. The Company is currently
considering its response to certain adjustments proposed by the IRS with respect
to the life-nonlife consolidated group's federal income tax returns for 1989,
1990, and 1991. In management's opinion, adequate tax liabilities have been
established for all years. However, the amount of these tax liabilities could be
revised in the near term if estimates of the Company's ultimate liability are
revised.
8. RELATED PARTY TRANSACTIONS
The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $124.1 million and $112.4 million in 1997 and 1996. The
net amounts payable to FAFLIC and affiliates for accrued expenses and various
other liabilities and receivables were $15.0 million and $13.3 million at
December 31, 1997 and 1996.
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a life company) or its net income
(not including realized capital gains) for the preceding calendar year (if such
insurer is not a life company). Any dividends to be paid by an insurer, whether
or not in excess of the aforementioned threshold, from a source other than
statutory earned surplus would also require the prior approval of the Delaware
Commissioner of Insurance.
At January 1, 1998, AFLIAC could pay dividends of $33.9 million to FAFLIC
without prior approval.
10. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of SFAS No. 113.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with respect to lines
of business covered, limit and retention, arbitration and occurrence. Based on
its review of its reinsurers' financial statements and reputations in the
reinsurance marketplace, the Company believes that its reinsurers are
financially sound.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Insurance premiums:
Direct.................................................... $ 48.8 $ 53.3
Assumed................................................... 2.6 3.1
Ceded..................................................... (28.6) (23.7)
---------- ------
Net premiums................................................ $ 22.8 $ 32.7
---------- ------
---------- ------
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................... $226.0 $206.4
Assumed................................................... 4.2 4.5
Ceded..................................................... (42.4) (18.3)
---------- ------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $187.8 $192.6
---------- ------
---------- ------
</TABLE>
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. DEFERRED POLICY ACQUISITION EXPENSES
The following reflects the changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Balance at beginning of year................................ $632.7 $555.7
Acquisition expenses deferred............................. 184.1 116.6
Amortized to expense during the year...................... (53.0) (49.9)
Adjustment to equity during the year...................... (10.2) 10.3
Adjustment for cession of disability income insurance..... (38.6) --
Adjustment for revision of universal life and variable
universal life insurance mortality assumptions.......... 50.3 --
---------- ------
Balance at end of year...................................... $765.3 $632.7
---------- ------
---------- ------
</TABLE>
On October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.3 million recapitalization of deferred policy acquisition costs.
12. LIABILITIES FOR INDIVIDUAL ACCIDENT AND HEALTH BENEFITS
The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims, losses and loss adjustment expenses as new
information becomes available and further events occur which may impact the
resolution of unsettled claims. Changes in prior estimates are reflected in
results of operations in the year such changes are determined to be needed and
recorded.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's accident and health business was
$219.9 million and $226.2 million at December 31, 1997 and 1996. Accident and
health claim liabilities have been re-estimated for all prior years and were
increased by $-0- million in 1997 and $3.2 million in 1996. Due to the
reinsurance agreement whereby the Company has ceded substantially all of its
accident and health business to the Metropolitan, management believes that no
material adverse development of losses will occur. However, the amount of the
liabilities could be revised in the near term if the estimates are revised.
13. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit was instituted in Louisiana against Allmerica Financial
Corp. and certain of its subsidiaries by individual plaintiffs alleging fraud,
unfair or deceptive acts, breach of contract, misrepresentation and related
claims in the sale of life insurance policies. In October 1997, plaintiffs
voluntarily dismissed the Louisiana suit and refiled the action in Federal
District Court in Worcester, Massachusetts. The plaintiffs
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
seek to be certified as a class. The case is in the early stages of discovery
and the Company is evaluating the claims. Although the Company believes it has
meritorious defenses to plaintiffs' claims, there can be no assurance that the
claims will be resolved on a basis which is satisfactory to the Company.
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the advice
of legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's financial statements. However, liabilities
related to these proceedings could be established in the near term if estimates
of the ultimate resolution of these proceedings are revised.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Although the Company does not
believe that there is a material contingency associated with the Year 2000
project, there can be no assurance that exposure for material contingencies will
not arise.
14. STATUTORY FINANCIAL INFORMATION
The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles for
stock life insurance companies primarily because policy acquisition costs are
expensed when incurred, investment reserves are based on different assumptions,
life insurance reserves are based on different assumptions and income tax
expense reflects only taxes paid or currently payable. Statutory net income and
surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Statutory net income........................................ $ 31.5 $ 5.4
Statutory Surplus........................................... $307.1 $234.0
---------- ------
---------- ------
</TABLE>
15. EVENT SUBSEQUENT TO DATE OF INDEPENDENT ACCOUNTANTS' REPORT (UNAUDITED)
In July 1997, a lawsuit on behalf of a punitive class was instituted in
Louisiana against AFC and certain of its subsidiaries by individual
plaintiffs alleging fraud, unfair or deceptive acts, breach of contract,
misrepresentation and related claims in the sale of life insurance policies.
In October 1997, plaintiffs voluntarily dismissed the Louisiana suit and
refiled the action in Federal District Court in Worcester, Massachusetts.
The Company and the plaintiffs have entered into a settlement agreement. The
Court granted preliminary approval of the settlement on December 4, 1998, and
has scheduled the hearing to consider final approval for March 1999. Although
the Company believes it has meritorious defenses to plaintiffs' claims, it
concluded that this settlement was best for the Company. Accordingly, AFC
recognized a $31.0 million pre-tax expense during the third quarter of 1998
related to this litigation, of which $21.0 million was apportioned to AFLIAC.
Although the Company believes it has established an appropriate reserve,
this reserve may be revised based on changes in the Company's estimate of the
ultimate cost of the settlement.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance and Annuity
Company and Policyowners of the Allmerica Select Separate Account of
Allmerica Financial Life Insurance and Annuity Company
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of each of the Sub-Accounts
(Select Aggressive Growth, Select Growth, Select Growth and Income, Select
Income, Money Market, Select International Equity, Select Capital
Appreciation, Fidelity VIP High Income, Fidelity VIP Equity-Income, Fidelity
VIP Growth, and T. Rowe Price International Stock) constituting the Allmerica
Select Separate Account of Allmerica Financial Life Insurance and Annuity
Company at December 31, 1997, the results of each of their operations for the
year then ended and the changes in each of their net assets for each of the
two years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Allmerica Financial Life Insurance and Annuity Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments at December 31, 1997 by correspondence with the
Funds, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 25, 1998
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SELECT SELECT
AGGRESSIVE SELECT GROWTH SELECT MONEY
GROWTH GROWTH AND INCOME INCOME MARKET
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Allmerica
Investment Trust................ $196,484,311 $206,036,228 $213,189,485 $ 94,181,446 $ 77,142,678
Investments in shares of Fidelity
Variable Insurance Products Fund
(VIP)........................... -- -- -- -- --
Investment in shares of T. Rowe
Price International Series,
Inc............................. -- -- -- -- --
Receivable from Allmerica
Financial Life Insurance and
Annuity Company (Sponsor)....... -- -- -- -- 3,146
------------ ------------ ------------ ------------ ------------
Total assets.................... 196,484,311 206,036,228 213,189,485 94,181,446 77,145,824
LIABILITIES:
Payable to Allmerica Financial
Life Insurance and Annuity
Company (Sponsor)............... 6,259 307 16,229 508 --
------------ ------------ ------------ ------------ ------------
Net assets...................... $196,478,052 $206,035,921 $213,173,256 $ 94,180,938 $ 77,145,824
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net asset distribution by
category:
Qualified variable annuity
policies...................... $ 66,102,420 $ 65,930,583 $66,468,397 $ 34,377,390 $ 24,562,369
Non-qualified variable annuity
policies...................... 130,375,632 140,105,338 146,704,859 59,803,548 52,583,455
------------ ------------ ------------ ------------ ------------
$196,478,052 $206,035,921 $213,173,256 $ 94,180,938 $ 77,145,824
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Qualified units outstanding,
December 31, 1997............... 27,328,827 31,530,089 33,298,114 26,424,795 20,836,456
Net asset value per qualified
unit, December 31, 1997......... $ 2.418780 $ 2.091037 $ 1.996161 $ 1.300952 $ 1.178817
Non-qualified units outstanding,
December 31, 1997............... 53,901,402 67,002,802 73,493,501 45,969,065 44,606,970
Net asset value per non-qualified
unit, December 31, 1997......... $ 2.418780 $ 2.091037 $ 1.996161 $ 1.300952 $ 1.178817
<CAPTION>
T. ROWE
SELECT SELECT PRICE
INTERNATIONAL CAPITAL FIDELITY VIP FIDELITY VIP FIDELITY VIP INTERNATIONAL
EQUITY APPRECIATION HIGH INCOME EQUITY-INCOME GROWTH STOCK
------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Allmerica
Investment Trust................ $130,449,617 $73,116,569 $ -- $ -- $ -- $ --
Investments in shares of Fidelity
Variable Insurance Products Fund
(VIP)........................... -- -- 72,197,817 110,437,026 77,851,470 --
Investment in shares of T. Rowe
Price International Series,
Inc............................. -- -- -- -- -- 41,563,929
Receivable from Allmerica
Financial Life Insurance and
Annuity Company (Sponsor)....... -- -- -- -- -- 1
------------ ------------ ------------ ------------- ------------ ------------
Total assets.................... 130,449,617 73,116,569 72,197,817 110,437,026 77,851,470 41,563,930
LIABILITIES:
Payable to Allmerica Financial
Life Insurance and Annuity
Company (Sponsor)............... -- -- -- -- -- --
------------ ------------ ------------ ------------- ------------ ------------
Net assets...................... $130,449,617 $73,116,569 $72,197,817 $110,437,026 $77,851,470 $41,563,930
------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------- ------------ ------------
Net asset distribution by
category:
Qualified variable annuity
policies...................... $43,637,179 $24,852,783 $24,850,639 $ 31,729,318 $24,346,388 $11,765,567
Non-qualified variable annuity
policies...................... 86,812,438 48,263,786 47,347,178 78,707,708 53,505,082 29,798,363
------------ ------------ ------------ ------------- ------------ ------------
$130,449,617 $73,116,569 $72,197,817 $110,437,026 $77,851,470 $41,563,930
------------ ------------ ------------ ------------- ------------ ------------
------------ ------------ ------------ ------------- ------------ ------------
Qualified units outstanding,
December 31, 1997............... 31,166,586 14,865,029 17,372,007 18,712,440 14,314,071 9,617,892
Net asset value per qualified
unit, December 31, 1997......... $ 1.400127 $ 1.671896 $ 1.430499 $ 1.695627 $ 1.700871 $ 1.223300
Non-qualified units outstanding,
December 31, 1997............... 62,003,260 28,867,696 33,098,366 46,418,055 31,457,460 24,358,999
Net asset value per non-qualified
unit, December 31, 1997......... $ 1.400127 $ 1.671896 $ 1.430499 $ 1.695627 $ 1.700871 $ 1.223300
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SELECT SELECT
AGGRESSIVE SELECT GROWTH SELECT MONEY
GROWTH GROWTH AND INCOME INCOME MARKET
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends....................... $ -- $ 594,234 $ 2,276,955 $ 5,022,772 $ 4,384,109
------------ ------------ ------------ ------------ ------------
EXPENSES (NOTE 4):
Mortality and expense risk
fees.......................... 2,015,705 1,909,171 2,111,147 998,230 1,016,141
Administrative expense fees..... 249,132 235,965 260,929 123,377 125,591
------------ ------------ ------------ ------------ ------------
Total expenses................ 2,264,837 2,145,136 2,372,076 1,121,607 1,141,732
------------ ------------ ------------ ------------ ------------
Net investment income
(loss)...................... (2,264,837) (1,550,902) (95,121) 3,901,165 3,242,377
------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain distributions from
portfolio sponsors............ 15,267,707 10,519,168 18,113,569 -- --
Net realized gain from sales of
investments................... 1,569,746 784,352 854,942 22,839 --
------------ ------------ ------------ ------------ ------------
Net realized gain............. 16,837,453 11,303,520 18,968,511 22,839 --
Net unrealized gain (loss)...... 9,062,264 31,295,973 12,001,401 2,251,800 --
------------ ------------ ------------ ------------ ------------
Net realized and unrealized
gain (loss)................. 25,899,717 42,599,493 30,969,912 2,274,639 --
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets from operations...... $ 23,634,880 $ 41,048,591 $30,874,791 $ 6,175,804 $ 3,242,377
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
T. ROWE
SELECT SELECT PRICE
INTERNATIONAL CAPITAL FIDELITY VIP FIDELITY VIP FIDELITY VIP INTERNATIONAL
EQUITY APPRECIATION HIGH INCOME EQUITY-INCOME GROWTH STOCK
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends....................... $ 2,964,278 $ -- $ 2,360,937 $ 800,519 $ 255,385 $ 380,324
------------ ------------ ------------ ------------ ------------ ------------
EXPENSES (NOTE 4):
Mortality and expense risk
fees.......................... 1,350,796 636,664 618,957 903,314 685,823 394,964
Administrative expense fees..... 166,952 78,689 76,500 111,646 84,765 48,816
------------ ------------ ------------ ------------ ------------ ------------
Total expenses................ 1,517,748 715,353 695,457 1,014,960 770,588 443,780
------------ ------------ ------------ ------------ ------------ ------------
Net investment income
(loss)...................... 1,446,530 (715,353) 1,665,480 (214,441) (515,203) (63,456)
------------ ------------ ------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Realized gain distributions from
portfolio sponsors............ 4,123,293 -- 291,801 4,024,829 1,143,150 538,793
Net realized gain from sales of
investments................... 941,203 122,244 153,432 173,070 252,760 932,107
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain............. 5,064,496 122,244 445,233 4,197,899 1,395,910 1,470,900
Net unrealized gain (loss)...... (4,292,377) 8,440,399 5,256,704 11,931,704 9,153,516 (1,612,907)
------------ ------------ ------------ ------------ ------------ ------------
Net realized and unrealized
gain (loss)................. 772,119 8,562,643 5,701,937 16,129,603 10,549,426 (142,007)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets from operations...... $ 2,218,649 $ 7,847,290 $ 7,367,417 $15,915,162 $10,034,223 $ (205,463)
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SELECT
AGGRESSIVE GROWTH SELECT GROWTH
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)................ $ (2,264,837) $ (1,539,970) $ (1,550,902) $ (898,196)
Net realized gain (loss).................... 16,837,453 11,785,820 11,303,520 16,195,169
Net unrealized gain (loss).................. 9,062,264 5,722,458 31,295,973 129,186
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from
operations................................ 23,634,880 15,968,308 41,048,591 15,426,159
------------- ------------- ------------- -------------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments....................... 35,797,976 21,731,521 48,274,492 17,763,681
Withdrawals................................. (7,811,125) (4,141,746) (7,969,058) (3,986,783)
Annuity benefits............................ (1,379,292) (1,122,381) (1,551,120) (1,215,130)
Other transfers from (to) the General
Account of Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... 13,459,092 10,183,331 18,384,448 10,095,706
Net decrease in investment by Allmerica
Financial Life Insurance and Annuity
Company (Sponsor)......................... -- -- -- --
------------- ------------- ------------- -------------
Net increase in net assets from capital
transactions.............................. 40,066,651 26,650,725 57,138,762 22,657,474
------------- ------------- ------------- -------------
Net increase in net assets.................. 63,701,531 42,619,033 98,187,353 38,083,633
NET ASSETS:
Beginning of year............................. 132,776,521 90,157,488 107,848,568 69,764,935
------------- ------------- ------------- -------------
End of year................................... $ 196,478,052 $ 132,776,521 $ 206,035,921 $ 107,848,568
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
SELECT GROWTH AND INCOME SELECT INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)................ $ (95,121) $ 32,552 $ 3,901,165 $ 2,974,135
Net realized gain (loss).................... 18,968,511 9,805,881 22,839 (36,578)
Net unrealized gain (loss).................. 12,001,401 8,711,254 2,251,800 (1,544,397)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from
operations................................ 30,874,791 18,549,687 6,175,804 1,393,160
------------- ------------- ------------- -------------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments....................... 46,842,354 21,733,952 18,288,534 13,585,775
Withdrawals................................. (8,766,378) (4,962,459) (4,662,262) (3,057,073)
Annuity benefits............................ (2,390,486) (1,743,124) (1,408,135) (760,423)
Other transfers from (to) the General
Account of Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... 17,888,824 9,558,401 4,800,900 4,255,199
Net decrease in investment by Allmerica
Financial Life Insurance and Annuity
Company (Sponsor)......................... -- -- -- --
------------- ------------- ------------- -------------
Net increase in net assets from capital
transactions.............................. 53,574,314 24,586,770 17,019,037 14,023,478
------------- ------------- ------------- -------------
Net increase in net assets.................. 84,449,105 43,136,457 23,194,841 15,416,638
NET ASSETS:
Beginning of year............................. 128,724,151 85,587,694 70,986,097 55,569,459
------------- ------------- ------------- -------------
End of year................................... $ 213,173,256 $ 128,724,151 $ 94,180,938 $ 70,986,097
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET SELECT INTERNATIONAL EQUITY
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ----------------------------
1997 1996 1997 1996
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)...... $ 3,242,377 $ 2,299,995 $ 1,446,530 $ 708,489
Net realized gain (loss).......... -- -- 5,064,496 852,450
Net unrealized gain (loss)........ -- -- (4,292,377) 9,983,344
-------------- ------------- ------------- ------------
Net increase (decrease) in net
assets from operations.......... 3,242,377 2,299,995 2,218,649 11,544,283
-------------- ------------- ------------- ------------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments............. 129,227,661 125,481,090 33,743,058 18,081,107
Withdrawals....................... (9,185,006) (8,111,565) (5,026,523) (1,965,855)
Annuity benefits.................. (2,972,579) (2,188,638) (830,243) (707,488)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance
and Annuity Company (Sponsor)... (111,951,283) (98,437,925) 18,531,513 14,742,527
Net decrease in investment by
Allmerica Financial Life
Insurance and Annuity
Company (Sponsor)............... -- -- -- (131)
-------------- ------------- ------------- ------------
Net increase in net assets from
capital transactions............ 5,118,793 16,742,962 46,417,805 30,150,160
-------------- ------------- ------------- ------------
Net increase in net assets........ 8,361,170 19,042,957 48,636,454 41,694,443
NET ASSETS:
Beginning of year................... 68,784,654 49,741,697 81,813,163 40,118,720
-------------- ------------- ------------- ------------
End of year......................... $ 77,145,824 $ 68,784,654 $ 130,449,617 $ 81,813,163
-------------- ------------- ------------- ------------
-------------- ------------- ------------- ------------
<CAPTION>
SELECT CAPITAL APPRECIATION FIDELITY VIP HIGH INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)...... $ (715,353) $ (293,059) $ 1,665,480 $ 409,104
Net realized gain (loss).......... 122,244 102,076 445,233 197,551
Net unrealized gain (loss)........ 8,440,399 255,084 5,256,704 1,271,076
------------ ------------ ------------ ------------
Net increase (decrease) in net
assets from operations.......... 7,847,290 64,101 7,367,417 1,877,731
------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments............. 23,378,356 15,193,651 24,147,277 11,120,091
Withdrawals....................... (1,984,458) (674,569) (1,540,245) (646,913)
Annuity benefits.................. (728,926) (342,590) (642,692) (152,621)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance
and Annuity Company (Sponsor)... 8,618,944 14,243,697 14,451,348 8,855,108
Net decrease in investment by
Allmerica Financial Life
Insurance and Annuity
Company (Sponsor)............... -- (293) -- (244)
------------ ------------ ------------ ------------
Net increase in net assets from
capital transactions............ 29,283,916 28,419,896 36,415,688 19,175,421
------------ ------------ ------------ ------------
Net increase in net assets........ 37,131,206 28,483,997 43,783,105 21,053,152
NET ASSETS:
Beginning of year................... 35,985,363 7,501,366 28,414,712 7,361,560
------------ ------------ ------------ ------------
End of year......................... $ 73,116,569 $ 35,985,363 $ 72,197,817 $ 28,414,712
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
T. ROWE PRICE
FIDELITY VIP EQUITY-INCOME FIDELITY VIP GROWTH INTERNATIONAL STOCK
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------------- --------------------------- ---------------------------
1997 1996 1997 1996 1997 1996
------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)...... $ (214,441) $ (307,461) $ (515,203) $ (264,824) $ (63,456) $ 28,642
Net realized gain (loss).......... 4,197,899 593,563 1,395,910 672,039 1,470,900 167,304
Net unrealized gain (loss)........ 11,931,704 2,785,423 9,153,516 1,680,882 (1,612,907) 1,157,339
------------- ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets from operations........... 15,915,162 3,071,525 10,034,223 2,088,097 (205,463) 1,353,285
------------- ------------ ------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments............. 37,371,024 17,074,371 26,585,405 14,378,774 16,331,917 7,419,649
Withdrawals....................... (3,009,887) (963,035) (2,025,514) (838,572) (1,619,234) (345,338)
Annuity benefits.................. (501,372) (270,530) (774,277) (189,479) (397,243) (121,005)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance
and Annuity Company (Sponsor)... 18,144,773 12,632,288 9,471,706 10,876,313 7,589,382 7,229,762
Net decrease in investment by
Allmerica Financial Life
Insurance and Annuity
Company (Sponsor)............... -- (266) -- (279) -- (234)
------------- ------------ ------------ ------------ ------------ ------------
Net increase in net assets from
capital transactions............. 52,004,538 28,472,828 33,257,320 24,226,757 21,904,822 14,182,834
------------- ------------ ------------ ------------ ------------ ------------
Net increase in net assets........ 67,919,700 31,544,353 43,291,543 26,314,854 21,699,359 15,536,119
NET ASSETS:
Beginning of year................... 42,517,326 10,972,973 34,559,927 8,245,073 19,864,571 4,328,452
------------- ------------ ------------ ------------ ------------ ------------
End of year......................... $ 110,437,026 $ 42,517,326 $ 77,851,470 $ 34,559,927 $ 41,563,930 $ 19,864,571
------------- ------------ ------------ ------------ ------------ ------------
------------- ------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Allmerica Select Separate Account (Allmerica Select) is a separate
investment account of Allmerica Financial Life Insurance and Annuity Company
(the Company), established on March 5, 1992 for the purpose of separating from
the general assets of the Company those assets used to fund certain variable
annuity contracts issued by the Company. The Company is a wholly-owned
subsidiary of First Allmerica Financial Life Insurance Company (First
Allmerica). First Allmerica is a wholly-owned subsidiary of Allmerica Financial
Corporation (AFC). Under applicable insurance law, the assets and liabilities of
Allmerica Select are clearly identified and distinguished from the other assets
and liabilities of the Company. Allmerica Select cannot be charged with
liabilities arising out of any other business of the Company.
Allmerica Select is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Allmerica Select
currently offers eleven Sub-Accounts. Each Sub-Account invests exclusively in a
corresponding investment portfolio of Allmerica Investment Trust (the Trust)
managed by Allmerica Investment Management Company, Inc., a wholly-owned
subsidiary of First Allmerica; or of the Variable Insurance Products Fund
(Fidelity VIP) managed by Fidelity Management and Research Company (FMR); or of
T. Rowe Price International Series, Inc. (T. Rowe Price) managed by Rowe
Price-Fleming International, Inc. The Trust, Fidelity VIP, and T. Rowe Price
(the Funds) are open-end, diversified management investment companies registered
under the 1940 Act.
Allmerica Select funds 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
Section 401, 403, or 408 of the Internal Revenue Code (the Code), while a
non-qualified contract is one that is not purchased in connection with one of
the indicated retirement plans. The tax treatment for certain partial
withdrawals or surrenders will vary according to whether they are made from a
qualified contract or a non-qualified contract.
Certain prior year balances have been reclassified to conform with current
year presentation.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS -- Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Trust, Fidelity VIP, or T. Rowe
Price. Net realized gains and losses on securities sold are determined using the
average cost method. Dividends and capital gain distributions are recorded on
the ex-dividend date and are reinvested in additional shares of the respective
investment portfolio of the Trust, Fidelity VIP, or T. Rowe Price at net asset
value.
FEDERAL INCOME TAXES -- The Company is taxed as a "life insurance company"
under Subchapter L of the Code and files a consolidated federal income tax
return with First Allmerica. The Company anticipates no tax liability resulting
from the operations of Allmerica Select. Therefore, no provision for income
taxes has been charged against Allmerica Select.
SA-6
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trust, Fidelity VIP, and T. Rowe Price at
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
---------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
- ----------------------------------------------------- ------------ ------------ ---------
<S> <C> <C> <C>
Select Aggressive Growth............................. 88,307,556 $161,720,844 $ 2.225
Select Growth........................................ 113,769,314 162,945,900 1.811
Select Growth and Income............................. 137,364,359 181,039,335 1.552
Select Income........................................ 92,154,056 92,321,142 1.022
Money Market......................................... 77,142,678 77,142,678 1.000
Select International Equity.......................... 97,277,865 120,978,419 1.341
Select Capital Appreciation.......................... 43,085,780 63,797,799 1.697
Fidelity VIP High Income............................. 5,316,481 65,421,299 13.580
Fidelity VIP Equity-Income........................... 4,548,477 94,994,814 24.280
Fidelity VIP Growth.................................. 2,098,422 67,001,014 37.100
T. Rowe Price International Stock.................... 3,262,475 41,881,643 12.740
</TABLE>
NOTE 4 -- RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum based on the average daily net
assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account .15% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account and are paid to
the Company on a daily basis.
For contracts issued on Form A3020-92 (Allmerica Select Resource I), a
contract fee of $30 is currently deducted on the contract anniversary date and
upon full surrender of the contract. For contracts issued on Form 3025-96,
(Allmerica Select Resource II) a $30 fee is deducted on the contract anniversary
and upon full surrender if the accumulated value is less than $50,000 and is
currently waived for contracts issued to the trustee of a 401(k) plan. For the
years ended December 31, 1997 an 1996, contract fees deducted from accumulated
value in Allmerica Select amounted to $405,117 and $266,191, respectively. These
amounts are included on the statements of changes in net assets with other
transfers to the General Account.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of Allmerica Select, and does not receive any compensation for sales of the
contracts. Commissions are paid by the Company to registered representatives of
broker-dealers who are registered under the Securities Exchange Act of 1934 and
are members of the National Association of Securities Dealers. As the current
series of contracts have a contingent deferred sales charge, no deduction is
made for sales charges at the time of the sale. For the years ended December 31,
1997 and 1996, the Company received $793,493 and 471,688, respectively, for
contingent deferred sales charges applicable to Allmerica Select.
SA-7
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
-------------------------------- --------------------------------
UNITS AMOUNT UNITS AMOUNT
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Select Aggressive Growth
Issuance of Units......................... 33,846,682 $ 75,147,109 26,911,849 $ 53,424,660
Redemption of Units....................... (16,878,413) (35,080,458) (13,656,291) (26,773,935)
-------------- ---------------- -------------- ----------------
Net increase............................ 16,968,269 $ 40,066,651 13,255,558 $ 26,650,725
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select Growth
Issuance of Units......................... 46,267,945 $ 85,189,100 25,962,263 $ 38,924,872
Redemption of Units....................... (15,928,340) (28,050,338) (10,842,178) (16,267,398)
-------------- ---------------- -------------- ----------------
Net increase............................ 30,339,605 $ 57,138,762 15,120,085 $ 22,657,474
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select Growth and Income
Issuance of Units......................... 44,731,254 $ 80,982,519 27,531,128 $ 42,861,295
Redemption of Units....................... (15,854,780) (27,408,205) (11,557,955) (18,274,525)
-------------- ---------------- -------------- ----------------
Net increase............................ 28,876,474 $ 53,574,314 15,973,173 $ 24,586,770
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select Income
Issuance of Units......................... 28,213,650 $ 34,575,615 23,535,352 $ 28,134,346
Redemption of Units....................... (14,565,754) (17,556,578) (11,633,993) (14,110,868)
-------------- ---------------- -------------- ----------------
Net increase............................ 13,647,896 $ 17,019,037 11,901,359 $ 14,023,478
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Money Market
Issuance of Units......................... 184,460,786 $ 205,139,510 157,405,675 $ 176,165,328
Redemption of Units....................... (179,708,703) (200,020,717) (142,303,662) (159,422,366)
-------------- ---------------- -------------- ----------------
Net increase............................ 4,752,083 $ 5,118,793 15,102,013 $ 16,742,962
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select International Equity
Issuance of Units......................... 50,880,736 $ 70,478,183 36,476,671 $ 44,972,973
Redemption of Units....................... (18,015,151) (24,060,378) (11,730,203) (14,822,813)
-------------- ---------------- -------------- ----------------
Net increase............................ 32,865,585 $ 46,417,805 24,746,468 $ 30,150,160
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select Capital Appreciation
Issuance of Units......................... 29,860,999 $ 43,787,971 21,869,543 $ 33,270,410
Redemption of Units....................... (10,385,180) (14,504,055) (3,037,049) (4,850,514)
-------------- ---------------- -------------- ----------------
Net increase............................ 19,475,819 $ 29,283,916 18,832,494 $ 28,419,896
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Fidelity VIP High Income
Issuance of Units......................... 40,320,288 $ 52,914,842 22,485,546 $ 26,799,530
Redemption of Units....................... (12,900,932) (16,499,154) (6,149,143) (7,624,109)
-------------- ---------------- -------------- ----------------
Net increase............................ 27,419,356 $ 36,415,688 16,336,403 $ 19,175,421
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
</TABLE>
SA-8
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
-------------------------------- --------------------------------
UNITS AMOUNT UNITS AMOUNT
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Fidelity VIP Equity-Income
Issuance of Units......................... 44,976,217 $ 67,922,420 27,033,649 $ 34,640,447
Redemption of Units....................... (11,526,295) (15,917,882) (4,566,103) (6,167,619)
-------------- ---------------- -------------- ----------------
Net increase............................ 33,449,922 $ 52,004,538 22,467,546 $ 28,472,828
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Fidelity VIP Growth
Issuance of Units......................... 29,081,173 $ 44,906,335 21,130,105 $ 28,609,913
Redemption of Units....................... (8,054,427) (11,649,015) (3,062,153) (4,383,156)
-------------- ---------------- -------------- ----------------
Net increase............................ 21,026,746 $ 33,257,320 18,067,952 $ 24,226,757
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
T. Rowe Price International Stock
Issuance of Units......................... 32,358,642 $ 40,274,630 15,607,585 $ 18,032,232
Redemption of Units....................... (14,891,726) (18,369,808) (3,163,686) (3,849,398)
-------------- ---------------- -------------- ----------------
Net increase............................ 17,466,916 $ 21,904,822 12,443,899 $ 14,182,834
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
</TABLE>
NOTE 6 -- DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Code, a variable annuity
contract, other than a contract issued in connection with certain types of
employee benefit plans, will not be treated as an annuity contract for federal
income tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
The Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that Allmerica Select satisfies the current
requirements of the regulations, and it intends that Allmerica Select will
continue to meet such requirements.
SA-9
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust, Fidelity VIP, and T.
Rowe Price shares by Allmerica Select during the year ended December 31, 1997
were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- --------------------------------------------------------------- -------------- ----------------
<S> <C> <C>
Select Aggressive Growth........................................ $ 62,442,583 $ 9,366,288
Select Growth................................................... 70,218,677 4,111,219
Select Growth and Income........................................ 76,015,661 4,412,551
Select Income................................................... 24,524,139 3,609,073
Money Market.................................................... 80,024,137 71,666,114
Select International Equity..................................... 59,107,276 7,119,182
Select Capital Appreciation..................................... 31,938,079 3,369,516
Fidelity VIP High Income........................................ 43,545,125 5,172,156
Fidelity VIP Equity-Income...................................... 59,371,748 3,556,822
Fidelity VIP Growth............................................. 36,753,261 2,867,994
T. Rowe Price International Stock............................... 32,972,721 10,592,563
------------ ------------
Totals.......................................................... $576,913,407 $125,843,478
------------ ------------
------------ ------------
</TABLE>
SA-10
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Financial Statements Included in Part A
None
Financial Statements Included in Part B
Financial Statements for Allmerica Financial Life Insurance and
Annuity Company
Financial Statements for Allmerica Select Separate Account of
Allmerica Financial Life Insurance and Annuity Company
Financial Statements Included in Part C
None
(b) EXHIBITS
EXHIBIT 1 Vote of Board of Directors Authorizing Establishment of
Registrant dated March 5, 1992 was previously filed on
April 24, 1998 in Registration Statement No. 811-6632,
Post-Effective Amendment No. 16 and is incorporated by
reference herein.
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 (a) Underwriting and Administrative Services Agreement
was previously filed on April 24, 1998 in
Registration Statement No. 811-6632, Post-Effective
Amendment No. 16 and is incorporated by reference
herein.
(b) Form of Revised Commission schedule was previously
filed on September 9, 1998 in Registrant's Initial
Registration Statement and is incorporated by
reference herein. Sales Agreements (Select) with
Commission Schedule were previously filed on April
24, 1998 in Registration Statement No. 811-6632,
Post-Effective Amendment No. 16 and are incorporated
by reference herein.
(c) General Agent's Agreement was previously filed on
April 24, 1998 in Registration Statement
No. 811-6632, Post-Effective Amendment No. 16 and
is incorporated by reference herein.
(d) Career Agent Agreement was previously filed on
April 24, 1998 in Registration Statement
No. 811-6632, Post-Effective Amendment No. 16 and
is incorporated by reference herein.
(e) Registered Representative's Agreement was previously
filed on April 24, 1998 in Registration Statement
No. 811-6632, Post-Effective Amendment No. 16 and
is incorporated by reference herein.
EXHIBIT 4 Contract Form 3027-98 is filed herewith.
EXHIBIT 5 Draft Application Form AS-495 is filed herewith.
EXHIBIT 6 The Depositor's Articles of Incorporation and Bylaws, as
amended to reflect its name change were previously filed
on September 29, 1995 in Post-Effective Amendment No. 7
and are incorporated by reference herein.
EXHIBIT 7 Not Applicable.
EXHIBIT 8 (a) Fidelity Service Agreement was previously filed on
April 30, 1996 in Post-Effective No. 8 and is
incorporated by reference herein.
(b) An Amendment to the Fidelity Service Agreement,
effective as of January 1, 1997, was previously
filed on April 30, 1997 in Post-Effective Amendment
No. 12 and is incorporated by reference herein.
(c) Fidelity Service Contract, effective as of January
1, 1997, was previously filed on April 30, 1997 in
Post-Effective Amendment No. 12 and is incorporated
by reference herein.
(d) T. Rowe Price Service Agreement was previously
filed on April 24, 1998 in Registration Statement
No. 811-6632, Post-Effective Amendment No. 16 and
is incorporated by reference herein.
(e) BFDS Agreements for lockbox and mailroom services
were previously filed on April 24, 1998 in
Registration Statement No. 811-6632, Post-Effective
Amendment No. 16 and are incorporated by reference
herein.
EXHIBIT 9 Opinion of Counsel is filed herewith.
EXHIBIT 10 Consent of Independent Accountants is filed herewith.
EXHIBIT 11 None.
EXHIBIT 12 None.
EXHIBIT 13 Not Applicable.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 (a) Participation Agreement between the Company and
Allmerica Investment Trust was previously filed
on April 24, 1998 in Registration Statement
No. 811-6632, Post-Effective Amendment No. 16
and is incorporated by reference herein.
(b) Participation Agreement between the Company and
Fidelity VIP, as amended, was previously filed
on April 24, 1998 in Registration Statement
No. 811-6632, Post-Effective Amendment No. 16
and is incorporated by reference herein.
(c) Participation Agreement between the Company and T.
Rowe Price International Series, Inc. was
previously filed on April 24, 1998 in Registration
Statement No. 811-6632, Post-Effective Amendment
No. 16 and is incorporated by reference herein.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The principal business address of all the following Directors and Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING
WITH COMPANY PAST FIVE YEARS
<S> <C>
Bruce C. Anderson Director of First Allmerica since 1996; Vice
Director President, First Allmerica since 1984
Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel,
Secretary and Counsel First Allmerica since 1991
Warren E. Barnes Vice President and Corporate Controller of First
Vice President and Corporate Controller Allmerica since 1998; Vice President and Co-
Controller, First Allmerica 1997; Vice President and
Assistant Controller, First Allmerica 1996 to 1997;
Assistant Vice President and Assistant Controller,
First Allmerica 1995 to 1996; Assistant Vice
President Corporate Accounting and Reporting,
First Allmerica 1993 to 1995
Robert E. Bruce Director and Chief Information Officer of First
Director and Chief Information Officer Allmerica since 1997; Vice President of First
Allmerica since 1995; Corporate Manager, Digital
Equipment Corporation 1979 to 1995
John P. Kavanaugh Director and Chief Investment Officer of First
Director, Vice President and Allmerica since 1996; Vice President, First
Chief Investment Officer Allmerica since 1991
John F. Kelly Director of First Allmerica since 1996; Senior Vice
Director, Vice President and President, First Allmerica since 1986; General
General Counsel Counsel, First Allmerica since 1981; Assistant
Secretary, First Allmerica since 1991
J. Barry May Director of First Allmerica since 1996; Director and
Director President, The Hanover Insurance Company since
1996; Vice President, The Hanover Insurance
Company, 1993 to 1996; General Manager, The
Hanover Insurance Company 1989 to 1993
James R. McAuliffe Director of First Allmerica since 1996; Director of
Director Citizens Insurance Company of America since
1992, President since 1994, and CEO since 1996;
Vice President, First Allmerica 1982 to 1994; Chief
Investment Officer, First Allmerica 1986 to 1994
John F. O'Brien Director, Chairman of the Board, President and
Director, Chairman of the Board, Chief Executive Officer, First Allmerica since 1989
President and Chief Executive Officer
Edward J. Parry, III Director and Chief Financial Officer of First
Director, Vice President, Allmerica since 1996; Vice President and
Chief Financial Officer and Treasurer and Treasurer, First Allmerica since 1993; Assistant
Vice President 1992 to 1993
Richard M. Reilly Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica since 1990; Director,
Allmerica Investments, Inc. since 1990; Director
and President, Allmerica Financial Investment
Management Services, Inc. since 1990
Robert P. Restrepo, Jr. Chief Executive Officer of Travelers Property & Casualty
Director Company 1996-1998; Senior Vice President of Aetna Life &
Casualty Company 1993-1996
Eric A. Simonsen Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica since 1990; Chief
Financial Officer, First Allmerica 1990 to 1996
Phillip E. Soule Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica since 1987
</TABLE>
<PAGE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
See attached organization chart.
<TABLE>
<CAPTION>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | |
______________________________________________________________________________________________________________
Financial 100% 100% 100% 100% 100% 100%
Profiles, Inc. Allmerica, Inc. Allmerica First Allmerica AFC Capital Allmerica First Sterling
Funding Corp. Financial Life Trust I Services Limited
Insurance Corporation
Company
California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| |
_____________ _____________
| |
100% 100%
SMA First Sterling
Financial Corp. Reinsurance
Company
Limited
New Jersey Massachusetts Bermuda
|
______________________________________________________________________________________________________________________
| | | | | |
70% 100% 99.2% 100% 100% 100%
Allmerica Sterling Risk Allmerica Allmerica Allmerica Allmerica
Property Management Trust Investments, Financial Financial Life
& Casualty Services, Inc. Company, N.A. Inc. Investment Insurance and
Companies, Inc. Management Annuity Company
Services, Inc.
Federally
Delaware Delaware Chartered Massachusetts Massachusetts Delaware
|
___________________________________________________________________________ ______|_______
| | | | |
100% 100% 100% 100% 100%
APC The Hanover Allmerica Citizens Somerset
Funding Corp. Insurance Financial Insurance Square, Inc.
Company Insurance Company of
Brokers, Inc. Illinois
Massachusetts New Hampshire Massachusetts Illinois Massachusetts
|
______________________________________________________________________________________________________________________
| | | | |
100% 100% 100% 100% 82.5% 100%
Allmerica Allmerica The Hanover Hanover Texas Citizens Massachusetts
Financial Plus American Insurance Corporation Bay Insurance
Benefit Insurance Insurance Management Company
Insurance Agency, Inc. Company Company, Inc.
Company
Pennsylvania Massachusetts New Hampshire Texas Delaware New Hampshire
|
________________________________________________________
| | |
100% 100% 100%
Citizens Citizens Insurance Citizens
Insurance Company of Insurance
Company of Ohio America Company of the
Midwest
Ohio Michigan Indiana
|
_______________
100%
Citizens
Management Inc.
Michigan
</TABLE>
<TABLE>
<CAPTION>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | |
_______________________________________________________________________________________________________________________
Financial 100% 100% 100% 100% 100% 100%
Profiles, Inc. Allmerica, Inc. Allmerica First Allmerica AFC Capital Allmerica First Sterling
Funding Corp. Financial Life Trust I Services Limited
Insurance Corporation
Company
California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| |
_____________________________________________________________________________________________________________________
| | | | |
100% 100% 100% 100% 100%
Allmerica Allmerica Allmerica Allmerica Allmerica
Investment Asset Financial Services Asset Benefits
Management Management, Insurance Management, Inc.
Company, Inc. Inc. Agency, Inc. Limited
Massachusetts Massachusetts Massachusetts Bermuda Florida
________________ _________________________________
Allmerica Equity Greendale AAM
Index Pool Special Equity Fund
Placements
Fund
Massachusetts Massachusetts Massachusetts
_____________________________________
| | -------------- Grantor Trusts established for the benefit of First
100% 100% Allmerica, Allmerica Financial Life, Hanover and
Allmerica AMGRO, Inc. Citizens
Financial Allmerica Allmerica
Alliance Investment Trust Securities
Insurance Trust
Company
Massachusetts Massachusetts
New Hampshire Massachusetts
|
_______________
|
100% -------------- Affiliated Management Investment Companies
Lloyds
Credit Hanover Lloyd's
Corporation Insurance
Company
Massachusetts Texas
-------------- Affiliated Lloyd's plan company, controlled by
Underwriters for the benefit of The Hanover
Insurance Company
AAM AAM
Growth & High
Income Fund Yield Fund,
L.P. L.L.C.
Delaware Massachusetts
-------------- L.P. or L.L.C. established for the benefit of
First Allmerica, Allmerica
Financial Life, Hanover and
Citizens
</TABLE>
<PAGE>
ALLMERICA 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
AAM Growth & Income Fund L.P. 440 Lincoln Street Limited Partnership
Worcester MA 01653
AFC Capital Trust I 440 Lincoln Street Statutory Business Trust
Worcester MA 01653
Allmerica Asset Management Limited 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Benefits, Inc. 440 Lincoln Street Non-insurance medical services
Worcester MA 01653
Allmerica Equity Index Pool 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
Allmerica Financial Alliance Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
Allmerica Financial Benefit Insurance 100 North Parkway Multi-line property and casualty insurance
Company Worcester MA 01605
Allmerica Financial Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Financial Insurance Brokers, 440 Lincoln Street Insurance Broker
Inc. Worcester MA 01653
Allmerica Financial Life Insurance and 440 Lincoln Street Life insurance, accident and
Annuity Company (formerly known as Worcester MA 01653 health insurance, annuities,
SMA Life Assurance Company) variable annuities and variable life
insurance
Allmerica Financial Services Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding vehicle
Worcester MA 01653 for commercial paper
Allmerica, Inc. 440 Lincoln Street Common employer for Allmerica
Worcester MA 01653 Financial Corporation entities
Allmerica Financial Investment 440 Lincoln Street Investment advisory services
Management Services, Inc. Worcester MA 01653
(formerly known as Allmerica
Institutional Services, Inc.)
Allmerica Investment Management 440 Lincoln Street Investment advisory services
Company, Inc. Worcester MA 01653
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Plus Insurance Agency, Inc. 440 Lincoln Street Insurance Agency
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 services
Worcester MA 01653 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 vehicle
Worcester MA 01653 for commercial paper
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of America 645 West Grand River Multi-line property and casualty
Howell MI 48843 insurance
Citizens Insurance Company of Illinois 333 Pierce Road Multi-line property and casualty
Itasca IL 60143 insurance
Citizens Insurance Company of the 3950 Priority Way Multi-line property and casualty
Midwest South Drive, Suite 200 insurance
Indianapolis IN 46280
Citizens Insurance Company 8101 N. High Street Multi-line property and casualty
of Ohio P.O. Box 342250 insurance
Columbus OH 43234
Citizens Management, Inc. 645 West Grand River Services management company
Howell MI 48843
Financial Profiles 5421 Avenida Encinas Computer software company
Carlsbad, CA 92008
First Allmerica Financial Life 440 Lincoln Street Life, pension, annuity, accident
Insurance Company (formerly Worcester MA 01653 and health insurance company
State Mutual Life Assurance
Company of America)
First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653
First Sterling Reinsurance 440 Lincoln Street
Company Limited Worcester MA 01653 Reinsurance Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
The Hanover American Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
The Hanover Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
Hanover Texas Insurance Management 801 East Campbell Road Attorney-in-fact for Hanover
Company, Inc. Richardson TX 75081 Lloyd's Insurance Company
Hanover Lloyd's Insurance Company 801 East Campbell Road Multi-line property and casualty
Richardson TX 75081 insurance
Lloyds Credit Corporation 440 Lincoln Street Premium financing service
Worcester MA 01653 franchises
Massachusetts Bay Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 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 October 30, 1998, there were 12,527 Contract Owners of qualified
Contracts and 18,053 Contract Owners of non-qualified Contracts funded
by the Registrant under Registration Statement No. 33-47216.
As of October 30, 1998, there were no Contract Form 3027-98 Owners since
sales had not yet begun.
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 judgment, 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.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, VEL Account III, Select Account III,
Inheiritage Account, Separate Accounts VA-A, VA-B, VA-C, VA-G,
VA-H, VA-K, VA-P, Allmerica Select Separate Account II, Group VEL
Account, Separate Account KG, Separate Account KGC, Fulcrum
Separate Account, Fulcrum Variable Life Separate Account,
Allmerica Select Separate Account of Allmerica Financial Life
Insurance and Annuity Company
- Inheiritage Account, VEL II Account, Separate Account I, Separate
Account VA-K, Separate Account VA-P, Group VEL Account,
Separate Account KG, Separate Account KGC, Fulcrum Separate
Account, and Allmerica Select Separate Account 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
---- -----------------------------------
Abigail M. Armstrong Secretary and Counsel
Emil J. Aberizk, Jr. Vice President
Edward T. Berger Vice President and Chief Compliance
Officer
Richard F. Betzler, Jr. Vice President
Thomas P. Cunningham Vice President, Chief Financial Officer
and Controller
Philip L. Heffernan Vice President
John F. Kelly Director
Daniel Mastrototaro Vice President
William F. Monroe, Jr. Vice President
David J. Mueller 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 G. 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 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained by
the Company at 440 Lincoln Street, Worcester, Massachusetts.
ITEM 31. MANAGEMENT SERVICES
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 ("SEC") such
supplementary and periodic information, documents, and reports as may
be prescribed by any rule or regulation of the SEC 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.
(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.
<PAGE>
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
Pre-Effective Amendment to its Registration Statement under the Securities
Act of 1933 and amendment under the Investment Company Act of 1940 to be
signed on behalf by the undersigned, thereto duly authorized, in the City of
Worcester, and Commonwealth of Massachusetts, on the 17th day of November
1998.
ALLMERICA SELECT SEPARATE ACCOUNT OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Abigail M. Armstrong
-----------------------------------------
Abigail M. Armstrong, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on
the date indicated.
SIGNATURES TITLE DATE
/s/ John F. O'Brien Director and Chairman of November 17, 1998
- ------------------------------ the Board
John F. O'Brien
/s/ Bruce C. Anderson Director
- ------------------------------
Bruce C. Anderson
/s/ Warren E. Barnes Vice President and
- ------------------------------ Corporate Controller
Warren E. Barnes
/s/ Robert E. Bruce Director and Chief
- ------------------------------ Information Officer
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President
- ------------------------------ and Chief Investment
John P. Kavanaugh Officer
/s/ John F. Kelly Director, Vice President
- ------------------------------ and General Counsel
John F. Kelly
/s/ J. Barry May Director
- ------------------------------
J. Barry May
/s/ James R. McAuliffe Director
- ------------------------------
James R. McAuliffe
/s/ Edward J. Parry III Director, Vice President,
- ------------------------------ Chief Financial Officer
Edward J. Parry III (Controller) and Treasurer
/s/ Richard M. Reilly Director, President and
- ------------------------------ Chief Executive Officer
Richard M. Reilly
/s/ Robert P. Restrepo, Jr. Director
- ------------------------------
Robert P. Restrepo, Jr.
/s/ Eric A. Simonsen Director and Vice President
- ------------------------------
Eric A. Simonsen
/s/ Phillip E. Soule Director
- ------------------------------
Phillip E. Soule
<PAGE>
EXHIBIT TABLE
Exhibit 4 Contract Form 3027
Exhibit 5 Draft Application Form AS-495
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
ANNUITY BENEFIT PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED
ON THE INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. PLEASE REFER TO THE VALUE OF
THE VARIABLE ACCOUNT SECTION FOR ADDITIONAL INFORMATION.
VALUES REMOVED FROM A GUARANTEE PERIOD ACCOUNT PRIOR TO THE END OF ITS GUARANTEE
PERIOD MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT THAT MAY INCREASE OR DECREASE
THE VALUES. A NEGATIVE MARKET VALUE ADJUSTMENT WILL NEVER BE APPLIED TO THE
DEATH BENEFIT. A POSITIVE MARKET VALUE ADJUSTMENT, IF APPLICABLE, WILL BE ADDED
TO THE DEATH BENEFIT WHEN THE BENEFIT PAID IS THE CONTRACT'S ACCUMULATED VALUE.
PLEASE REFER TO THE MARKET VALUE ADJUSTMENT SECTION FOR ADDITIONAL INFORMATION.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of its
authorized representatives within ten days after receipt. If returned, the
Company will refund an amount equal to the sum of (1) gross payments, less any
amounts allocated to the Variable Account, (2) the Accumulated Value of amounts
allocated to the Variable Account on the date the returned contract is received
at the Principal Office and (3) any fees or other charges imposed on the amounts
allocated to the Variable Account. If, however, the contract is issued as an
Individual Retirement Annuity (IRA), the Company will refund the greater of the
above or the gross payments.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
This is a legal contract between Allmerica Financial Life Insurance and Annuity
Company (the Company) and the Owner and is issued in consideration of the
initial payment shown on the Specifications page. Additional payments are
permitted. Payments may be allocated to Variable Sub-Accounts, the Fixed
Account or Guarantee Period Accounts. While this contract is in effect, the
Company agrees to pay annuity benefits beginning on the Annuity Date or to pay a
death benefit to the Beneficiary if an Owner dies prior to the Annuity Date.
/s/Richard M. Reily /s/Abagail M. Armstrong
President Secretary
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING
1
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . .3
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .5
OWNER, ANNUITANT AND BENEFICIARY . . . . . . . . . . . . . . . .7
PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
VALUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
WITHDRAWAL AND SURRENDER . . . . . . . . . . . . . . . . . . . 10
DEATH BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . 11
ANNUITY BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . 12
ANNUITY OPTION TABLES. . . . . . . . . . . . . . . . . . . . . 15
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 18
2
<PAGE>
SPECIFICATIONS
<TABLE>
<S> <C>
Contract Type: [NQ] Contract Number: [zz00600000]
Issue Date: [ ] Annuity Date: [xx/xx/xx]
Owner: [ ] Owner Date of Birth: [xx/xx/xx]
Joint Owner: [ ] Joint Owner Date of Birth: [xx/xx/xx]
Annuitant: [ ] Annuitant Date of Birth: [xx/xx/xx]
Joint Annuitant: [ ] Joint Annuitant Date of Birth [xx/xx/xx]
Annuitant Sex: [ ] Primary Beneficiary: [ ]
Joint Annuitant Sex [ ] Contingent Beneficiary: [ ]
Minimum Fixed Account Guaranteed Interest Rate: [3%] Minimum Additional Payment: [$100.00]
Minimum Guarantee Period Account Interest Rate: [3%] Minimum Guarantee Period [$1,000.00]
Account Allocation Amount:
Minimum Withdrawal Amount: [$100.00] Minimum Accumulated Value [$1,000.00]
After Withdrawal:
Minimum Annuity Benefit Payment: [$50.00] Maximum Alternative [xx/xx/xx]
Annuity Date:
Mortality and Expense Risk Charge: [1.25%] on an annual basis of the daily value of the Sub-Account assets.
Administrative Charge: [.15%] on an annual basis of the daily value of the Sub-Account assets.
Contract Fee: [$35, if the Accumulated Value is less than $75,000.00]
[Enhanced Death Benefit Rider [.25%]
Annual Percentage Rate Charge:
[Enhanced Death Benefit Rider [5%]
Effective Annual Yield
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653 (1-800-782-8380)
</TABLE>
3
<PAGE>
SPECIFICATIONS (continued)
Owner: [ ] Contract Number: [zz00600000]
Joint Owner: [ ]
Initial Net Payment: [$25,000.00]
Initial Net Payment Allocation:
VARIABLE SUB-ACCOUNTS
[Select Emerging Markets Select Gr. & Inc.
Select Int'l Equity Fidelity VIP Eq. Inc.
T. Rowe Prince Int'l Fidelity VIP High Inc.
Select Aggr. Growth Select Income
Select Capital Appr. Allmerica Money Mkt.]
Select Value Opp.
Select Growth
Select Strategic Gr.
Fidelity VIP Growth
[You may invest in up to 17 over the life of your contract.]
FIXED ACCOUNT
Initial Interest Rate:
GUARANTEE PERIOD ACCOUNTS
<TABLE>
<CAPTION>
Guaranteed
Guarantee
Interest Interest Expiration
Period Rate Date
------ ---- ----
<S> <C> <C>
[2 years
3 years
4 years
5 years
6 years
7 years
8 years
9 years
10 years]
- -----
100 % TOTAL
</TABLE>
4
<PAGE>
DEFINITIONS
ACCUMULATED VALUE
The aggregate value of all accounts in this contract before the Annuity Date.
As long as the Accumulated Value is greater than zero, the contract will stay in
effect.
ACCUMULATION UNIT
A measure used to calculate the value of a Sub-Account before annuity benefit
payments begin.
ANNUITANT
At issue, the person whose age is used to determine the Annuity Date. On and
after the Annuity Date, the person upon whose continuation of life annuity
benefit payments involving life contingency depend. Joint Annuitants are
permitted and unless otherwise indicated, any reference to Annuitant shall
include joint Annuitants.
ANNUITY DATE
The date annuity benefit payments begin. The Annuity Date is based upon the age
of the Owner. The Annuity Date is shown on the Specifications page.
ANNUITY UNIT
A measure used to calculate annuity benefit payments under a variable annuity
option.
BENEFICIARY
The person, persons or entity entitled to the annuity benefit prior to the
Annuity Date or any annuity benefit payments upon the death of an Owner who is
not also an Annuitanton or after the Annuity Date.
COMPANY
Allmerica Financial Life Insurance and Annuity Company.
CONTRACT YEAR
A one-year period based on the date of issue or an anniversary thereof.
FIXED ACCOUNT
The part of the Company's General Account to which all or a portion of a payment
or transfer may be allocated.
FUND
Each separate investment company, investment series or portfolio eligible for
investment by a Sub-Account of the Variable Account.
GENERAL ACCOUNT
All assets of the Company that are not allocated to a Separate Account.
GUARANTEE PERIOD
The number of years that a Guaranteed Interest Rate may be credited to a
Guarantee Period Account. The Guarantee Period may range from two to ten years.
GUARANTEE PERIOD ACCOUNT
An account which corresponds to a Guaranteed Interest Rate for a specified
Guarantee Period and is supported by assets in a 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 to earnings in a Guarantee Period Account
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 an
Annuitant and unless otherwise indicated, any reference to Owner shall include
joint Owners.
5
<PAGE>
PRINCIPAL OFFICE
The Company's office at 440 Lincoln Street, Worcester, Massachusetts, 01653.
PRO RATA
How a payment or withdrawal may be allocated among the accounts. A Pro Rata
allocation or withdrawal will be made in the same proportion that the value of
each account bears to the Accumulated Value.
SEPARATE ACCOUNT
A segregated account established by the Company. The assets in a Separate
Account are not commingled with the Company's general assets and obligations.
The assets of a Separate Account are not subject to claims arising out of any
other business the Company may conduct.
SUB-ACCOUNT
A Variable Account subdivision that invests exclusively in shares of a
corresponding Fund.
SURRENDER VALUE
The amount payable to the Owner on full surrender after application of any
Market Value Adjustment and contract fee.
TELEPHONE REQUEST
A request by telephone to the Principal Office. A signed authorization must be
on file for such requests to be honored.
VALUATION DATE
A day the values of all units are determined. Valuation Dates occur on each day
the New York Stock Exchange is open for trading, or such other dates when there
is sufficient trading in a Fund's portfolio securities so that the current unit
value may be materially affected.
VALUATION PERIOD
The interval between two consecutive Valuation Dates.
VARIABLE ACCOUNT
The Company's Separate Account, consisting of Sub-Accounts that invest in the
underlying Funds.
WRITTEN REQUEST OR WRITTEN NOTICE
A request or notice in writing satisfactory to the Company and filed at the
Principal Office.
6
<PAGE>
OWNER, ANNUITANT AND BENEFICIARY
OWNER
When the contract is issued, the Owner will be as shown on the Specifications
page. The Owner may be changed in accordance with the terms of this contract.
Upon the death of an Owner prior to the Annuity Date, a death benefit is paid.
The Annuity Date is based upon the age of the Owner.
The Owner may exercise all rights and options granted in this contract or by the
Company, subject to the consent of any irrevocable Beneficiary. Where the
contract is owned jointly, the consent of both is required in order to exercise
any ownership rights.
ASSIGNMENT
Prior to the Annuity Date and prior to the death of an Owner, the Owner may be
changed at any time. Only the Owner may assign this contract. An absolute
assignment will transfer ownership to the assignee. This contract may also be
collaterally assigned as security. The limitations on ownership rights while
the collateral assignment is in effect are stated in the assignment. Additional
limitations may exist for contracts issued under provisions of the Internal
Revenue Code.
An assignment will take place only when the Company has received Written Notice
and recorded the change at the Principal Office. The Company will not be deemed
to know of the assignment until it has received Written Notice. When recorded,
the assignment will take effect as of the date it was signed. The assignment
will be subject to payments made or actions taken by the Company before the
change was recorded.
The Company will not be responsible for the validity of any assignment nor the
extent of any assignee's interest. The interests of the Annuitant and the
Beneficiary will be subject to any assignment.
ANNUITANT
The Annuitant will be as shown on the Specifications page unless changed in
accordance with the terms of this contract. Prior to the Annuity Date, an
Annuitant may be replaced or added unless the Owner is a non-natural person. At
all times there must be at least one Annuitant. If an Annuitant dies and a
replacement is not named, the Owner will be considered to be the new Annuitant.
A change of Annuitant will take place only when the Company has received Written
Notice and recorded the change at the Principal Office. The Company will not be
deemed to know of the change of Annuitant until it has received Written Notice.
When recorded, the change of Annuitant will take effect as of the date it was
signed. The change of Annuitant will be subject to payments made or actions
taken by the Company before the change was recorded.
BENEFICIARY
The Beneficiary is as named on the Specifications page unless subsequently
changed. The Owner may declare any Beneficiary to be revocable or irrevocable.
A revocable Beneficiary may be changed at any time prior to the Annuity Date and
before the death of an Owner or after the Annuity Date and before the death of
an Annuitant. An irrevocable Beneficiary must consent in writing to any change.
Unless otherwise indicated, the Beneficiary will be revocable.
A Beneficiary change must be made in writing on a Beneficiary designation form
and will be subject to the rights of any assignee of record. When the Company
receives the form, the change will take place as of the date it was signed, even
if the Owner or Annuitant dies after the form is signed but prior to the
Company's receipt of the form. Any rights created by the change will be
subject to payments made or actions taken by the Company before the change was
recorded.
All death benefits provided by this contract will be divided equally among the
surviving Beneficiaries of the same class, unless the Owner directs otherwise.
If there is no surviving Beneficiary, the deceased Beneficiary's interest will
pass to the Owner or the Owner's estate.
7
<PAGE>
PROTECTION OF PROCEEDS
To the extent allowed by law, this contract and any payments made under it will
be exempt from the claims of creditors. Neither the Annuitant nor the
Beneficiary can assign, transfer, commute, anticipate or encumber the proceeds
or payments unless given that right by the Owner.
PAYMENTS
INITIAL PAYMENT
The Initial Payment is shown on the Specifications page.
ADDITIONAL PAYMENTS
Prior to the Annuity Date and while the contract is in force, the Owner may make
additional payments of at least the Minimum Additional Payment (see
Specifications page). Total payments made may not exceed $5,000,000 without the
Company's consent.
NET PAYMENTS
Each Net Payment is equal to the gross payment less the amount of any applicable
premium tax. The Company reserves the right to deduct the amount of the premium
tax from the Accumulated Value at a later date rather than when the premium tax
liability tax is first incurred by the Company. In no event will an amount be
deducted for premium taxes before the Company has incurred a tax liability under
applicable state law.
NET PAYMENT ALLOCATIONS
The initial Net Payment is allocated as shown on the Specifications page.
Additional Net Payments will be allocated in the same proportion as the initial
Net Payment, unless changed by the Owner's Written or Telephone Request,
providing that the telephone authorization is on file at the Company.
The minimum amount that may be allocated to a Guarantee Period Account is shown
on the Specifications page. If the Owner requests an allocation less than the
minimum amount, the Company reserves the right to apply that amount to the Money
Market Sub-Account.
VALUES
VALUE OF THE VARIABLE ACCOUNT
The value of a Sub-Account on a Valuation Date is determined by multiplying
the Accumulation Units in that Sub-Account by the Accumulation Unit Value as of
the Valuation Date.
Accumulation Units are credited when an amount is allocated to a Sub-Account.
The number of Accumulation Units credited equals that amount divided by the
applicable Accumulation Unit Value as of the Valuation Date.
ACCUMULATION UNIT VALUES
The value of a Sub-Account Accumulation Unit as of any Valuation Date is
determined by multiplying the value of an Accumulation Unit for the preceding
Valuation Date by the net investment factor for that Valuation Period.
NET INVESTMENT FACTOR
The net investment factor 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 (a) by (b) and subtracting (c) and (d) where:
(a) is the investment income of a sub-account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
8
<PAGE>
(b) is the value of that sub-account's assets at the beginning of the
valuation period;
(c) is the mortality and expense risk charge (see specifications page); and
(d) is the administrative charge (see specifications page).
The Company assumes the risk that its actual mortality experience and expenses
may exceed the amounts provided under the contract. The Company guarantees that
the charge for mortality and expense risks and the administrative charge will
not be increased. Subject to applicable state and federal laws, these charges
may be decreased or the method used to determine the net investment factor may
be changed.
VALUE OF THE FIXED ACCOUNT
Amounts allocated to the Fixed Account are credited interest at rates
periodically set by the Company. The Company guarantees that the rate of
interest in effect when an amount is allocated to the Fixed Account will
remain in effect for that amount for one year. Thereafter, the rate of
interest for that amount will be the Company's current interest rate, but no
less than the Minimum Fixed Account Guaranteed Interest Rate (see
Specifications page).
The value of the Fixed Account on any date is the sum of amounts allocated to
the Fixed Account plus interest compounded and credited daily at the rates
applicable to those amounts. The value of the Fixed Account will be at least
equal to the minimum required by law in the state in which this contract is
delivered.
VALUE OF THE GUARANTEE PERIOD ACCOUNTS
A Guarantee Period Account will be established on the date a Net Payment or
transfer is allocated to a specific Guarantee Period. Amounts allocated to the
same Guarantee Period on the same day will be treated as one Guarantee Period
Account. The interest rate in effect when an amount is allocated to a Guarantee
Period is guaranteed for the duration of the Guarantee Period. Additional
amounts allocated to Guarantee Periods of the same or different durations will
result in additional Guarantee Period Accounts, each with its own Guaranteed
Interest Rate and expiration date.
The value of a Guarantee Period Account on any date is the sum of the amounts
allocated to that Guarantee Period Account plus interest compounded and credited
daily at the rate applicable to that amount.
GUARANTEED INTEREST RATES
The Company will periodically set Guaranteed Interest Rates for each available
Guarantee Period. These rates will be guaranteed for the duration of the
respective Guarantee Periods. A Guaranteed Interest Rate will never be less
than the Minimum Guarantee Period Account Interest Rate (see Specifications
page.)
RENEWAL GUARANTEE PERIODS
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. The Owner may transfer amounts to the Sub-Accounts, the Fixed
Account or establish a new Guarantee Period Account of any duration then offered
by the Company as of the day following the expiration of the Guarantee Period.
The transfer will not be subject to a Market Value Adjustment; see "Market Value
Adjustment," page 11. Guaranteed Interest Rates corresponding to the available
Guarantee Periods may be higher or lower than the previous Guaranteed Interest
Rate. If reallocation instructions are not received at the Principal Office
before the end of a Guarantee Period, the Guarantee Period Account value will be
automatically applied to a new Guarantee Period Account with the same Guarantee
Period unless:
9
<PAGE>
(a) less than the minimum guarantee period account allocation (see
specifications page) remains in the guarantee period account on its
expiration date; or
(b) the guarantee period would extend beyond the annuity date or is no
longer available.
In such cases, the guarantee period account value will be transferred to the
money market sub-account.
CONTRACT FEE
The Company will deduct a contract fee (see Specifications page) Pro Rata on
each contract anniversary prior to the Annuity Date and when the contract is
surrendered.
TRANSFERS
Prior to the Annuity Date, the Owner may transfer amounts among accounts by
Written or Telephone Request (providing that the telephone authorization is on
file at the Company) to the Principal Office. Transfers to a Guarantee Period
Account must be at least equal to the Minimum Guarantee Period Account
Allocation Amount (see Specifications page). If the Owner requests the transfer
of a smaller amount to the Guarantee Period Account, the Company may transfer
that amount to the Money Market Sub-Account.
Any transfer from a Guarantee Period Account prior to the end of its Guarantee
Period will be subject to a Market Value Adjustment. In the case of a partial
transfer from a Guarantee Period Account, the Market Value Adjustment will be
applied to the value remaining in the account.
There is no charge for the first twelve transfers per contract year. A transfer
charge of up to $25 may be imposed on each additional transfer.
The Company reserves the right to establish and impose reasonable rules
restricting transfers. All transfers are subject to the Company's consent.
WITHDRAWAL AND SURRENDER
Prior to the Annuity Date, the Owner may, by Written Request, withdraw a part of
the Accumulated Value or surrender the contract for its Surrender Value.
Any withdrawal must be at least the Minimum Withdrawal Amount (see
Specifications page). A withdrawal will not be permitted if the Accumulated
Value remaining in the contract would be less than the Minimum Accumulated Value
After Withdrawal (see Specifications page). The Written Request must indicate
the dollar amount to be paid and the accounts from which it is to be withdrawn.
A withdrawal from a Guarantee Period Account will be subject to a Market Value
Adjustment. The Market Value Adjustment will be applied to the value remaining
in the Guarantee Period Account.
When surrendered, this contract terminates and the Company has no further
liability under it. The Surrender Value will be based on the Accumulated Value
on the Valuation Date.
10
<PAGE>
Amounts taken from the Variable Account will be paid within 7 days of the date a
Written Request is received. The Company reserves the right to delay payments
subject to the requirements of applicable laws, rules and regulations governing
variable annuities.
Amounts taken from the Fixed Account or the Guarantee Period Accounts will
normally be paid within 7 days of receipt of a Written Request. The Company may
defer payment for up to six months from the receipt date. If deferred for 30
days or more, the amount payable will be credited interest at a rate of at least
3% or the appropriate rate mandated by the State.
MARKET VALUE ADJUSTMENT
A transfer, withdrawal or surrender from a Guarantee Period Account after the
expiration of its Guarantee Period will not be subject to a Market Value
Adjustment. A Market Value Adjustment will apply to all other transfers or
withdrawals, or to a surrender. Amounts applied under an annuity option are
treated as withdrawals when calculating the Market Value Adjustment. The Market
Value Adjustment will be determined by multiplying the amount taken from each
Guarantee Period Account by the market value factor. The market value factor
for each Guarantee Period Account is equal to:
(1+i)/(1+j)N/365 -1
where:
i - is the Guaranteed Interest Rate expressed as a decimal (for example: 3%
= 0.03) being credited to the current Guarantee Period;
j - is the new Guaranteed Interest Rate, expressed as a decimal, for a
Guarantee Period with a duration equal to the number of years remaining in
the current Guarantee Period, rounded to the next higher number of whole
years. If that rate is not available, the Company will use a suitable rate
or index allowed by the Department of Insurance; and
n - is the number of days remaining from the Effective Valuation Date to the
end of the current Guarantee Period.
If the guaranteed interest rate being credited is lower than the new guaranteed
interest rate, the market value adjustment will decrease the guarantee period
account value. Similarly, if the guaranteed interest rate being credited is
higher than the new guaranteed interest rate, the market value adjustment will
increase the guarantee period account value. The market value adjustment will
never result in a change to the value more than the interest earned in excess of
the minimum guarantee period account interest rate (see specifications page)
compounded annually from the beginning of the current guarantee period.
DEATH BENEFIT
At the death of an Owner prior to the Annuity Date, the Company will pay to the
Beneficiary a death benefit determined as of the Valuation Date upon receipt at
the Principal Office of proof of death. If the Owner is a non-natural person,
then a death benefit is paid on the death of an Annuitant prior to the Annuity
Date.
11
<PAGE>
OWNER'S DEATH BENEFIT
If an Owner dies before the Annuity Date, the death benefit will be the greater
of:
(a) the Accumulated Value increased by any positive Market Value
Adjustment; or
(b) the sum of the gross payments made under this contract reduced
proportionately to reflect all partial 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.
PAYMENT OF THE DEATH BENEFIT
The death benefit will be paid to the Beneficiary within 7 days of the Effective
Valuation Date unless the Owner has specified a death benefit annuity option.
Instead, the Beneficiary may, by Written Request, elect to:
(a) defer distribution of the death benefit for a period no more than 5
years from the date of death; or
(b) receive a life annuity or an annuity for a period certain not extending
beyond the Beneficiary's life expectancy. Annuity benefit payments must
begin within one year from the date of death.
If distribution of the death benefit is deferred under (a) or (b), any value in
Guarantee Period Accounts will be transferred to the Money Market Sub-Account.
The excess, if any, of the death benefit over the Accumulated Value will also be
transferred to the Money Market Sub-Account. The Beneficiary may, by Written
Request, effect transfers and withdrawals, but may not make additional payments.
If there are multiple Beneficiaries, the consent of all is required.
If the sole Beneficiary is the deceased Owner's spouse, the Beneficiary may, by
Written Request, continue the contract and become the new Owner and Annuitant
subject to the following:
(a) any value in the Guarantee Period Accounts will be transferred to the
Money Market Sub-Account;
(b) the excess, if any, of the death benefit over the contract's
Accumulated Value will also be added to the Money Market Sub-Account;
(c) additional payments may be made; and
(d) any subsequent spouse of the new Owner, if named as the Beneficiary,
may not continue the contract.
ANNUITY BENEFIT
ANNUITY OPTIONS
Annuity options are available on a fixed, variable or combination fixed and
variable basis. The annuity options described below or any alternative option
offered by the Company may be chosen. If no option is chosen, monthly benefit
payments under a variable life annuity with payments guaranteed for 10 years
will be made.
The Owner may also elect to have the death benefit applied under a life annuity
or a period certain annuity not extending beyond the Beneficiary's life
expectancy. Such an election may not be altered by the Beneficiary.
12
<PAGE>
Fixed annuity options are funded through the Fixed Account. Variable annuity
options may be funded through one or more of the Sub-Accounts. Not all
Sub-Accounts may be made available.
ANNUITY BENEFIT PAYMENTS
Annuity benefit payments may be received on a monthly, quarterly, semiannual or
annual basis. If the first payment would be less than the Minimum Annuity
Benefit Payment (see Specifications page), a single payment will be made
instead. Satisfactory proof of the date of birth of the Annuitant or
Beneficiary, whichever it applicable, must be received at the Principal Office
before life annuity benefit payments begin. Where a life annuity option has been
elected, the Company may require satisfactory proof that the Annuitant or
Beneficiary, whichever is applicable, is alive before any payment is made.
PAYMENT OF ANNUITY BENEFIT PAYMENTS UPON OWNER DEATH
If an Owner, who is not also an Annuitant, dies on or after the Annuity Date,
any remaining annuity benefit payments continue in accordance with the terms of
the annuity option selected. Upon the death of the Owner, the Beneficiary
becomes the Owner of the contract.
ANNUITY VALUE
The amount of the first annuity benefit payment under all available options
except period certain options will depend on the age of the Annuitant and/or
Beneficiary on the Annuity Date and the annuity value applied. Period certain
options are based on the duration of payments and the annuity value.
For life annuity options and non-commutable period certain options with a
duration of 10 years or more, the annuity value will be the Accumulated Value,
including any applicable Market Value Adjustment less any applicable premium
tax. For commutable period certain options or any period certain option less
than 10 years, the annuity value will be the Surrender Value less any applicable
premium tax. For a death benefit annuity, the annuity value will be the amount
of the death benefit. The annuity value applied under a variable annuity option
is based on the Accumulation Unit Value on a Valuation Date not more than four
weeks, uniformly applied, before the Annuity Date.
ANNUITY UNIT VALUES
A Sub-Account Annuity Unit value on any Valuation Date is equal to its value on
the preceding Valuation Date multiplied by the product of:
(a) a discount factor equivalent to the assumed interest rate; and
(b) the net investment factor of the Sub-Account funding the annuity
benefit payments for the applicable Valuation Period.
The value of an Annuity Unit as of any date other than a Valuation Date is equal
to its value as of the preceding Valuation Date.
Each variable annuity benefit payment is equal to the number of Annuity Units
multiplied by the applicable value of an Annuity Unit, except that under a Joint
and Two-Thirds Option, payments after the first death are based on two-thirds
the number of Annuity Units that applied when both individuals on whose lives
the payments were based were living. Variable annuity benefit payments will
increase or decrease with the value of annuity units. The Company guarantees
that the amount of each variable annuity benefit payment will not be affected by
changes in mortality and expense experience.
NUMBER OF ANNUITY UNITS
The number of Annuity Units determining the benefit payable is equal to the
amount of the first annuity benefit payment divided by the value of the Annuity
Unit as of the Valuation Date used to calculate the amount of the first payment.
Once annuity benefit payments begin, the number of Annuity Units will not change
unless a split is made.
13
<PAGE>
ANNUITY BENEFIT PAYMENT OPTIONS
VARIABLE OR FIXED LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS: Periodic
annuity benefit payments during the Annuitant's life. If the Annuitant dies
before all guaranteed payments have been made, the remaining guaranteed payments
will continue to the Owner.
VARIABLE OR FIXED LIFE ANNUITY: Periodic annuity benefit payments during the
Annuitant's life.
UNIT REFUND VARIABLE OR FIXED LIFE ANNUITY: Periodic annuity benefit payments
during the Annuitant's life. If the Annuitant dies and the annuity value
initially applied to purchase the option, divided by the first payment, exceeds
the number of payments made before the Annuitant's death, payments will continue
to the Owner until the number of payments equals the Annuity Value divided by
the first payment.
JOINT AND SURVIVOR VARIABLE OR FIXED LIFE ANNUITY: Periodic annuity benefit
payments during the joint lifetime of the Annuitant and another individual (i.e.
the Beneficiary or a Joint Annuitant) with payments continuing during the
lifetime of the survivor.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE OR FIXED LIFE ANNUITY: Periodic annuity
benefit payments during the joint lifetime of the Annuitant and one other
individual (i.e. the Beneficiary or a joint Annuitant) with payments continuing
during the lifetime of the survivor at two-thirds the amount payable when both
individuals were living.
VARIABLE OR FIXED ANNUITY FOR A PERIOD CERTAIN: Periodic annuity benefit
payments for a chosen number of years. The number of years selected may be from
1 to 30. If the payee dies before the end of the period, remaining payments
will continue to the Owner.
ANNUITY TABLES
The first annuity benefit payment will be based on the greater of the guaranteed
annuity rates shown in the following tables or the Company's non-guaranteed
current annuity option rates applicable to this class of contracts. Second and
subsequent annuity benefit payments, when based on the investment experience of
the Variable Account, may increase or decrease.
14
<PAGE>
ANNUITY OPTION TABLES
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<CAPTION>
Age Life Annuity with Life Unit Refund
Nearest Payments Guaranteed Annuity Life Annuity
Birthday for 10 Years
<S> <C> <C> <C>
50 4.20 4.22 4.12
4.26 4.28 4.17
51 4.32 4.35 4.23
52 4.38 4.42 4.29
53 4.45 4.49 4.35
54 4.53 4.57 4.41
55
4.60 4.65 4.48
56 4.68 4.73 4.55
57 4.77 4.83 4.63
58 4.86 4.92 4.71
59 4.95 5.03 4.79
60
5.05 5.14 4.88
61 5.16 5.26 4.97
62 5.27 5.38 5.07
63 5.39 5.52 5.17
64 5.51 5.66 5.28
65
5.64 5.82 5.39
66 5.78 5.98 5.51
67 5.92 6.16 5.64
68 6.07 6.35 5.78
69 6.23 6.56 5.92
70
6.39 6.77 6.07
71 6.56 7.01 6.23
72 6.73 7.26 6.40
73 6.91 7.54 6.57
74 7.09 7.83 6.76
75
</TABLE>
These tables are based on an annual interest rate of 3 1/2%
and the Annuity 2000 Mortality Table.
15
<PAGE>
ANNUITY OPTION TABLES (CONTINUED)
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<CAPTION>
Joint and Survivor Life Annuity
Older Age
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 60 65 70 75 80
Y 50 3.82 3.90 3.96 4.01 4.05 4.08 4.09
O
U 55 4.06 4.16 4.25 4.32 4.36 4.39
N
G 60 4.38 4.52 4.64 4.72 4.78
E
R 65 4.82 5.01 5.17 5.28
70 5.42 5.69 5.91
A
G 75 6.28 6.67
E
80 7.52
<CAPTION>
Joint and Two-Thirds Survivor Life Annuity
Older Age
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 60 65 70 75 80
Y 50 4.09 4.23 4.38 4.55 4.74 4.93 5.13
O
U 55 4.40 4.58 4.78 5.00 5.22 5.45
N
G 60 4.81 5.05 5.31 5.58 5.86
E
R 65 5.37 5.70 6.04 6.38
70 6.16 6.59 7.04
A
G 75 7.27 7.87
E
80 8.86
</TABLE>
These tables are based on an annual interest rate of 3 1/2%
and the Annuity 2000 Mortality Table.
16
<PAGE>
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<CAPTION>
Number of Variable or Fixed Annuity Number of Variable or Fixed Annuity
Years for a Years for a
Period Certain Period Certain
<S> <C> <C> <C>
1 84.65 16 6.76
2 43.05 17 6.47
3 29.19 18 6.20
4 22.27 19 5.97
5 18.12 20 5.75
6 15.35 21 5.56
7 13.38 22 5.39
8 11.90 23 5.24
9 10.75 24 5.09
10 9.83 25 4.96
11 9.09 26 4.84
12 8.46 27 4.73
13 7.94 28 4.63
14 7.49 29 4.53
15 7.10 30 4.45
</TABLE>
These tables are based on an annual interest rate of 3 1/2%.
17
<PAGE>
GENERAL PROVISIONS
ENTIRE CONTRACT
The entire contract consists of this contract, any application attached at issue
and any endorsements.
MISSTATEMENT OF AGE
If the age of an individual is misstated, the Company will adjust all benefits
payable to that which would be available at the correct age. Any under payments
already made by the Company will be paid immediately. Any overpayments will be
deducted from future annuity benefits.
MODIFICATIONS
Only the President, a Vice President or Secretary of the Company may modify or
waive any provisions of this contract. Agents or Brokers are not authorized to
do so.
INCONTESTABILITY
The Company cannot contest this contract after it has been in force for more
than two years from the date of issue.
CHANGE OF ANNUITY DATE
The Owner may change the Annuity Date by Written Request at any time after the
contract has been issued. The request must be received at the Principal Office
at least one month before the new Annuity Date. The new Annuity Date must be
the first of any month prior to the Maximum Alternative Annuity Date shown on
the Specifications page.
MINIMUMS
All values, benefits or settlement options available under this contract equal
or exceed those required by the state in which the contract is delivered.
ANNUAL REPORT
The Company will furnish an annual report to the Owner containing a statement of
the number and value of Accumulation Units credited to the Sub-Accounts, the
value of the Fixed Account and the Guarantee Period Accounts and any other
information required by applicable law, rules and regulations.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to compliance with applicable law, to
add to, delete from, or substitute for the shares of a Fund that are held by the
Sub-Accounts or that the Sub-Accounts may purchase. The Company also reserves
the right to eliminate the shares of any Fund no longer available for investment
or if the Company believes further investment in the Fund is no longer
appropriate for the purposes of the Sub-Accounts.
The Company will not substitute shares attributable to any interest in a
Sub-Account without notice to the Owner and prior approval of the Securities and
Exchange Commission as required by the Investment Company Act of 1940. This
will not prevent the Variable Account from purchasing other securities for other
series or classes of contracts, or from permitting a conversion between series
or classes of contracts on the basis of requests made by Owners.
The Company reserves the right, subject to compliance with applicable laws, to
establish additional Separate Accounts, Guarantee Period Accounts and
Sub-Accounts and to make them available to any class or series of contracts as
the Company considers appropriate. Each new Separate Account or Sub-Account
will invest in a new investment company, or in shares of another open-end
investment company, or such other investments as may be permitted under
applicable law. The Company also reserves the right to eliminate or combine
existing Sub-Accounts and to transfer the assets of any Sub-Accounts to any
other Sub-Accounts. In the event of any substitution or change, the Company
may, by appropriate notice, make such changes in this and other contracts as may
be necessary or appropriate to reflect the substitution or change. If the
Company considers it to be in the best interests of contract Owners, the
Variable Account or any Sub-Account may be operated as a management company
under the Investment Company Act of 1940 or in any other form permitted by law,
or may be de-registered under that Act in the event registration is no longer
required, or may be combined with other accounts of the Company.
18
<PAGE>
CHANGES IN LAW
The Company reserves the right to make any changes to provisions of the contract
to comply with, or give Owners the benefit of, any federal or state statute,
rule, or regulation.
CHANGE OF NAME
Subject to compliance with applicable law, the Company reserves the right to
change the names of the Variable Account or the Sub-Accounts.
FEDERAL TAX CONSIDERATIONS
The Variable Account is not currently subject to tax, but the Company reserves
the right to assess a charge for taxes if the Variable Account becomes subject
to tax.
SPLITTING OF UNITS
The Company reserves the right to split the value of a unit, either to increase
or decrease the number of units. Any splitting of units will have no material
effect on the benefits, provisions or investment return of this contract or upon
the Owner, the Annuitant, any Beneficiary, or the Company.
INSULATION OF SEPARATE ACCOUNT
The investment performance of Separate Account assets is determined separately
from the other assets of the Company. The assets of a Separate Account equal to
the reserves and liabilities of the contracts supported by the account will not
be charged with liabilities from any other business that the Company may
conduct.
19
<PAGE>
Flexible Payment Deferred Variable and Fixed Annuity
Annuity Benefits Payable on the Annuity Date
Death Benefit Payable to Beneficiary if Owner Dies prior to Annuity Date
Non-Participating
20
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ENHANCED DEATH BENEFIT RIDER
This Rider is part of the contract to which it is attached and is effective on
the Date of Issue of the contract.
BENEFIT - The "Owner's Death Benefit" provision on page 12 of the contract is
replaced by the following:
I. If an Owner dies before the Annuity Date and before the oldest Owner's
[90th] birthday, the death benefit will be the greater of:
(a) the Accumulated Value increased by any positive Market Value
Adjustment;
(b) gross payments accumulated daily at the Death Benefit Effective
Annual Yield shown on the Specifications page, starting on the
Effective Valuation Date of each gross payment, reduced
proportionately to reflect withdrawals. For each withdrawal, the
proportionate reduction is calculated as the death benefit
immediately prior to the withdrawal multiplied by the withdrawal
amount and divided by the Accumulated Value immediately prior to
the withdrawal; or
(c) The highest Accumulated Value on any prior contract anniversary
as determined after positive adjustments have been made for any
positive Market Value Adjustment and subsequent payments and
negative adjustments have been made for subsequent withdrawals.
II. If an Owner dies before the Annuity Date but after the oldest Owner's
[90th] birthday, the death benefit will be the greater of:
(a) the Accumulated Value increased by any positive Market Value
Adjustment or
(b) the death benefit, as calculated under Section I, that would have
been payable on the contract anniversary prior to the oldest
Owner's [90th] birthday, increased for subsequent payments and
reduced proportionately for subsequent withdrawals.
CHARGE - The Company will assess a monthly rider charge which will be deducted
Pro Rata on the last day of each month and on the date the Rider terminates.
The charge will be equal to the Accumulated Value on that date multiplied by
1/12th of the Enhanced Death Benefit Annual Percentage Rate shown on the
Specifications Page.
TERMINATION - This Rider will terminate on the earliest of the following:
-the Annuity Date;
-payment of the death benefit;
-surrender of the contract; or
-receipt of the Owner's Written Request to terminate the Rider.
Signed for the Company at Dover, Delaware
/s/ Richard M. Reilly /s/ Abigail M. Armstrong
President Secretary
<PAGE>
- ---------------
ALLMERICA SELECT ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 LINCOLN STREET, WORCESTER, MA 01653
VARIABLE ANNUITY APPLICATION ALLMERICA SELECT CHARTER
- -------------------------------------------------------------------------------
1 MY INVESTMENT HOW MUCH I WANT TO INVEST.
I am investing $________________ in Allmerica Select.
(Minimum $25,000. Make check payable to Allmerica Financial.)
If IRA, Roth, or SEP-IRA application, this payment is a (check one):
/ / Rollover/Conversion / /Trustee to Trustee Transfer
/ / Regular, Roth, or SEP-IRA Payment for Tax Year _________
- -------------------------------------------------------------------------------
2 WHERE WHERE I WANT MY MONEY INVESTED.
Select your investment portfolio by allocating your dollars among the
accounts by percent or select one of the Model Portfolios below. Use whole
percentages.
_____ % Select Emerging Mkts. _____ % Select Gr. & Inc.
_____ % Select Int'l Equity _____ % Fidelity VIP Eq. Inc.
_____ % T. Rowe Price Int'l _____ % Fidelity VIP High Inc.
_____ % Select Aggr. Growth _____ % Select Income
_____ % Select Capital Appr. _____ % Allmerica Money Mkt.
_____ % Select Value Opp. _____ % Fixed Acct (Rate
_____ % Select Growth Guar. for 1 Yr from
_____ % Select Strategic Gr. date of payment)
_____ % Fidelity VIP Growth
Guarantee Period Accounts ($1,000 minimum per Account)
____ % 3 Year ____ % 6 Year ____ % 8 Year
____ % 5 Year ____ % 7 Year ____ % 9 Year ____ % 10 Year
MODEL PORTFOLIOS
/ / Accumulator / / Builder / / Provider / / Saver / / Preserver
TOTAL OF ALL ALLOCATIONS MUST EQUAL 100%. FUTURE INVESTMENTS WILL BE
ALLOCATED TO THIS SELECTION UNLESS CHANGED BY ME.
- -------------------------------------------------------------------------------
3 ACCOUNT REBALANCING
/ / I elect Automatic Account Rebalancing of the variable accounts to the
allocations specified in Section 2.
/ / Monthly / / Quarterly / / Semi-Annuall / / Annually
(Automatic Account Rebalancing and Dollar Cost Averaging cannot be in effect
simultaneously.)
- -------------------------------------------------------------------------------
4 DOLLAR COST AVERAGING
Select ONE account from which to transfer money.
Be sure you have allocated money to this account in Section 2.
Transfer $____________ ($100 Minimum)
FROM / / Fixed Account OR / / Select Income* OR / / Money Market*
(*This account cannot be selected in the allocation below.)
EVERY / / Month / / Quarter / / 6 Mos. / / 12 Mos.
INTO:
_____ % Select Emerging Mkts. _____ % Select Strategic Gr.
_____ % Select Int'l Equity _____ % Fidelity VIP Growth
_____ % T. Rowe Price Int'l _____ % Select Gr. & Inc.
_____ % Select Aggr. Growth _____ % Fidelity VIP Eq. Inc.
_____ % Select Capital Appr. _____ % Fidelity VIP High Inc.
_____ % Select Value Opp. _____ % Select Income
_____ % Select Growth _____ % Allmerica Money Mkt.
100 % TOTAL
- -------------------------------------------------------------------------------
5 THE OWNER PLEASE PRINT CLEARLY
If joint owners, one must be the annuitant.
_______________________________________________________________________________
Owner's First Name Middle Last
_______________________________________________________________________________
Joint Owner's First Name Middle Last
_______________________________________________________________________________
Street Address
_______________________________________________________________________________
City State Zip
( )
_______________________________________________________________________________
Daytime Phone Number
/ / / / M / / F
_______________________________________________________________________________
Owner's Social Security Number Date of Birth Sex
/ / / / M / / F
_______________________________________________________________________________
Joint Owner's Social Security Number Date of Birth Sex
- -------------------------------------------------------------------------------
6 THE ANNUITANT PLEASE PRINT CLEARLY
Complete this section if the annuitant is someone other than the owner, OR if
joint owners were entered in Section 5.
_______________________________________________________________________________
Annuitant's First Name Middle Last
_______________________________________________________________________________
Joint Annuitant's First Name Middle Last
_______________________________________________________________________________
Street Address
_______________________________________________________________________________
City State Zip
( )
_______________________________________________________________________________
Daytime Phone Number
/ / / / M / / F
_______________________________________________________________________________
Annuitant's Social Security Number Date of Birth Sex
/ / / / M / / F
_______________________________________________________________________________
Joint Annuitant's Social Security Number Date of Birth Sex
- -------------------------------------------------------------------------------
7 BENEFICIARY PLEASE PRINT CLEARLY
If joint owners, the survivor is primary beneficiary unless otherwise
indicated below.
_______________________________________________________________________________
Name of Primary Beneficiary Relationship to Owner
_______________________________________________________________________________
Name of Contingent Beneficiary Relationship to Owner
- -------------------------------------------------------------------------------
8 OPTIONAL RIDER
I elect:
/ / Enhanced Death Benefit Rider
/ / ___________________________________________________________________________
- -------------------------------------------------------------------------------
9 TYPE OF ACCOUNT TO BE ISSUED
9a / / NON-QUALIFIED, OR
9b / / TAX-QUALIFIED PLAN
(Check ONLY one.)
/ / Regular IRA / / Roth IRA / / 401(k) Rollover*
/ / Employer-established SEP-IRA*
/ / Pension/Profit Sharing (401(a))*
/ / Tax-Sheltered Annuity Plan (Section 403(b))*
*Attach required additional forms.
- -------------------------------------------------------------------------------
10 REPLACEMENT
Will the proposed certificate replace any existing annuity or life insurance
policy? / / Yes / / No
(If yes, list company name and policy number.)
_______________________________________________________________________________
- -------------------------------------------------------------------------------
11 SIGNATURES
I/We represent to the best of my/our knowledge and belief that the statements
made in this application are true and complete. I/We agree to all terms and
conditions as shown on the front and back. It is indicated and agreed that
the only statements which are to be construed as the basis of the certificate
are those contained in this application. I/We acknowledge receipt of a
current prospectus describing the certificate applied for. If IRA, Roth, or
SEP-IRA application, I/we have received a Disclosure Buyer's Guide. I/WE
UNDERSTAND THAT ALL PAYMENTS AND VALUES BASED ON THE VARIABLE ACCOUNTS MAY
FLUCTUATE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT; AND ALL PAYMENTS AND
VALUES BASED ON THE GUARANTEE PERIOD ACCOUNTS ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN EITHER AN UPWARD OR
DOWNWARD ADJUSTMENT.
/ / Please send me a Statement of Additional Information (SAI).
_______________________________________________________________________________
Signed at City State Date
/X/
_______________________________________________________________________________
Signature of Owner
/X/
_______________________________________________________________________________
Signature of Joint Owner
- -------------------------------------------------------------------------------
FOR REGISTERED REP USE ONLY
Does the certificate applied for replace an existing annuity or life
insurance policy?
/ / Yes / / No
If yes, attach replacement forms as required.
As Registered Representative, I certify witnessing the signature of the
applicant and that the information in this application has been accurately
recorded, to the best of my knowledge and belief. Based on the information
furnished by the Owner(s) in this application, I certify that I have
reasonable grounds for believing the purchase of the certificate applied for
is suitable for the Owner(s). I further certify that the Prospectuses were
delivered and that no written sales materials other than those furnished or
approved by the Company were used.
/X/
_______________________________________________________________________________
Signature of Registered Representative
_______________________________________________________________________________
Print Name of Registered Representative
_______________________________________________________________________________
Telephone Registered Rep #
_______________________________________________________________________________
E-Mail Address TR Code
_______________________________________________________________________________
Name of Broker/Dealer Branch #
_______________________________________________________________________________
Branch Office Street Address for Certificate Delivery
_______________________________________________________________________________
City State Zip
Remarks:_______________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
- -------------------------------------------------------------------------------
FOR HOME OFFICE USE ONLY
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
November 17, 1998
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
RE: ALLMERICA SELECT SEPARATE ACCOUNT OF ALLMERICA
FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
File #'s 333-63093 and 811-6632
Gentlemen:
In my capacity as Attorney of Allmerica Financial Life Insurance and Annuity
Company (the "Company"), I have participated in the preparation of the
Pre-effective Amendment to the Registration Statement for Allmerica Select
Separate Account on Form N-4 under the Securities Act of 1933 and amendment
under the Investment Company Act of 1940, with respect to the Company's
qualified and non-qualified variable annuity contracts.
I am of the following opinion:
1. 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 Allmerica Select Separate Account are not chargeable
with liabilities arising out of any other business the Company may conduct.
3. The variable annuity contracts, when issued in accordance with the
Prospectus contained in the Registration Statement and upon compliance
with applicable local law, will be legal and binding obligations of the
Company in accordance with their terms and when sold will be legally
issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this
Pre-Effective Amendment to the Registration Statement for Allmerica Select
Separate Account on Form N-4 under the Securities Act of 1933 and amendment
under the Investment Company Act of 1940.
Very truly yours,
/s/ Lynn Gelinas
Lynn Gelinas
Attorney
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the Registration
Statement of Allmerica Select Separate Account of Allmerica Financial Life
Insurance and Annuity Company on Form N-4 of our report dated February 3,
1998, relating to the financial statements of Allmerica Financial Life
Insurance and Annuity Company, and our report dated March 25, 1998, relating
to the financial statements of Allmerica Select Separate Account of Allmerica
Financial Life Insurance and Annuity Company, both of which appear in such
Statement of Additional Information. We also consent to the reference to us
under the heading "Experts" in such Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 4, 1998
