<PAGE>
File Nos.
811-6632
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Initial Registration
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26
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 POLICIES
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
futher 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.
<PAGE>
Registrant is making this filing in order to register a new flexible payment
variable annuity contract, which is the purpose of this initial Registration
Statement under the Securities Act of 1933 and amendment under the Investment
Company Act of 1940. Registrant does not intend this filing to delete or
amend any currently effective prospectus, statement of additional
information, or supplements thereto, contained in any other registration
statement of the Registrant under the Securities Act of 1933.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
<TABLE>
<CAPTION>
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
<S> <C>
1......................... Cover Page
2......................... Special Terms
3......................... Summary of Fees and Expenses; Summary of Contract Features
4......................... Condensed Financial Information; Performance Information
5......................... Description of the Companies, the Variable Accounts,
and The Underlying Funds
6......................... Charges and Deductions
7......................... Description of the Contract -- Accumulation Phase;
Annuitization -- The Payout Phase
8......................... Annuitization -- The Payout Phase
9......................... Description of the Contract -- Accumulation Phase,
G. Death Benefit
10........................ Payments; Computation of Values; Distribution
11........................ Surrender and Withdrawals; Charge for Surrender and Withdrawal;
Charges and Deductions; Withdrawal Without Surrender Charge;
Texas Optional Retirement Program
12........................ Federal Tax Considerations
13........................ Legal Matters
14........................ Statement of Additional Information - Table of Contents
</TABLE>
<TABLE>
<CAPTION>
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ----------------- ----------------------------------------------
<S> <C>
15........................ Cover Page
16........................ Table of Contents
17........................ General Information and History
18........................ Services
19........................ Underwriters
21........................ Performance Information
22........................ Annuity Benefit Payments
23........................ Financial Statements
</TABLE>
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
WORCESTER, MASSACHUSETTS
ALLMERICA SELECT SEPARATE ACCOUNT
PLEASE READ THIS This Prospectus provides important information about
PROSPECTUS CAREFULLY the Allmerica Select Reward variable annuity contract
BEFORE INVESTING AND issued by Allmerica Financial Life Insurance and
KEEP IT FOR FUTURE Annuity Company in all jurisdictions except New York.
REFERENCE. The contract is a flexible payment tax-deferred
combination variable and fixed annuity offered on
both a group and individual basis.
Allmerica Select Separate Account is subdivided into
Sub-Accounts. Each Sub-Account offered under this
contract invests exclusively in shares of one of the
following funds:
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER
-------------------------------------------------- --------------------------------------------------
<C> <S> <C>
ANNUITIES INVOLVE Select Emerging Markets Fund Schroder Capital Management International Inc.
RISKS INCLUDING Select International Equity Fund Bank of Ireland Asset Management (U.S.) Limited
POSSIBLE LOSS OF T. Rowe Price International Stock Portfolio Rowe Price-Fleming International, Inc.
PRINCIPAL. 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 Fund Fidelity Management & Research Company
Select Growth and Income Fund J. P. Morgan Investment Management 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>
The Fixed Account is part of the Company's General
Account and pays an interest rate guaranteed for one
year from the time a payment is received. The
Guarantee Period Accounts offer fixed rates of
interest for specified periods ranging from 3 to 10
years. A Market Value Adjustment is applied to
THIS ANNUITY payments removed from a Guarantee Period Account
IS before the end of the specified period. The Market
NOT: Value Adjustment may be positive or negative.
- A BANK DEPOSIT OR Payments allocated to a Guarantee Period Account are
OBLIGATION; held in the Company's Separate Account GPA (except in
- FEDERALLY INSURED; California where they are allocated to the General
- ENDORSED BY ANY Account).
BANK OR A Statement of Additional Information dated _______,
GOVERNMENTAL 1999 containing more information about this annuity
AGENCY. is on file with the Securities and Exchange
Commission and is incorporated by reference into this
Prospectus. A copy may be obtained free of charge by
calling Allmerica Select Customer Service at
1-800-366-1492. The Table of Contents of the
Statement of Additional Information is listed on page
3 of this Prospectus.
This Prospectus and the Statement of Additional
Information can also be obtained from the Securities
and Exchange Commission's website
(http://www.sec.gov).
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED THAT THE INFORMATION IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DATED AUGUST , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS........................................................................... 4
SUMMARY OF FEES AND EXPENSES............................................................ 6
SUMMARY OF CONTRACT FEATURES............................................................ 11
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, AND THE UNDERLYING FUNDS.............. 17
INVESTMENT OBJECTIVES AND POLICIES...................................................... 18
INVESTMENT ADVISORY SERVICES............................................................ 20
DESCRIPTION OF THE CONTRACT -- ACCUMULATION PHASE....................................... 22
A. Payments......................................................................... 22
B. Payment Credits.................................................................. 23
C. Computation of Values............................................................ 23
The Accumulation Unit........................................................... 23
Net Investment Factor........................................................... 23
D. Right to Cancel.................................................................. 24
E. Transfer Privilege............................................................... 24
Asset Allocation Model Reallocations............................................ 25
Automatic Transfers (Dollar Cost Averaging)..................................... 25
Automatic Account Rebalancing................................................... 25
F. Surrender and Withdrawals........................................................ 26
Systematic Withdrawals.......................................................... 27
Withdrawal Without Surrender Charge............................................. 27
Life Expectancy Distributions................................................... 28
Systematic Level Free of Surrender Charge Withdrawal Program.................... 28
G. Death Benefit.................................................................... 28
Standard Death Benefit.......................................................... 29
Optional Enhanced Death Benefit................................................. 29
Payment of the Death Benefit Prior to the Annuity Date.......................... 29
H. The Spouse of the Owner as Beneficiary........................................... 30
I. Minimum Guaranteed Annuity Payout (M-GAP) Rider.................................. 30
J. Assignment....................................................................... 32
ANNUITIZATION -- THE PAYOUT PHASE....................................................... 32
A. Electing the Annuity Date........................................................ 33
B. Choosing the Annuity Payout Option............................................... 33
C. Description of Variable Annuity Payout Options................................... 34
D. Variable Annuity Benefit Payments................................................ 35
The Annuity Unit................................................................ 35
Determination of the Number of Annuity Units.................................... 36
Determination of the First Annuity Benefit Payment.............................. 36
Dollar Amount of Subsequent Annuity Benefit Payments............................ 36
Payment of Annuity Benefit Payments............................................. 36
E. Transfers of Annuity Units....................................................... 36
F. Withdrawals after the Annuity Date............................................... 37
Payment Withdrawal Amount Option................................................ 37
Present Value Withdrawal Option................................................. 37
Present Value Determination..................................................... 38
G. Optional Annuitization Riders.................................................... 38
Minimum Annuitization Floor ("MAF") Rider....................................... 38
Annuitization Payment Ratchet ("APR") Rider..................................... 39
H. Reversal of Annuitization........................................................ 39
I. NORRIS Decision.................................................................. 40
</TABLE>
2
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<TABLE>
<S> <C>
CHARGES AND DEDUCTIONS.................................................................. 40
A. Variable Account Deductions...................................................... 40
Mortality and Expense Risk Charge............................................... 40
Administrative Expense Charge................................................... 40
Other Charges................................................................... 41
B. Contract Fee..................................................................... 41
C. Optional Rider Charges........................................................... 41
D. Premium Taxes.................................................................... 42
E. Surrender Charge................................................................. 42
Calculation of Surrender Charge................................................. 42
Reduction or Elimination of Surrender Charge and Additional Amounts Credited.... 43
F. Transfer Charge.................................................................. 45
GUARANTEE PERIOD ACCOUNTS............................................................... 45
FEDERAL TAX CONSIDERATIONS.............................................................. 47
A. Qualified and Non-Qualified Contracts............................................ 48
B. Taxation of the Contract in General.............................................. 48
Withdrawals Prior to Annuitization.............................................. 48
Withdrawals After Annuitization................................................. 48
Annuity Payouts After Annuitization............................................. 49
Penalty on Distribution......................................................... 49
Assignments or Transfers........................................................ 50
Nonnatural Owners............................................................... 50
Deferred Compensation Plans of State and Local Government and Tax-Exempt
Organizations................................................................... 50
C. Tax Withholding.................................................................. 50
D. Provisions Applicable to Qualified Employer Plans................................ 50
Corporate and Self-Employed Pension and Profit Sharing Plans.................... 50
Individual Retirement Annuities................................................. 51
Tax-Sheltered Annuities......................................................... 51
Texas Optional Retirement Program............................................... 51
STATEMENTS AND REPORTS.................................................................. 51
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS....................................... 52
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................... 53
VOTING RIGHTS........................................................................... 53
DISTRIBUTION............................................................................ 53
SERVICES................................................................................ 54
LEGAL MATTERS........................................................................... 54
YEAR 2000 COMPLIANCE.................................................................... 54
FURTHER INFORMATION..................................................................... 55
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.................................. A-1
APPENDIX B -- PERFORMANCE INFORMATION................................................... B-1
APPENDIX C -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT......................... C-1
APPENDIX D -- CONDENSED FINANCIAL INFORMATION........................................... D-1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS.......................................................................
GENERAL INFORMATION AND HISTORY.........................................................
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE COMPANY..........................
SERVICES................................................................................
UNDERWRITERS............................................................................
ANNUITY BENEFIT PAYMENTS................................................................
PERFORMANCE INFORMATION.................................................................
FINANCIAL STATEMENTS....................................................................
</TABLE>
3
<PAGE>
SPECIAL TERMS
ACCUMULATED VALUE: the total dollar amount of all values in the Sub-Accounts,
the Fixed Account and the Guarantee Period Accounts credited to the Contract on
any day before the Annuity Date. The Accumulated Value includes all Payment
Credits applied to the Contract.
ACCUMULATION UNIT: a measure used to calculate the value of a Sub-Account before
annuity benefit payments begin.
ANNUITANT: the person designated in the Contract whose life is used to determine
the duration of annuity benefit payments involving a life contingency. Joint
Annuitants are permitted and, unless otherwise indicated, any reference to
Annuitant shall include Joint Annuitants.
ANNUITY BENEFIT PAYMENT CHANGE FREQUENCY: the frequency (monthly, quarterly,
semi-annually or annually) that changes due to investment performance will be
reflected in the dollar value of an annuity benefit payment under a variable
annuity option.
ANNUITY DATE: the date specified in the Contract or a date elected later by the
Owner to begin annuity benefit payments. This date must be at least two years
after the issue date and may not be later than the Owner's (or youngest
Joint-Owner's) 99th birthday.
ANNUITY UNIT: a measure used to calculate annuity benefit payments under a
variable payout option.
COMPANY: unless otherwise specified, any reference to the "Company" shall refer
exclusively to Allmerica Financial Life Insurance and Annuity Company.
CONTRACT YEAR: a period of twelve consecutive months starting on the Contract's
issue date or on any anniversary of the issue date.
FIXED ACCOUNT: an investment option under the Contract that guarantees principal
and a fixed minimum interest rate and which is part of the Company's General
Account.
FIXED ANNUITY PAYOUT: an annuity payout option with annuity benefit payments
that are fixed in amount and guaranteed throughout the annuity benefit payment
period.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
GROSS PAYMENT BASE: the total of all payments invested in the Contract, less any
withdrawals which exceed the Withdrawal Without Surrender Charge amount.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account that corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.
ISSUE DATE: the date the Contract is issued and the date that is used to
determine Contract days, Contract months, Contract years and anniversaries.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
4
<PAGE>
OWNER (OR YOU): the person, persons (Joint Owners) or entity entitled to
exercise the rights and privileges under this Contract. Unless otherwise
indicated, any reference to Owner shall include Joint Owners.
PAYMENT CREDIT: an amount added to the Contract by the Company when a payment is
made to the Contract. The amount will be a specified percentage of the payment.
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 applicable Contract fee, surrender charge, rider charges and
Market Value Adjustment.
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 unit 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 the assets 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 the Underlying Funds
selected
5
<PAGE>
SUMMARY OF FEES AND EXPENSES
There are certain fees and expenses that you will incur directly or indirectly
under the Allmerica Select Reward Contract. The purpose of the following tables
is to help you understand these various charges. The tables show (1) charges
under the Contract, (2) expenses of the Sub-Accounts, and (3) expenses of the
Funds during the accumulation phase. In addition to the charges and expenses
described below, premium taxes are applicable in some states and are deducted as
described under "D. Premium Taxes."
<TABLE>
<CAPTION>
COMPLETE YEARS
FROM
(1) CONTRACT CHARGES: DATE OF PAYMENT CHARGE
- ---------------------------------------------------------- ---------------- ---------
<S> <C> <C>
SURRENDER CHARGE:* 0-4 8.5%
This charge may be assessed upon surrender, withdrawals More than 4 7.5%
or reversal of annuitization. The charge is a percentage More than 5 6.5%
of payments applied to the amount surrendered (in excess More than 6 5.5%
of any amount that is free of surrender charge) within More than 7 3.5%
the indicated time period. More than 8 1.5%
More than 9 0
TRANSFER CHARGE:
The Company currently makes no charge for processing None
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:
The fee is deducted annually and upon surrender prior to $35**
the Annuity Date when Accumulated Value is less than
$75,000. The fee is waived for Contracts issued to and
maintained by the trustee of a 401(k) plan.
OPTIONAL RIDER CHARGES:
If rider 1, 2, or 3 is elected, 1/12th of the annual
charge is deducted pro rata on a monthly basis at the
end of each Contract month and at termination of the
Rider. On an annual basis as a percentage of Accumulated
Value the charge for these riders is:
1. Minimum Guaranteed Annuity Payout Rider with a
ten-year waiting period: 0.35%
2. Minimum Guaranteed Annuity Payout Rider with a
fifteen-year waiting period: 0.20%
3. 5% Enhanced Death Benefit Rider With Annual Step-up
0.25%
</TABLE>
- ------------------------
* From time to time, the Company may reduce or eliminate the surrender charge,
the period during which it applies, or both, and/or credit additional amounts on
Contracts when Contracts are sold to individuals or groups in a manner that
reduces sales expenses or where the Owner or Annuitant on the date of issue is
within certain classes of eligible individuals. For more information see
"Reduction or Elimination of Surrender Charge and Additional Amounts Credited"
under "E. Surrender Charge."
** The fee may be lower in some jurisdictions. See Contract Specifications for
specific charge.
6
<PAGE>
<TABLE>
<CAPTION>
(2) SUB-ACCOUNT ANNUAL EXPENSES:
- ----------------------------------------------------------
<S> <C> <C>
(on an annual basis as percentage of average daily net
assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.15%
---------
Total Asset Charges 1.40%
</TABLE>
(3) 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,
1998.
<TABLE>
<CAPTION>
OTHER
MANAGEMENT FEE EXPENSES TOTAL FUND
(AFTER VOLUNTARY (AFTER APPLICABLE EXPENSES (AFTER WAIVERS/
UNDERLYING FUND WAIVERS) REIMBURSEMENTS) REIMBURSEMENTS)
<S> <C> <C> <C>
Select Emerging Markets Fund(@).................... 1.00%(*) 1.19% 2.19%(1)(2)*
Select International Equity Fund................... 0.90%(1)* 0.12% 1.02%(1)(2)
T. Rowe Price International Stock Portfolio........ 1.05% 0.00% 1.05%
Select Aggressive Growth Fund...................... 0.88% 0.07% 0.95%(1)(2)
Select Capital Appreciation Fund................... 0.94% 0.10% 1.04%(1)(2)
Select Value Opportunity Fund...................... 0.90%* 0.08% 0.98%(1)(2)*
Select Growth Fund................................. 0.81%(**) 0.05% 0.86%(1)(2)**
Select Strategic Growth Fund(@).................... 0.39%(*) 0.81% 1.20%(1)(2)*
Fidelity VIP Growth Portfolio...................... 0.59% 0.09% 0.69%(3)
Select Growth and Income Fund...................... 0.68%(*) 0.05% 0.73%(1)(2)
Fidelity VIP Equity-Income Portfolio............... 0.49% 0.09% 0.58%(3)
Fidelity VIP High Income Portfolio................. 0.58% 0.12% 0.70%
Select Income Fund................................. 0.54%(*) 0.10% 0.64%(1)
Money Market Fund.................................. 0.26% 0.06% 0.32%(1)
</TABLE>
(@) Select Emerging Markets Fund and Select Strategic Growth Fund commenced
operations on February 20, 1998. Expenses shown are annualized and are based on
estimated amounts for the current fiscal year. Actual expense may be greater or
less than shown.
(*) Amount has been adjusted to reflect a voluntary expense limitation currently
in effect for Select Emerging Markets Fund, Select Value Opportunity Fund, and
Select Strategic Growth Fund. Without these adjustments, the Management Fees and
Total Fund Expenses would have been 1.35% and 2.54%, respectively for Select
Emerging Markets Fund, 0.91% and 0.99%, respectively, for Select Value
Opportunity Fund, and 0.85% and 1.66%, respectively for the Select Strategic
Growth Fund.
(**) Effective June 1, 1998, the management fee for the Select Growth Fund was
revised. The Management Fee and Total Fund Expense ratios shown in the table
above have been adjusted to assume that the revised rates took effect January 1,
1998.
(1) Until further notice, AFIMS has declared a voluntary expense limitation of
1.35% of average net assets for Select Aggressive Growth Fund and Select Capital
Appreciation Fund, 1.25% for Select Value Opportunity Fund, 1.50% for Select
International Equity Fund, 1.20% for Select Growth Fund, 1.10% for Select Growth
and Income Fund, 1.00% for Select Income Fund, and 0.60% for Money Market Fund.
The total operating expenses of these Funds of the Trust were less than their
respective expense limitations throughout 1998.
Until further notice, the AFIMS has declared a voluntary expense limitation of
1.20% of average daily net assets for the Select Strategic Growth Fund. In
addition, AFIMS has agreed to voluntarily waive its management fee to the extent
that expenses of the Select Emerging Markets Fund exceed 2.00% of the Fund's
average daily net assets, except that such waiver shall not exceed the net
amount of management fees earned by AFIMS from the Fund after subtracting fees
paid by the AFIMS to a sub-adviser.
7
<PAGE>
Until further notice, the Select Value Opportunity Fund's management fee rate
has been voluntarily limited to an annual rate of 0.90% of average daily net
assets, and total expenses are limited to 1.25% of average daily net assets.
The declaration of a voluntary expense management fee or expense limitation in
any year does not bind the Manager to declare future expense limitations with
respect to these Funds. These limitations may be terminated at any time.
(2) These funds have entered into agreements with brokers whereby brokers rebate
a portion of commissions. Had these amounts been treated as reductions of
expenses, the total annual fund operating expense ratios would have been 2.19%
for Select Emerging Market Fund, 0.92% for Select Aggressive Growth Fund, 1.02%
for Select Capital Appreciation Fund, 0.94% for Select Value Opportunity Fund,
1.01% for Select International Equity Fund, 0.84% for Select Growth Fund, 1.14%
for Select Strategic Growth Fund, and 0.70% for Select Growth and Income Fund.
(3) A portion of the brokerage commissions the Portfolio paid was used to reduce
Fund expenses. In addition, certain funds, or FMR on behalf of certain funds,
have entered into arrangements with their custodian whereby credits realized as
a result of uninvested cash balances was used to reduce custodian expenses.
Including these reductions, the total operating expenses presented in the table
would have been 0.57% for Fidelity VIP Equity-Income Portfolio, and 0.66% for
Fidelity VIP Growth Portfolio.
The Underlying Fund information above was provided by the Underlying Funds and
was not independently verified by the Company.
EXPENSE EXAMPLES: The following examples demonstrate the cumulative expenses
which an Owner would pay at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets. As required by rules of the Securities and
Exchange Commission ("SEC"), the Contract fee is reflected in the examples by a
method designed 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. Because the
expenses of the Funds differ, separate examples are used to illustrate the
expenses incurred by an Owner on an investment in the various Sub-Accounts.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
(1a) If, at the end of the applicable period, you surrender your Contract, you
would have paid the following expenses on a $1,000 investment, assuming a 5%
annual return on assets, and no Riders.
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund................................................. $ 114 $ 190 $ 259 $ 386
Select International Equity Fund............................................. $ 103 $ 158 $ 204 $ 276
T. Rowe Price International Stock Portfolio.................................. $ 103 $ 159 $ 206 $ 279
Select Aggressive Growth Fund................................................ $ 102 $ 156 $ 201 $ 269
Select Capital Appreciation Fund............................................. $ 103 $ 159 $ 205 $ 278
Select Value Opportunity Fund................................................ $ 103 $ 157 $ 202 $ 272
Select Growth Fund........................................................... $ 102 $ 154 $ 196 $ 260
Select Strategic Growth Fund................................................. $ 105 $ 163 $ 213 $ 294
Fidelity VIP Growth Portfolio................................................ $ 100 $ 149 $ 187 $ 242
Select Growth and Income Fund................................................ $ 100 $ 150 $ 190 $ 247
Fidelity VIP Equity-Income Portfolio......................................... $ 99 $ 146 $ 182 $ 231
Fidelity VIP High Income Portfolio........................................... $ 100 $ 149 $ 188 $ 244
Select Income Fund........................................................... $ 100 $ 148 $ 185 $ 238
Money Market Fund............................................................ $ 97 $ 139 $ 169 $ 204
</TABLE>
8
<PAGE>
(1)(b) If, at the end of the applicable time period, you surrender your
Contract, you would have paid the following expenses on a $1,000 investment,
assuming 5% annual return on assets and election at issue of the Minimum
Guaranteed Annuity Payout Rider with a ten-year waiting period, the Guaranteed
Principal Protection Rider with a ten-year waiting period, and the Enhanced
Death Benefit Rider.
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund................................................. $ 119 $ 206 $ 285 $ 438
Select International Equity Fund............................................. $ 109 $ 175 $ 233 $ 334
T. Rowe Price International Stock Portfolio.................................. $ 109 $ 175 $ 235 $ 337
Select Aggressive Growth Fund................................................ $ 108 $ 173 $ 230 $ 328
Select Capital Appreciation Fund............................................. $ 109 $ 175 $ 234 $ 336
Select Value Opportunity Fund................................................ $ 108 $ 174 $ 232 $ 330
Select Growth Fund........................................................... $ 107 $ 170 $ 226 $ 319
Select Strategic Growth Fund................................................. $ 110 $ 180 $ 241 $ 351
Fidelity VIP Growth Portfolio................................................ $ 105 $ 165 $ 217 $ 302
Select Growth and Income Fund................................................ $ 106 $ 167 $ 220 $ 307
Fidelity VIP Equity-Income Portfolio......................................... $ 105 $ 163 $ 212 $ 292
Fidelity VIP High Income Portfolio........................................... $ 106 $ 166 $ 218 $ 304
Select Income Fund........................................................... $ 105 $ 164 $ 215 $ 298
Money Market Fund............................................................ $ 102 $ 155 $ 199 $ 266
</TABLE>
(2)(a) If, at the end of the applicable time period, you do not surrender your
Contract or you annuitize,* you would have paid the following expenses on a
$1,000 investment, assuming a 5% annual return on asset and no Riders.
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund................................................. $ 36 $ 110 $ 187 $ 386
Select International Equity Fund............................................. $ 25 $ 76 $ 129 $ 276
T. Rowe Price International Stock Portfolio.................................. $ 25 $ 77 $ 131 $ 279
Select Aggressive Growth Fund................................................ $ 24 $ 74 $ 126 $ 269
Select Capital Appreciation Fund............................................. $ 25 $ 76 $ 130 $ 278
Select Value Opportunity Fund................................................ $ 24 $ 74 $ 127 $ 272
Select Growth Fund........................................................... $ 23 $ 71 $ 121 $ 260
Select Strategic Growth Fund................................................. $ 26 $ 81 $ 138 $ 294
Fidelity VIP Growth Portfolio................................................ $ 21 $ 65 $ 112 $ 242
Select Growth and Income Fund................................................ $ 22 $ 67 $ 115 $ 247
Fidelity VIP Equity-Income Portfolio......................................... $ 20 $ 62 $ 107 $ 231
Fidelity VIP High Income Portfolio........................................... $ 21 $ 66 $ 113 $ 244
Select Income Fund........................................................... $ 21 $ 64 $ 110 $ 238
Money Market Fund............................................................ $ 18 $ 55 $ 94 $ 204
</TABLE>
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<PAGE>
(2)(b) If, at the end of the applicable time period, you do not surrender your
Contract or you annuitize,* you would pay the following expenses on a $1,000
investment, assuming an annual 5% return on assets and election at issue of the
Minimum Guaranteed Annuity Payout Rider with a ten-year waiting period, the
Guaranteed Principal Protection Rider with a ten-year waiting period, and the
Enhanced Death Benefit Rider.
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund................................................. $ 42 $ 128 $ 215 $ 438
Select International Equity Fund............................................. $ 31 $ 94 $ 159 $ 334
T. Rowe Price International Stock Portfolio.................................. $ 31 $ 94 $ 161 $ 337
Select Aggressive Growth Fund................................................ $ 30 $ 92 $ 156 $ 328
Select Capital Appreciation Fund............................................. $ 31 $ 94 $ 160 $ 336
Select Value Opportunity Fund................................................ $ 30 $ 92 $ 157 $ 330
Select Growth Fund........................................................... $ 29 $ 89 $ 151 $ 319
Select Strategic Growth Fund................................................. $ 32 $ 99 $ 168 $ 351
Fidelity VIP Growth Portfolio................................................ $ 27 $ 83 $ 142 $ 302
Select Growth and Income Fund................................................ $ 28 $ 85 $ 145 $ 307
Fidelity VIP Equity-Income Portfolio......................................... $ 26 $ 80 $ 137 $ 292
Fidelity VIP High Income Portfolio........................................... $ 27 $ 84 $ 143 $ 304
Select Income Fund........................................................... $ 27 $ 82 $ 140 $ 298
Money Market Fund............................................................ $ 24 $ 73 $ 124 $ 266
</TABLE>
* The Contract fee is not deducted after annuitization. No surrender charges are
deducted at or after annuitization under any of the available annuity options.
10
<PAGE>
SUMMARY OF CONTRACT FEATURES
WHAT IS THE ALLMERICA SELECT REWARD VARIABLE ANNUITY?
The Allmerica Select Reward 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;
- a Payment Credit equal to 5% of your payment, added to the Contract's
Accumulated Value as soon as your payment is applied;
- experienced professional investment advisers;
- tax deferral on earnings;
- guarantees that can protect your family;
- withdrawals during the accumulation and annuitization phases;
- income that can be received for life;
- issue age up to the 90th birthday of the oldest person among the Owner(s)
and the Annuitant(s).
WHAT HAPPENS IN THE ACCUMULATION PHASE?
The Contract has an accumulation phase and, if you choose to annuitize, an
annuity payout phase (described below). During the accumulation phase, you may
allocate your initial payment and any additional payments to the combination of
portfolios of securities ("Funds"), 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. You do not pay taxes on any earnings under
the Contract until you withdraw money. In addition, during the accumulation
phase, your beneficiaries receive certain protections in the event of your
death. See discussion below "WHAT HAPPENS UPON MY DEATH DURING THE ACCUMULATION
PHASE?"
WHAT HAPPENS UPON MY DEATH DURING THE ACCUMULATION PHASE?
If you or a Joint Owner dies before the Annuity Date, a standard death benefit
will be paid to the beneficiary. (No death benefit is payable at the death of
any Annuitant except when the Owner is not a natural person.) An optional
Enhanced Death Benefit Rider is also available at issue for a separate monthly
charge. See "G. Death Benefit" under "DESCRIPTION OF THE CONTRACT."
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, you, or the payee you designate, can receive
income based on one of the numerous annuity payout options available under the
Contract. You choose:
- the annuity payout option
- the date annuity benefit payments begin
- whether you want variable annuity benefit payments based on the investment
performance of the Funds, fixed-amount annuity benefit payments with
payment amounts guaranteed by the Company, or a combination of
fixed-amount and variable annuity benefit payments.
11
<PAGE>
- whether you want certain protections provided under optional annuitization
riders.
You may also take a withdrawal every year during the annuity payout phase (two
withdrawals annually if you choose an option other than a life annuity). In
addition, if you choose a variable option, you may transfer among the
Sub-Accounts.
M-GAP RIDER. The Minimum Guaranteed Annuity Payout ("M-GAP Rider") Rider is
available in most jurisdictions. The M-GAP Rider must be purchased during the
Contract's accumulation phase for a separate monthly charge. This optional rider
provides a guaranteed minimum amount of income under a life contingent fixed
annuity payout option. The M-GAP Rider is based on the Company's guaranteed
annuity purchase rates.
MAF RIDER AND APR RIDER. Two additional optional riders are available when you
annuitize:
(1) The Minimum Annuitization Floor Rider ("MAF Rider") provides that the amount
of your variable annuity payout will never fall below a specified amount
(assuming no withdrawals are taken);
(2) The Annuitization Payment Ratchet Rider ("APR Rider") provides that,
regardless of investment performance and assuming no withdrawals are taken,
each monthly variable annuity payment within the same Annuity Benefit
Payment Change Frequency cycle will equal or exceed the amount of the last
monthly payment in the previous Annuity Benefit Payment Change Frequency.
Both Riders provide for proportionate reductions for withdrawals and the
appropriate reduction under the one-third and one-half survivor options. There
is no periodic charge for the MAF Rider and the APR Rider. However, lower
annuity option rates will be used to determine the initial annuity benefit
payment. If either Rider is in effect, the first annuity benefit payment will be
lower than it would have been without the Rider. Subsequent payments will also
be lower unless the guarantees provided by rider are triggered, at which time
payments will be higher than if the rider had not been elected.
For more information on these optional annuitization riders, see I. OPTIONAL
MINIMUM GUARANTEED ANNUITY PAYOUT (M-GAP) RIDER under DESCRIPTION OF THE
CONTRACT -- THE ACCUMULATION PHASE and G. OPTIONAL ANNUITIZATION RIDERS under
ANNUITIZATION -- THE PAYOUT PHASE.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner"), and us, First Allmerica Financial
Life Insurance Company (for contracts issued in New York) or Allmerica Financial
Life Insurance and Annuity Company (for contracts issued in all other
jurisdictions). Each Contract has an Owner (or an Owner and a Joint Owner), an
Annuitant (or an Annuitant and a Joint Annuitant) and one or more beneficiaries.
As Owner, you may:
- make payments
- choose investment allocations
- choose annuity options
- receive annuity benefit payments (or designate someone else to receive
annuity benefit payments)
- select the Annuitant and beneficiary.
The Annuitant is the person whose life is used to determine the duration of
annuity benefit payments involving a life contingency. There must be at least
one Annuitant at all times. If an Annuitant dies and a replacement is not named,
the Owner will become the new Annuitant. The beneficiary is the person(s) or
entity entitled to the death benefit at the death of a sole Owner prior to the
Annuity Date. Under certain circumstances, the beneficiary may be entitled to
annuity benefit payments upon the death of an Owner on or after the Annuity
Date. In the case of the death of a Joint Owner prior to the Annuity Date, the
surviving Joint Owner will receive the death benefit.
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<PAGE>
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, subject only to a $1,000
minimum for your initial payment and a $50 minimum for any additional payments.
A lower initial payment is permitted for certain qualified plans and where
monthly payments are being forwarded directly from a financial institution. A
minimum of $1,000 is always required to establish a Guarantee Period Account.
Currently, each time you make a payment, you will immediately receive a Payment
Credit equal to 5% of your payment. This Payment Credit will be added to the
Accumulated Value and will begin earning interest along with your payment.
WHAT ARE MY INVESTMENT CHOICES?
You may choose among fourteen Sub-Accounts investing in the Funds, the Guarantee
Period Accounts, and the Fixed Account. The fourteen Funds are:
- 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
- Select Growth and Income Fund
Managed by J. P. Morgan Investment Management Inc.
- Fidelity VIP Equity-Income Portfolio
Managed by Fidelity Management & Research Company
- Fidelity VIP High Income Portfolio
Managed by Fidelity Management & Research Company
- Select Income Fund
Managed by Standish, Ayer & Wood, Inc.
- Money Market Fund
Managed by Allmerica Asset Management, Inc.
GUARANTEE PERIOD ACCOUNTS. Assets supporting the guarantees under the Guarantee
Period Accounts are held in the Company's Separate Account GPA, a non-unitized
insulated separate account (except in California, where assets are held in the
Company's General Account). Values and benefits calculated on the basis of
13
<PAGE>
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 eight Guarantee Periods ranging from three 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 ARE NOT AVAILABLE IN ALL STATES AND ARE NOT
OFFERED AFTER ANNUITIZATION.
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. ("AFIMS") or the investment advisers.
AFIMS, an affiliate of the Company, is the investment manager of the Trust.
AFIMS has entered into agreements with investment advisers ("Sub-Advisers")
selected by AFIMS and the Trustees in consultation with BARRA RogersCasey. Each
investment adviser is selected by using strict objective, quantitative, and
qualitative criteria, with special emphasis on the investment 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 an investment 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 no-load international mutual fund asset managers with
14
<PAGE>
approximately $32 billion (as of December 31, 1998) 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 J. P. MORGAN INVESTMENT MANAGEMENT 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>
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. On
and after the Annuity Date, if you have elected a variable option, you may
transfer among the Sub-Accounts. You will incur no current taxes on transfers
while your money remains in the Contract. See "E. 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 per transfer.
WHAT IF I NEED MY MONEY BEFORE THE ANNUITY PAYOUT PHASE BEGINS?
Before the annuity payout phase begins, you may surrender your Contract or make
withdrawals at any time. Each calendar year, you can take without a surrender
charge the greater of:
(1) 100% of cumulative earnings excluding Payment Credits; or
(2) 15% of the Gross Payment Base (your total gross payments less any
withdrawals you may have taken which exceed the Withdrawal Without Surrender
Charge amount.)
If greater than the amount available under either (1) or (2) above, the Owner of
a qualified Contract or a Contract issued under a Section 457 Deferred
Compensation Plan may take each calendar year without charge an amount
calculated by the Company based on his or her life expectancy. A 10% tax penalty
may apply on all amounts deemed to be earnings if you are under age 59 1/2.
In addition, WHERE PERMITTED BY LAW, the Company will waive surrender charges
if, after the Contract is issued:
- you become disabled before you attain age 65; or
- you are diagnosed with a fatal illness or are confined in a medical care
facility for the later of 90 consecutive days or one year after the issue
date.
15
<PAGE>
Additional amounts may be withdrawn at anytime. However, the withdrawal of
payments that have not been invested in the Contract for more than nine years
may be subject to surrender charge. A Market Value Adjustment will apply to
withdrawals from a Guarantee Period Account prior to the expiration of the
Guarantee Period.
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 jurisdictions; see the "Right
to Examine" provision on the cover of your Contract.
If you cancel the Contract, you will receive the Contract's Accumulated Value
adjusted for any Market Value Adjustment for amounts allocated to a Guarantee
Period Account, less the Payment Credit, plus any fees or charges that may have
been deducted. However, if required in your state or if the Contract was issued
as an Individual Retirement Annuity (IRA), you will generally receive a refund
of your gross payment. In certain jurisdictions this refund may be the greater
of (1) your gross payment or (2) the Accumulated Value adjusted for any Market
Value Adjustment, less any Payment Credit, plus any fees or charges previously
deducted. See "D. Right to Cancel."
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
You can make several changes after receiving your Contract:
- You may assign your ownership to someone else, except under certain
qualified plans.
- You may change the beneficiary, unless you have designated an irrevocable
beneficiary.
- You may change your allocation of payments.
- You may make transfers among the Sub-Accounts without any tax
consequences.
- You may cancel your Contract within ten days of delivery (or longer if
required by state law).
16
<PAGE>
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
AND THE UNDERLYING FUNDS
THE COMPANY. 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, 1998, Allmerica Financial
had over $14 billion in assets and over $26 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 indirect wholly owned subsidiary of First Allmerica
Financial Life Insurance Company ("First Allmerica") which, in turn, is a wholly
owned subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995 and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America.
Allmerica Financial is a charter member 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. The Company maintains a separate account
called the Allmerica Select Separate Account (the "Variable Account"). The
Variable Account was authorized by vote of the Board of Directors of the Company
on March 5, 1992. The Variable Account meets the definition of "separate
account" under federal securities laws and is registered with the SEC as 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 Account by the SEC.
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. Obligations under the Contracts are obligations of the Company. Under
Delaware law, the assets of the Variable Account may not be charged with any
liabilities arising out of any other business of the Company.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Variable Account and the Sub-Accounts. The Company also
offers other variable annuity contracts investing in the Variable Account which
are not discussed in this Prospectus. In addition, the Variable Account may
invest in other underlying funds, which are not available to the contracts
described in this Prospectus.
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
17
<PAGE>
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."
VARIABLE INSURANCE PRODUCTS FUND. Variable Insurance Products Fund ("Fidelity
VIP"), managed by Fidelity Management & Research Company ("FMR"), 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. 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 PROSPECTUSES ACCOMPANY THIS PROSPECTUS, AND SHOULD BE READ
CAREFULLY BEFORE INVESTING. 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.
18
<PAGE>
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.
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.
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 J. P. Morgan Investment Management 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 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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<PAGE>
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY SERVICES TO THE TRUST. The overall responsibility for the
supervision of the affairs of the Trust rests with the trustees. The Trust has
entered into an agreement ("Management Agreement") with Allmerica Financial
Investment Management Services, Inc. ("AFIMS"), an indirect wholly owned
subsidiary of First Allmerica, to handle the day-to-day affairs of the Trust.
AFIMS, subject to review by the trustees, is responsible for the general
management of the Funds of the Trust. AFIMS 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 AFIMS.
Other than the expenses specifically assumed by AFIMS under the Management
Agreement, all expenses incurred in the operation of the Trust are borne by it.
These include 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 AFIMS, expenses for proxies, prospectuses, reports to
shareholders and other expenses.
For providing its services under the Management Agreement, AFIMS 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 AFIMS does not vary according to the level of assets in the
Fund.
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<PAGE>
Under the management agreement with the Trust, AFIMS has entered into agreements
with investment advisers ("Sub-Advisers") selected by AFIMS and Trustees in
consultation with BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a pension
consulting firm. The cost of such consultation services is borne by AFIMS. 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
decision-making authority with respect to the Funds, and is not responsible for
any advice provided by AFIMS 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 of the 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 Company ("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 that 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 -- THE ACCUMULATION PHASE
A. PAYMENTS
The Company will issue a Contract when its underwriting requirements are met. An
applicant for a Contract may not be older than age 85 at date of issue. These
requirements include receipt of the initial payment and allocation instructions
by the Company at its Principal Office and may include the proper completion of
an application; however, where permitted by law, the Company may issue a
Contract without completion of an application. If all issue requirements are not
completed within five business days of the Company's receipt of the initial
payment, the payment will be returned immediately unless the applicant
authorizes the Company to retain it pending completion of all issue
requirements.
Payments may be made to the Contract at any time prior to the Annuity Date,
subject to certain minimums:
- Currently, the initial payment must be at least $1,000.
- Under a salary deduction or monthly automatic payment plan, the minimum
initial payment is $50.
- Each subsequent payment must be at least $50.
- Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Contract on the employee if the plan's
average annual contribution per eligible plan participant is at least
$600.
- The minimum allocation to a Guarantee Period Account is $1,000. If less
than $1,000 is allocated to a Guarantee Period Account, the Company
reserves the right to apply that amount to the Money Market Fund of the
Trust.
Payments are to be made payable to the Company. The Company may reduce a payment
by any applicable premium tax before applying it to the Contract. The initial
payment is credited to the Contract and allocated among the requested accounts
as of the date that all issue requirements are properly met. 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.
The Owner may change allocation instructions for subsequent payments pursuant to
a written or telephone request. If the Owner elects telephone requests, 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 may include requirements that callers on behalf of an Owner identify
themselves by name and identify the Annuitant by name, date of birth, social
security number or PIN number. All transfer instructions by telephone are
tape-recorded.
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<PAGE>
B. PAYMENT CREDITS
A Payment Credit will be added to the Contract's Accumulated Value each time a
payment is made. The Payment Credit is funded from the Company's General Account
and is currently equal to 5% of each payment received. The Company guarantees
that the Payment Credit will never be less than 5%. The Company reserves the
right to increase the Payment Credit from time to time for payments received
during a specified time period or on portions of payments received in excess of
a specified amount. Any increase in the Payment Credit will be applied uniformly
to all Owners of the same class, but increases will not be available where
prohibited by law.
Each Payment Credit is allocated among the accounts in the same proportion as
the applicable payment. Amounts refunded under a Contract's "Right to Examine"
provision will be reduced by the amount of any Payment Credit applied (see "C.
Computation of Values" and "D. Right to Cancel"). Payment Credits are not
considered to be "investment in the contract" for income tax purposes (see
"FEDERAL TAX CONSIDERATIONS").
C. COMPUTATION OF VALUES
THE ACCUMULATION UNIT. Each payment is allocated among 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 payment and Payment Credit
allocated to the Sub-Account, divided by the dollar value of the applicable
Accumulation Unit as of the Valuation Date. The number of Accumulation Units
resulting from each payment and Payment Credit will remain fixed unless changed
by a subsequent split of Accumulation Unit value, a transfer, a withdrawal, or
surrender. The dollar value of an Accumulation Unit of each Sub-Account varies
from Valuation Date to Valuation Date based on the investment experience of that
Sub-Account, and will reflect the investment performance, expenses, and charges
of its Underlying Funds. The value of an Accumulation Unit was arbitrarily 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 "GUARANTEE PERIOD ACCOUNTS" and APPENDIX A,
"MORE INFORMATION ABOUT THE FIXED ACCOUNT."
The Accumulated Value under the Contract is determined by:
(1) multiplying the number of Accumulation Units in each Sub-Account by the
value of an Accumulation Unit of that Sub-Account on the Valuation Date,
(2) adding together the values of each Sub-Account, 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 (which may be positive or
negative) 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
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<PAGE>
(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.
D. RIGHT TO CANCEL
An Owner may cancel the Contract at any time within ten days after receipt of
the Contract (or longer if required by law) and receive a refund. In order to
cancel the Contract, the Owner must mail or deliver it to the Company's
Principal Office 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 of receipt of
the Contract, the Company will provide the refund.
In most states, the Company will pay the Owner the Contract's Accumulated Value
adjusted for any Market Value Adjustment for amounts allocated to a Guarantee
Period Account, plus any amounts deducted for taxes, charges or fees, minus any
Payment Credit. However, if the Contract was purchased as an IRA or issued in a
state that requires a full refund of the initial payment(s), the Company will
provide a refund equal to the gross payment(s) received. In some states, the
refund may equal the greater of (a) gross payments or (b) the Accumulated Value
adjusted for any Market Value Adjustment, plus any amounts deducted for taxes,
charges or fees, minus any Payment Credit. 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.
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.
E. TRANSFER PRIVILEGE
Prior to the Annuity Date, the Owner may transfer amounts among accounts at any
time upon written or telephone request to the Company. As discussed in "A.
Payments," a properly completed authorization form must be on file before
telephone requests will be honored. Transfer values will be based on the
Accumulated Value next computed after receipt of the transfer request.
Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to the Money Market Fund. 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 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.
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<PAGE>
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. The Company may, among other things, not accept:
- the transfer or exchange instructions of any agent acting under a power of
attorney on behalf of more than one Owner, or
- the transfer or exchange instructions of individual 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
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 that 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). You may elect automatic transfers
of a predetermined dollar amount on a periodic basis from a source account to
one or more Sub-Accounts, subject to the following:
- the predetermined dollar amount may not be less than $100;
- the periodic basis may be monthly, quarterly, semi-annually or annually;
- the available source account accounts are currently Sub-Accounts (the
Money Market Fund, the Select Income Fund or the Fixed Account);
- automatic transfers may not be made into the selected source account,
Fixed Account, or the Guarantee Period Accounts; and
- if an automatic transfer would reduce the balance in the source account(s)
to less than $100, the entire balance will be transferred proportionately
to the chosen Sub-Accounts.
Automatic transfers from a particular source account will continue until the
earlier of:
- 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.
To the extent permitted by law, the Company reserves the right, from time to
time, to credit an enhanced interest rate to an initial and/or subsequent
payment deposited into the Fixed Account, which is then used as the source
account from which to process automatic transfers. For more information see
APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
AUTOMATIC ACCOUNT REBALANCING. The Owner may request automatic rebalancing of
Sub-Account allocations on a monthly, quarterly, semi-annual or annual basis in
accordance with his/her specified percentage allocations. As frequently as
elected 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.
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<PAGE>
If the amount necessary to re-establish the mix on any scheduled date is less
than $100, no transfer will be made.
Automatic Account Rebalancing will continue until (1) the Owner's request to
terminate or change the option is received by the Company or (2) the end date
designated by the Owner when the option was elected. If a subsequent payment is
allocated in a manner different from the percentage allocation mix in effect on
the date the payment is received, on the next scheduled rebalancing date the
payment will be reallocated in accordance with the existing mix.
The first automatic transfer or rebalancing under a request counts as one
transfer for purposes of the 12 transfers guaranteed to be free of a transfer
charge in each Contract year. Each subsequent automatic transfer under that
request is without charge and does not reduce the remaining number of transfers
which may be made free of charge in that Contract year.
Currently, Dollar Cost Averaging and Automatic Account Rebalancing may not be in
effect simultaneously. Either option may be elected at no additional charge when
the Contract is purchased or at a later date. The Company reserves the right to
limit the number of Sub-Accounts that may be utilized for automatic transfers
and rebalancing, and to discontinue either option upon advance written notice.
F. SURRENDERS AND WITHDRAWALS.
Before the Annuity Date, an Owner may surrender the Contract for its Surrender
Value or withdraw a portion of its Accumulated Value. In the case of surrender,
the Owner must send the Contract and a signed written request for surrender,
satisfactory to the Company, to the Principal Office. The Surrender Value will
be calculated based on the Contract's Accumulated Value as of the Effective
Valuation Date. A surrender charge and a Contract fee may apply when a Contract
is surrendered. See "CHARGES AND DEDUCTIONS." In addition, amounts withdrawn
from a Guarantee Period Account prior to the end of the applicable Guarantee
Period will be subject to a Market Value Adjustment, as described under
"GUARANTEE PERIOD ACCOUNTS."
In the case of a withdrawal, the Owner must submit to the Principal Office a
signed, written request indicating the desired dollar amount and the accounts
from which such amount is to be withdrawn. A withdrawal from a Sub-Account will
result in cancellation of a number of units equivalent in value to the amount
withdrawn. The amount withdrawn will equal the amount requested by the Owner
plus any applicable surrender charge, as described in "E. Surrender Charge"
under "CHARGES AND DEDUCTIONS." See also, "Reduction or Elimination of Surrender
Charge and Additional Amounts Credited." In addition, amounts withdrawn from a
Guarantee Period Account prior to the end of the applicable Guarantee Period
will be subject to a Market Value Adjustment.
Each withdrawal must be a minimum of $100. No withdrawal will be permitted if
the Accumulated Value remaining under the Contract would be reduced to less than
$1,000.
Any distribution is normally payable within seven days following the Company's
receipt of the surrender or withdrawal request. The Company reserves the right
to defer surrenders and withdrawals of amounts in each Sub-Account in any period
during which
- 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,
- the SEC has by order permitted such suspension, or
- 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.
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<PAGE>
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 and withdrawal 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."
For important tax consequences, which may result from surrender or 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 period basis (monthly, bi-monthly, quarterly, semi-annual or
annual). Systematic withdrawals from Guarantee Period Accounts are not
available. The Owner may request:
- the withdrawal of 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 withdrawal of 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.
Systematic withdrawals will first be taken from amounts available as a
"Withdrawal Without Surrender Charge" (see below); then from any applicable
payments not subject to a surrender charge, if any, then from payments subject
to a surrender charge and last, from Payment Credits. Any applicable surrender
charge will be deducted from the Contract's remaining Accumulated Value.
The minimum amount of each automatic withdrawal is $100. If a withdrawal would
cause the remaining Accumulated Value to be less than $1,000), systematic
withdrawals may be discontinued. Systematic withdrawals will cease automatically
on the Annuity Date. The Owner may change or terminate systematic withdrawals
only by written request to the Principal Office.
WITHDRAWAL WITHOUT SURRENDER CHARGE. Each calendar year prior to the Annuity
Date, an Owner may withdraw a portion of the Contract's Surrender Value without
any applicable surrender charge. The maximum amount available without charge
during any calendar year is the greater of (a) or (b):
Where 100% of Cumulative Earnings excluding Payment Credits (calculated
(a) as the Accumulated Value as of the Effective Valuation Date reduced
is: by Payment Credits and total gross payments not previously
withdrawn); and
Where 15% of the Gross Payment Base as of the Effective Valuation Date
(b) reduced by any prior Withdrawal Without Surrender Charge received
is: during the same calendar year.
For Qualified Contracts and Contracts issued under Section 457 Deferred
Compensation Plans only, the maximum amount available without a surrender charge
during any calendar year will be the greatest of (a), (b) or (c), where (a) and
(b) are the same as above and (c) is the amount available as a Life Expectancy
Distribution less any withdrawals taken during the same calendar year which were
not subject to a surrender charge (see "Life Expectancy Distributions" below.)
The Withdrawal Without Surrender Charge will first be taken from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from
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<PAGE>
payments not previously withdrawn on a last-in-first-out (LIFO) basis. If more
than one withdrawal is made during the year, on each subsequent withdrawal the
Company will waive the surrender charge, if any, until the entire Withdrawal
Without Surrender Charge has been withdrawn. Amounts withdrawn from a Guarantee
Period Account prior to the end of the applicable Guarantee Period will be
subject to a Market Value Adjustment.
LIFE EXPECTANCY DISTRIBUTIONS (FOR QUALIFIED CONTRACTS AND CONTRACTS ISSUED
UNDER SECTION 457 DEFERRED COMPENSATION PLANS ONLY). Prior to the Annuity Date,
an Owner may elect to make a series of systematic withdrawals from the Contract
according to the Company's life expectancy distribution ("LED") option by
returning a properly signed LED request form to the Principal Office. Where the
Owner is a trust or other nonnatural person, the Owner may elect the LED option
based on the Annuitant's life expectancy.
If an Owner elects the Company's LED option, in each calendar year a fraction of
the Accumulated Value is withdrawn without a surrender charge, based on the
Owner's life expectancy (or the joint life expectancy of the Owner and a
beneficiary.) The numerator of the fraction is 1 (one). The denominator of the
fraction will be either:
- the remaining life expectancy of the Owner (or Owner and beneficiary), as
determined annually by the Company; or
- the prior year's life expectancy, minus one.
The resulting fraction, expressed as a percentage, is then applied to the
Accumulated Value at the beginning of the year to determine the amount to be
distributed during the year. The Owner may choose to have the applicable life
expectancy redetermined each year or use the prior year's life expectancy, minus
one. Under the Company's LED option, the amount withdrawn from the Contract
changes each year.
The Owner may elect periodic LED distributions on a monthly, bi-monthly,
quarterly, semi-annual, or annual basis. The Owner may terminate the LED option
at any time. The LED option will terminate automatically on the maximum Annuity
Date permitted under the Contract, at which time an Annuity Option must be
selected.
The LED option may not produce annual distributions that meet the definition of
"substantially equal periodic payments" as defined under Code Section 72(t). The
withdrawals may be treated by the Internal Revenue Service (IRS) as premature
distributions from the Contract and may be subject to a 10% federal tax penalty.
Owners seeking distributions over their life under this definition should
consult their tax advisor. For more information, see "FEDERAL TAX
CONSIDERATIONS," "B. Taxation of the Contract in General." IN ADDITION, IF THE
AMOUNT NECESSARY TO MEET THE "SUBSTANTIALLY EQUAL PERIODIC PAYMENT" DEFINITION
IS GREATER THAN THE COMPANY'S LED AMOUNT, A SURRENDER CHARGE MAY APPLY TO THE
AMOUNT IN EXCESS OF THE LED AMOUNT.
SYSTEMATIC LEVEL FREE OF SURRENDER CHARGE WITHDRAWAL PROGRAM. Under the
Systematic Level Free of Surrender Charge Withdrawal Program, the Owner may
preauthorize level periodic (monthly, bi-monthly, quarterly, semi-annual or
annual) Withdrawals Without Surrender Charge. In order to ensure that no
surrender charge will ever apply, the total Systematic Level Free of Surrender
Charge Withdrawal in any calendar year is limited to not more than 15% of the
Gross Payment Base as of the Valuation Date, less any prior Withdrawals Without
Surrender Charge taken in the same calendar year. The program will automatically
terminate if a withdrawal that is not part of the program is made. Otherwise,
withdrawals will continue until all available Accumulated Value has been
exhausted or until the Owner terminates the program by written request.
G. DEATH BENEFIT.
A death benefit is payable if the Owner or the first of Joint Owners dies prior
to the Annuity Date. If the Owner is a natural person, no death benefit is
payable at the death of any Annuitant. If the Owner is not a natural person, a
death benefit will be paid upon the death of any Annuitant. A spousal
beneficiary may elects
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to continue the Contract as provided in "H. The Spouse of the Owner as
Beneficiary," rather than receive the death benefit.
STANDARD DEATH BENEFIT. Unless the enhanced death benefit is elected at issue,
the standard death benefit will be paid. The standard death benefit is equal to
the greater of (a) the Contract's Accumulated Value on the Effective Valuation
Date, increased by any positive Market Value Adjustment or (b) gross payments
prior to the date of death, proportionately reduced to reflect withdrawals.
For each withdrawal under (b), the proportionate reduction is calculated by
multiplying the standard death benefit immediately prior to the withdrawal by
the following fraction:
Amount of the Withdrawal
------------------------------------------------
Accumulated Value immediately prior to the Withdrawal
OPTIONAL ENHANCED DEATH BENEFIT RIDER. When applying for the Contract, an Owner
under age 89 may elect the optional 5% Enhanced Death Benefit with Annual
Step-Up Rider. A separate charge for this Rider is made against the Contract's
Accumulated Value on the last day of each Contract month and, if applicable, on
the date the Rider is terminated. The charge is made through a pro-rata
reduction (based on relative values) of Accumulation Units in the Sub-Accounts
and dollar amounts in the Fixed and Guarantee Period Accounts. The charge is
deducted in arrears. For specific charges and more detail, see "C. Optional
Rider Charges" under "CHARGES AND DEDUCTIONS.
The 5% Enhanced Death Benefit with Annual Step-Up Rider provides a death benefit
guarantee if death of an Owner (or an Annuitant if the Owner is not a natural
person) occurs before the Annuity Date. The calculation of the death benefit
depends upon whether death occurs before or after the 90th birthday:
I. Death BEFORE 90th Birthday. If an Owner (or an Annuitant if the Owner is a
not a natural person) dies before to the Annuity Date and before his/her 90th
birthday, the death benefit is equal to the greatest of:
(a) the Accumulated Value on the Effective Valuation Date increased by any
positive Market Value Adjustment;
(b) gross payments, accumulated daily at an effective annual yield of 5%
from the date each payment is applied until the date of death
proportionately reduced to reflect subsequent withdrawals; and
(c) the highest Accumulated Value on any Contract anniversary date prior to
the date of death, as determined after being increased for any positive
Market Value Adjustment and subsequent payments and proportionately
reduced for subsequent withdrawals.
II. Death AFTER 90th Birthday. If an Owner (or the Annuitant if the Owner is
not a natural person) dies before the Annuity Date but after his/her 90th
birthday, the death benefit is equal to the GREATER of:
(a) the Accumulated Value on the Effective Valuation Date increased by any
positive Market Value Adjustment; or
(b) the death benefit, as calculated under Section I above, that would have
been payable on the Contract anniversary prior to the deceased's 90th
birthday, increased for subsequent payments and proportionately reduced
for subsequent withdrawals.
Proportionate reductions are calculated in the same manner as described above
under "Standard Death Benefit."
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum within seven business days
of the receipt of due proof of death at the Principal Office,
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unless the Owner has elected to apply the proceeds to a life annuity not
extending beyond the beneficiary's life expectancy. 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 distributions over the life of the beneficiary or for a period
certain not extending beyond the beneficiary's life expectancy, with
annuity benefit payments beginning within 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 Money Market
Sub-Account. The excess, if any, of the death benefit over the Accumulated Value
also will be transferred to the Money Market Sub-Account. 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.
H. THE SPOUSE OF THE OWNER AS BENEFICIARY
If the sole beneficiary is the deceased's Owner's spouse, he or she may, by
written request, continue the Contract in lieu of receiving payment of the death
benefit. 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 Money
Market Sub-Account;
(2) the excess, if any, of the death benefit over the Contract's Accumulated
Value also will be added to the Money Market Sub-Account.
The resulting value will never be subject to a surrender charge when withdrawn.
The new Owner may also make additional payments, but a surrender charge will
apply to these additional amounts if they are withdrawn before they have been
invested in the Contract for at least than nine years. All other rights and
benefits provided in the Contract will continue, except that any subsequent
spouse of the new Owner, if named as beneficiary, will not be entitled to
continue the Contract when the new Owner dies.
I. MINIMUM GUARANTEED ANNUITY PAYOUT (M-GAP) RIDER
An optional Minimum Guaranteed Annuity Payout Rider is available in most
jurisdictions for a separate monthly charge. (See, "C. Optional Rider Charges"
under CHARGES AND DEDUCTIONS.) The M-GAP Rider guarantees a minimum amount of
fixed annuity lifetime income during the annuity payout phase after a ten-year
or a fifteen-year waiting period, subject to the conditions described below. The
M-GAP Rider must be purchased during the Contract's accumulation phase for a
separate monthly charge (see Conditions on Election of the M-GAP Rider, below).
The M-GAP Rider does not create Accumulated Value or guarantee performance of
any investment option. Annuitization under the terms of this Rider will occur at
the guaranteed annuity purchase rates listed under the Annuity Option Tables in
the Contract. Because this Rider is based on guaranteed actuarial factors, the
level of lifetime income that it guarantees may often be less than the level
that would be provided by applying the then current annuity factors. Therefore,
the Rider should be regarded as providing a guarantee of a minimum amount of
annuity income.
An M-GAP Benefit Base is determined on the Rider's effective date and each
applicable Contract anniversary thereafter. The M-GAP Benefit Base, less any
applicable premium tax, is the value that will be annuitized at the guaranteed
annuity rates if the Rider is exercised. As described below, withdrawals will
reduce the Benefit Base.
The M-GAP Benefit Base is equal to the greatest of:
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(a) the Accumulated Value, increased by any positive Market Value Adjustment, if
applicable;
(b) the Accumulated Value on the effective date of the Rider accumulated daily
at an effective annual yield of 5%, plus gross payments made thereafter
accumulated daily at an effective annual yield of 5% starting on the date
each payment is applied, proportionately reduced to reflect withdrawals; and
(c) the highest Accumulated Value on any Contract anniversary since the Rider's
effective date as determined after being increased for any subsequent
payments and any positive Market Value Adjustment, if applicable, and
proportionately reduced for subsequent withdrawals.
For each withdrawal described above, the proportionate reduction is calculated
by multiplying the (b) or (c) value, whichever is applicable, determined
immediately prior to the withdrawal by the following fraction:
Amount of the withdrawal
----------------------------------------------------------
Accumulated Value determined immediately prior to the withdrawal
CONDITIONS ON ELECTION OF THE M-GAP RIDER. The following conditions apply to
the election of the M-GAP Rider:
- The Owner may elect the M-GAP Rider at Contract issue or at any time
thereafter. However, if the Rider is not elected within thirty days after
Contract issue or within thirty days after a Contract anniversary date,
the effective date of the Rider will be the following Contract anniversary
date.
- The Owner may not elect a Rider with a ten-year waiting period if at the
time of election the Owner has reached his or her 87th birthday. The Owner
may not elect a Rider with a fifteen-year waiting period if at the time of
election the Owner has reached his or her 82nd birthday ( the age
limitations may be lower in some jurisdictions.)
REPURCHASE FEATURE. On any Contract anniversary or within 30 days immediately
following a Contract anniversary, if the M-GAP Rider is still being offered by
the Company, the Owner may elect to terminate and repurchase the Rider, thereby
resetting the benefit based on the Contract's then current Accumulated Value.
The repurchase will be effective as of the termination date of the prior Rider.
A new waiting period, equal to or greater than the prior waiting period, will
commence as of that date. If the benefit is repurchased, the Company's then
current monthly charge for the M-GAP rider will apply.
EXERCISING THE M-GAP RIDER. The following conditions apply to the exercise of
the M-GAP Rider:
- The Owner may only exercise the M-GAP Rider within thirty days after any
Contract anniversary following the expiration of a ten or fifteen-year
waiting period (whichever was elected) from the effective date of the
Rider.
- The Owner may only annuitize under a fixed annuity payout option involving
a life contingency, as provided under "C. Description of Variable Annuity
Payout Options."
- The Owner may only annuitize at the guaranteed fixed annuity purchase
rates listed under the Annuity Option Tables in the Contract.
TERMINATING THE M-GAP RIDER. The following conditions apply to the termination
of the M-GAP Rider:
- The Owner may not terminate the M-GAP Rider prior to the seventh Contract
anniversary after the effective date of the Rider, unless such termination
occurs (1) on or within thirty days after a Contract anniversary and (2)
in conjunction with the repurchase of a Minimum Guaranteed Annuity Payout
Rider with a waiting period of equal or greater length, if available.
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- The Owner may terminate the Rider any time after the seventh Contract
anniversary following the effective date of the M-GAP Rider.
- Other than in the event of a repurchase, once terminated the M-GAP Rider
may not be purchased again.
- The M-GAP Rider will terminate on the date the Contract is surrendered or
annuitized, or on the date that a death benefit is payable unless the
Contract is continued under "H. The Spouse of the Owner as Beneficiary"
(see "DESCRIPTION OF THE CONTRACT.")
From time to time the Company may illustrate minimum guaranteed income amounts
under the M-GAP Rider for individuals based on a variety of assumptions,
including varying rates of return on the value of the Contract during the
accumulation phase, annuity payout periods, annuity payout options and M-GAP
Rider waiting periods. Any assumed rates of return are for purposes of
illustration only and are not intended as a representation of past or future
investment rates of return.
For example, the illustration below assumes an initial payment of $100,000 for a
male age 60 (at issue) and exercise of a M-GAP Rider with a ten-year waiting
period. The illustration assumes that no subsequent payments or withdrawals are
made and that the annuity payout option is a Life Annuity With Payments
Guaranteed For 10 Years. The values below have been computed based on a 5% net
rate of return and are the guaranteed minimums that would be received under the
M-GAP Rider. The minimum guaranteed benefit base amounts are the values that
will be annuitized if the Rider is exercised. Minimum guaranteed annual income
values are based on a fixed annuity payout.
<TABLE>
<CAPTION>
MINIMUM
CONTRACT GUARANTEED MINIMUM
ANNIVERSARY BENEFIT GUARANTEED
AT EXERCISE BASE ANNUAL INCOME(1)
- ----------- ----------- ----------------
<S> <C> <C>
10 $ 171,034 $ 12,786
15 $ 218,287 $ 18,545
</TABLE>
(1) Other fixed annuity options involving a life contingency other than Life
Annuity With Payments Guaranteed for 10 Years are available. See "C. Description
of Variable Annuity Payout Options."
J. 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.
ANNUITIZATION -- THE PAYOUT PHASE
Subject to certain restrictions discussed below, at annuitization the Owner has
the right:
- to select the annuity option under which annuity benefit payments are to
be made;
- to determine whether those payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. If a variable
annuity option is selected, the Owner must choose
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an Annuity Benefit Payment Change Frequency ("Change Frequency") and the
date the first Change Frequency will occur.
- to select one of the available assumed investment returns for a variable
option (see "D. Description of Variable Annuity Benefit Payments" below
for details);
- to choose an optional annuitization rider -- the Minimum Annuitization
Floor ("MAF") Rider or the Annuitization Payment Ratchet ("APR") Rider;
and
- to elect to have the Death Benefit applied under any annuity option not
extending beyond the beneficiary's life expectancy. The beneficiary may
not change such an election.
A. ELECTING THE ANNUITY DATE
Generally, annuity benefit payments under the Contract will begin on the Annuity
Date. The Owner selects the Annuity Date at the time of issue. The Annuity Date:
- may not be earlier than the second Contract Anniversary; and
- must occur on the first day of any month before the Owner's 99th birthday
or two years after the issue date, whichever is later.
If the Owner does not select an Annuity Date, the Annuity Date will be the later
of (a) the Owner's age 85 or (b) two years after the date of issue.
If there are Joint Owners, the age of the younger will determine the maximum
Annuity Date. The Owner may elect to change the Annuity Date by sending a
request to the Principal Office at least one month before the earlier of the new
Annuity Date or the currently scheduled date.
If the Annuity Date occurs when the Owner is at an advanced age, it is possible
that the Contract will not be considered an annuity for federal tax purposes. In
addition, the Internal Revenue Code ("the Code") and/or the terms of qualified
plans may impose limitations on the age at which annuity benefit payments may
commence and the type of annuity option that may be elected. The Owner should
carefully review the Annuity Date and the annuity options with his/her tax
adviser. See also "FEDERAL TAX CONSIDERATIONS" for further information.
B. CHOOSING THE ANNUITY PAYOUT OPTION
Regardless of how payments were allocated during the accumulation phase, the
Owner may choose a variable annuity payout option, a fixed annuity payout option
or a combination fixed and variable annuity payout option. Currently, all of the
variable annuity payout options described below are available and may be funded
through all of the variable Sub-Accounts. In addition, each of the variable
annuity payout options is also available on a fixed basis. The Company may offer
other annuity options.
If the Owner selects a fixed annuity payout option, each monthly annuity benefit
payment will be equal to the first (unless a withdrawal is made or as otherwise
described under certain reduced survivor annuity benefits.) Any portion of the
Contract's Accumulated Value converted to a fixed annuity will be held in the
Company's General Account. The Contract provides guaranteed fixed annuity rates
that determine the dollar amount of the first payment under each form of fixed
annuity for each $1,000 of applied value. These rates are based on the Annuity
2000 Mortality Table and a 3% AIR. The Company may offer its Owners 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 more specific
information about fixed annuity payout options, see the Contract.
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If the Owner selects a variable annuity payout, he/she will receive monthly
payments equal to the value of the fixed number of Annuity Units in the chosen
Sub-Account(s). Since the value of an Annuity Unit in a Sub-Account reflects the
investment performance of the Sub-Account, the amount of each monthly annuity
benefit payment will usually vary. However, under this Contract, if the Owner
elects a variable option, he or she must also select a monthly, quarterly,
semi-annual or annual Annuity Benefit Change Frequency ("Change Frequency.") The
Change Frequency is the frequency that changes due to the Sub-Account's
investment performance will be reflected in the dollar value of a variable
annuity benefit payment. As such, the Change Frequency chosen will determine how
frequently monthly variable annuity payments will vary. For example, if a
monthly Change Frequency is in effect, payments may vary on a monthly basis. If
a quarterly Change Frequency is selected, the amount of each monthly payment
will change every three months and will be level within each three month cycle.
At the time the Change Frequency is elected, the Owner must also select the date
the first change is to occur. This date may not be later than the length of the
Change Frequency elected. For example, if a semi-annual Change Frequency is
elected, the date of the first change may not be later than six months after the
Annuity Date. If a quarterly Change Frequency is elected, the date of the first
change may not be later than three months after the Annuity Date.
The Owner may change the annuity option up to one month before the Annuity Date.
If the Owner fails to choose an annuity option, monthly benefit payments will be
made under a fixed Life Annuity with Cash Back. If the Owner exercises the M-GAP
Rider, annuity benefit payments must be made under a fixed annuity payout option
involving a life contingency option.
The annuity option selected must result in an initial payment of at least $50 (a
lower amount may be required in certain jurisdictions.) The Company reserves the
right to increase this minimum amount. If the annuity option selected does not
produce an initial payment which meets this minimum, a single payment may be
made.
C. DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS
The Company currently provides the following variable annuity payout options:
LIFE ANNUITIES
- SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life.
Payments cease with the last annuity benefit payment due prior to the
Annuitant's death.
- JOINT AND SURVIVOR ANNUITIES -- Monthly payments during the Annuitant's
and Joint Annuitant's joint lifetimes. Upon the first death, payments will
continue for the remaining lifetime of the survivor at a previously
elected level of 100%, two-thirds or one-half of the total number of
Annuity Units.
LIFE WITH GUARANTEE PERIOD ANNUITY
- SINGLE LIFE -- Monthly payments guaranteed for a specified number of years
and continuing thereafter during the Annuitant's lifetime. If the
Annuitant dies before all guaranteed payments have been made, the
remaining payments continue to the Owner or the Beneficiary, whichever is
applicable.
- JOINT AND SURVIVOR ANNUITIES -- Monthly payments guaranteed for a
specified number of years and continuing during the Annuitant's and Joint
Annuitant's joint lifetime. Upon the first death, payments continue for
the survivor's remaining lifetime at the previously elected level of 100%,
two-thirds or one-half of the Annuity Units. If the surviving Annuitant
dies before all guaranteed payments have
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<PAGE>
been made, the remaining payments continue to the Owner or the
Beneficiary, whichever is applicable.
LIFE ANNUITY WITH CASH BACK
- SINGLE LIFE -- Monthly payments during the Annuitant's life. Thereafter,
any excess of the original applied Annuity Value, over the total amount of
annuity benefit payments made and withdrawals taken, will be paid to the
Owner or the Beneficiary (whichever is applicable).
- JOINT AND SURVIVOR ANNUITIES -- Monthly payments during the Annuitant's
and Joint Annuitant's joint lifetime. At the first death, payments
continue for the survivor's remaining lifetime at the previously elected
level of 100%, two-thirds or one-half of the Annuity Units. Thereafter,
any excess of the original applied Annuity Value, over the total amount of
annuity benefit payments made and withdrawals taken, will be paid to the
Owner or the Beneficiary (whichever is applicable).
PERIOD CERTAIN ANNUITY
Monthly annuity benefit payments for a chosen number of years ranging from five
to thirty are paid. If the Annuitant dies before the end of the period,
remaining payments will continue. 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.
D. VARIABLE 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 the Annuity Unit on the
immediately preceding Valuation Date multiplied by the product of:
(1) a discount factor equivalent to the Assumed Investment Return and
(2) the Net Investment Factor of the Sub-Account funding the annuity benefit
payments for the applicable Valuation Period.
The Net Investment Factor is equal to one plus the Assumed Investment Return
which is adjusted to reflect the specific Valuation Period. The Assumed
Investment Return (AIR) is the investment return upon which annuity benefit
payments are based.
Annuity benefit payments will increase from one payment date to the next if the
annualized net rate of return during that period is greater than the AIR and
will decrease if the annualized net rate of return is less than the AIR. Where
permitted by law, the Owner may select an AIR of 3%, 5%, or 7%. A higher AIR
will result in a higher initial payment. However, subsequent payments will
increase more slowly during periods when actual investment performance exceeds
the AIR and will decrease more rapidly during periods when investment
performance is less than the AIR.
DETERMINATION OF THE FIRST ANNUITY BENEFIT PAYMENT. The amount of the first
periodic variable annuity benefit payment depends on the:
- annuity payout option chosen;
- length of the annuity option elected;
- age of the Annuitant;
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- gender of the Annuitant (if applicable, see "I. NORRIS Decision");
- value of the amount applied under the annuity option;
- applicable annuity purchase rates based on the Annuity 2000 Mortality
Table; and
- assumed investment return (AIR) selected.
The dollar amount of the first periodic annuity benefit payment 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, (or the amount of the
death benefit, if applicable) divided by $1,000, by
(2) the applicable amount of the first monthly payment per $1,000 of value.
DETERMINATION OF THE NUMBER OF ANNUITY UNITS. 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. The number of Annuity Units remains fixed
under all annuity options (except for the survivor annuity benefit payment under
the joint and two-thirds or joint and one-half option) unless the Owner
transfers among Sub-Accounts, makes a withdrawal, or units are split.
DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY BENEFIT PAYMENTS. 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. The dollar amount of each
periodic variable annuity benefit payment after the first will vary with
subsequent variations in the value of the Annuity Unit of the selected
Sub-Account(s).
For an illustration of the calculation of a variable annuity benefit payment
using a hypothetical example, see "Annuity Benefit Payments" in the SAI.
PAYMENT OF ANNUITY BENEFIT PAYMENTS. The Owner will receive the annuity benefit
payments unless he/ she requests in writing that payments be made to another
person, persons, or entity. 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. Any remaining annuity benefit payments will
continue to the beneficiary in accordance with the terms of the annuity benefit
payment option selected. If there are Joint Owners on or after the Annuity Date,
upon the first Owner's 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.
If an Annuitant dies on or after the Annuity Date but before all guaranteed
annuity benefit payments have been made, any remaining payments will continue to
be paid to the Owner or the payee the Owner has designated. Unless otherwise
indicated by the Owner, after the death of the Annuitant, the present value of
any remaining guaranteed annuity benefit payments may be paid in a single sum to
the Owner. For discussion of present value calculation, see "Present Value
Determination" below. Variable annuity benefit payments will be commuted at the
AIR. Fixed annuity benefit rates will be commuted at the rate used to determine
the benefit.
E. TRANSFERS OF ANNUITY UNITS
After the Annuity Date and prior to the death of the Annuitant, the Owner may
transfer among the available Sub-Accounts 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. A designated
number of Annuity Units equal to the dollar amount of the transfer requested
will be exchanged for an equivalent dollar amount of Annuity Units of another
Sub-Account. Transfer values will be based on the Annuity Value next computed
after receipt of the transfer request.
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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 Sub-Accounts during the life of the Contract and prior to the
Annuity Date. However, the Company reserves the right to limit the number of
Sub-Accounts to which transfers may be made.
Automatic transfers (Dollar Cost Averaging) are available during the
annuitization phase subject to the same rules described in "E. Transfer
Privilege" except that the Fixed Account is not available as a source account.
F. WITHDRAWALS AFTER THE ANNUITY DATE (NOT AVAILABLE UNDER QUALIFIED PLANS,
EXCEPT AS DESCRIBED BELOW). After the Annuity Date and prior to the death of the
Annuitant, the Owner may take a withdrawal from the Contract. The Owner may
choose between two withdrawal options: a "Payment Withdrawal Amount" option or a
Present Value Withdrawal option.
Although withdrawals after the Annuity Date are generally not available for
Contracts issued under Qualified Plans, withdrawals may be available in the
following situations:
- under Roth IRAs before the Death of the Owner;
- under Contracts funding Section 457 Deferred Compensation Plans; and
- under Contracts under which a commutable Annuity Benefit Payment Option
has been elected.
WITHDRAWALS AFTER THE ANNUITY DATE MAY HAVE ADVERSE TAX CONSEQUENCES. SEE
FEDERAL TAX CONSIDERATIONS, B. TAXATION OF THE CONTRACTS IN GENERAL,
"WITHDRAWALS AFTER ANNUITIZATION."
PAYMENT WITHDRAWAL AMOUNT OPTION. Once each calendar year, the Owner may
withdraw an amount not to exceed the previous monthly annuity benefit payment
multiplied by ten (10) (the "Payment Withdrawal Amount"). The withdrawal may not
exceed the maximum remaining guaranteed payments. Any withdrawal proportionately
reduces the number of Annuity Units applied to each future annuity benefit
payment. The proportionate reduction is calculated by multiplying the number of
Annuity Units in each future annuity benefit payment, determined immediately
prior to the withdrawal, by the following fraction:
Amount of the Withdrawal
-----------------------------------------------
Present Value of all remaining variable annuity benefit
payments immediately prior to the withdrawal
PRESENT VALUE WITHDRAWAL OPTION. In addition, if the Owner has annuitized under
a period certain, life with period certain or cash back annuity payout option
and there are remaining guaranteed payments, the Owner may withdraw no more than
once each calendar year a portion of the present value of those remaining
guaranteed annuity benefit payments calculated with a discount factor as
outlined in the Contract. The total percentage withdrawn during the entire
payout phase cannot exceed a maximum of 75% of the present value of the
remaining guaranteed annuity payments (the "Present Value Withdrawal Amount").
Each withdrawal proportionately reduces the number of units in future variable
annuity benefit payments. This proportionate reduction is calculated by
multiplying the number of Annuity Units in each future annuity benefit payment,
determined immediately prior to the withdrawal, by the following fraction:
Amount of the withdrawal
--------------------------------------------------------------
Present Value of all remaining variable/fixed guaranteed annuity benefit
payments immediately prior to the withdrawal
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If the Annuitant is still living after the guaranteed number of payments has
been made, the number of Annuity Units used in calculating the annuity benefit
payment prior to any withdrawal will be restored to its original value (adjusted
for any transfers if applicable) as if no withdrawal(s) had taken place.
The minimum amount of a withdrawal is $1,000. Any withdrawal is normally payable
within seven days following the Company's receipt of the surrender or withdrawal
request.
The Company reserves the right to defer withdrawals of amounts in each
Sub-Account in any period during which:
- 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;
- the SEC has by order permitted such suspension; or
- 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 withdrawals of amounts allocated to the
Company's General Account for a period not to exceed six months. Deferred
amounts will receive interest during the deferral period at a rate of at least
3%.
PRESENT VALUE DETERMINATION. Present values of either all future annuity
benefit payments or future guaranteed annuity benefit payments are calculated
based on the Annuity 2000 Mortality Table (male, female or unisex rates as
appropriate), and the interest rate or AIR used to determine the annuity benefit
payments, increased by the following adjustments:
- Death of Annuitant -- 0.00% Adjustment
- Withdrawals 5 or more years after issue date -- 0.00% Adjustment
- Withdrawals within 5 years of issue date:
15 or more years of annuity benefit payments being valued -- 1.00%
Adjustment
10-14 years of annuity benefit payments being valued -- 1.50% Adjustment
Less than 10 years of annuity benefit payments being valued -- 2.00%
Adjustment
G. OPTIONAL ANNUITIZATION RIDERS
The following optional annuitization riders are available under the Contract:
- Minimum Annuitization Floor ("MAF") Rider
- Annuitization Payment Ratchet ("APR") Rider
MINIMUM ANNUITIZATION FLOOR ("MAF") RIDER. If the Owner elects a variable
annuity option, an optional Minimum Annuitization Floor ("MAF") Rider is
available at annuitization in most jurisdictions. The MAF Rider guarantees that
each monthly benefit payment after the first will never be less than that first
payment (the "MAF Amount"), unless an adjustment is required due to a withdrawal
or the death of the first Annuitant under a two-thirds or one-half survivor
benefit option.
If a withdrawal is taken while the Rider is in effect, the MAF Amount will be
reduced in the same manner that Annuity Units are reduced. After the death of
the first Annuitant under a joint and survivor option, the number of Annuity
Units will be reduced by one-third or one-half, as applicable.
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There is no periodic charge for the MAF Rider. However, because lower annuity
option rates will be used under the MAF Rider, the first annuity benefit payment
will be lower than it would have been without the MAF rider. Subsequent payments
will also be lower unless the guarantee provided by the MAF Rider is triggered,
at which time payments may be higher than if the MAF Rider had not been elected.
The Rider terminates upon payment of the last annuity benefit payment.
ANNUITIZATION PAYMENT RATCHET ("APR") RIDER. If the Owner elects a variable
annuity option, an optional Annuitization Payment Ratchet ("APR") Rider is
available at annuitization in most jurisdictions. In order to elect the Rider,
the Owner must also elect an annual Annuity Benefit Payment Change Frequency
("Change Frequency") and the date that the first Change Frequency cycle will
commence.
The APR Rider provides that, regardless of investment performance, the amount of
the monthly payments within each annual Change Frequency cycle, assuming no
withdrawals are taken, will equal or exceed the dollar amount of the last
monthly payment in the previous annual Change Frequency cycle. The amount of the
last monthly payment in the previous Change Frequency cycle is called the
"Current Ratchet Amount." The monthly payment in any Change Frequency cycle will
never exceed 10% of the Current Ratchet Amount, assuming no withdrawals are
taken. As a result, under the APR Rider each monthly payment will equal or
exceed the previous payment, but the potential increase in benefit payments from
one Change Frequency cycle to the next is limited by the 10% cap on any increase
in the Current Ratchet Amount.
The APR Rider is subject to the conditions outlined below:
- The amount of each monthly payment prior to the beginning of the first
Change Frequency cycle will be equal to the first variable annuity benefit
payment determined on the Annuity Date assuming no withdrawals are taken.
- If a withdrawal is taken, the Current Ratchet Amount will be
proportionately reduced in the same manner that the Annuity Units are
reduced.
- At the death of the first Annuitant under a under a two-thirds or one-half
survivor annuitization option, the Current Ratchet Amount is adjusted by
one-third or one-half, as applicable.
There is no periodic charge for the APR Rider. However, lower annuity option
rates are used to determine the initial annuity benefit payment. If the APR
rider is in effect, the first annuity benefit payment will be lower than it
would have been without the rider. Subsequent payments will also be lower unless
the ratcheting effect provided by the APR rider is triggered, at which time
payments will be higher than if the rider had not been elected.
The Rider will terminate upon payment of the last annuity benefit payment.
H. REVERSAL OF ANNUITIZATION
The Owner may reverse the decision to annuitize by request to the Company within
90 days of the Annuity Date. Upon receipt of such request, the Company will
return the Contract to the accumulation phase subject to the following:
(1) The value applied under a variable annuity option during this period will be
treated as if it had been invested in the Accumulation Phase of the
Contract, with the same allocations that were in effect since the Annuity
Date.
(2) The value applied under a fixed annuity option during this period, except
for the excess value of the M-GAP Benefit Base over the Annuity Value, if
applicable, will be treated as if it had been invested in the Fixed Account
during the accumulation phase of the Contract since the Annuity Date.
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(3) Any annuity benefit payments paid or withdrawals taken during this period
will be treated as a withdrawal of the Surrender Value as of the date of the
payment or withdrawal. Fixed annuity benefit payments will be treated as
withdrawals from the Fixed Account. Variable annuity benefit payments will
be treated as withdrawals from the variable Sub-Accounts. Surrender charges
may apply to these withdrawals.
(4) If the Company learns of the Owner's decision to reverse after the maximum
Annuity Date permitted under the Contract, the Owner must immediately select
another annuity payout option.
I. 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 unisex rates.
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 assesses a charge against the
assets of each Sub-Account to compensate for certain mortality and expense risks
it has assumed. The charge is imposed during both the accumulation phase and the
annuity payout 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 payout option selected), no matter
how long the Annuitant lives and no matter how long all Annuitants as a class
live. The mortality charge is deducted during the annuity payout 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.
The mortality and expense risk charge is assessed daily at an annual rate of
1.25% of each Sub-Account's assets. This charge may not be increased. 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.
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 payout phase. The daily Administrative Expense Charge is assessed to
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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 (described below under "B. Contract Fee") and
for the Administrative Expense Charge are designed to reimburse the Company for
the cost of administration and related expenses and are not expected to be a
source of profit. The administrative functions and expense assumed by the
Company in connection with the Variable Account and the 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 (a lower fee may apply in some states) currently is deducted
during the accumulation phase on the Contract anniversary date and upon full
surrender of the Contract if the Accumulated Value on any of these dates is less
than $75,000. The Contract fee is waived for Contracts issued to and maintained
by the trustee of a 401(k) plan.
Where Contract value has been allocated to more than one account, a percentage
of the total Contract fee will be deducted from the value in each account. The
portion of the charge deducted from each account will be equal to the percentage
which the value in that account bears to the Accumulated Value under the
Contract. The deduction of the Contract fee from a Sub-Account will result in
cancellation of a number of Accumulation Units equal in value to the portion of
the charge deducted from that Sub-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 RIDER CHARGES
Subject to state availability, the Company offers a number of riders that may be
elected by the Owner at issue. The Minimum Guaranteed Annuity Payout Rider may
be elected at issue or on any Contract anniversary. A separate monthly charge is
made for each Rider through a pro-rata reduction of the Accumulated Value of the
Sub-Accounts, the Fixed Account and the Guarantee Period Accounts. The pro-rata
reduction is based on the relative value that the Accumulation Units of the
Sub-Accounts, the dollar amounts in the Fixed Account and the dollar amounts in
the Guarantee Period Accounts bear to the total Accumulated Value.
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The applicable charge for the following is assessed on the Accumulated Value on
the last day of each Contract month and, if applicable, on the date the Rider is
terminated, multiplied by 1/12th of the following annual percentage rates:
<TABLE>
<S> <C>
Minimum Guaranteed Annuity Payout Rider with ten-year waiting period....... 0.35%
Minimum Guaranteed Annuity Payout Rider with fifteen-year waiting period... 0.20%
Enhanced Death Benefit with Annual Step-Up and 5% Guarantee................ 0.25%
</TABLE>
For a description of the Riders, see "Enhanced Death Benefit Rider" under "G.
Death Benefit", and "I. Optional Minimum Guaranteed Annuity Rider" under
"DESCRIPTION OF THE CONTRACT," above.
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. SURRENDER CHARGE
No charge for sales expense is deducted from payments at the time the payments
are made. A surrender charge, however, is deducted from the Accumulated Value in
the case of surrender within certain time limits described below.
CALCULATION OF SURRENDER CHARGE. For purposes of determining the surrender
charge, the Accumulated Value is divided into four categories:
- New Payments -- payments received by the Company during the nine years
preceding the date of the surrender;
- Old Payments -- total payments invested in the Contract for more than nine
years;
- the amount available under the Withdrawal Without Surrender Charge
provision; and
- Payment Credits.
For purposes of determining the amount of any surrender charge, surrenders will
be deemed to be taken on the following order:
(1) first from amounts available as a Withdrawal Without Surrender Charge, if
any;
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<PAGE>
(2) then from any Old Payments;
(3) then from New Payments; and
(4) last from Payment Credits.
Amounts available as a Withdrawal Without Surrender Charge, followed by Old
Payments, may be withdrawn from the Contract at any time without the imposition
of a surrender charge. However, if a withdrawal or surrender is attributable all
or in part to New Payments, a surrender charge may be imposed.
The amount of the charge will depend upon the number of years that any New
Payments to which the withdrawal is attributed have remained credited under the
Contract. For the purpose of calculating surrender charges for New Payments, all
amounts withdrawn are assumed to be deducted first from the oldest New Payment
and then from the next oldest New Payment and so on, until all New Payments have
been exhausted pursuant to the first-in-first-out ("FIFO") method of accounting.
(See "FEDERAL TAX CONSIDERATIONS" for a discussion of how withdrawals are
treated for income tax purposes.)
The surrender charge is as follows:
<TABLE>
<CAPTION>
COMPLETE YEARS FROM
DATE OF PAYMENT CHARGE
- -------------------- -----------
<S> <C>
0-4 8.5%
more than 4 7.5%
more than 5 6.5%
more than 6 5.5%
more than 7 3.5%
more than 8 1.5%
more than 9 0
</TABLE>
The amount withdrawn equals the amount requested by the Owner plus the surrender
charge, if any. The charge is applied as a percentage of the New Payments
withdrawn, but in no event will the total surrender charge exceed a maximum
limit of 8.5% of total gross New Payments. Such total charge equals the
aggregate of all applicable surrender charges for surrender, withdrawals.
For further information on surrender and withdrawal, including minimum limits on
amount withdrawn and amount remaining under the Contract in the case of
withdrawal, and important tax considerations, see "F. Surrender and Withdrawals"
under "DESCRIPTION OF CONTRACT" and see "FEDERAL TAX CONSIDERATIONS."
REDUCTION OR ELIMINATION OF SURRENDER CHARGE AND ADDITIONAL AMOUNTS
CREDITED. Where permitted by law, the Company will waive the surrender charge
in the event that the Owner (or the Annuitant, if the Owner is not an
individual) becomes physically disabled after the issue date of the Contract (or
in the event that the original Owner or Annuitant has changed since issue, after
being named Owner or Annuitant) and before attaining age 65. The Company may
require proof of such disability and continuing disability and reserves the
right to obtain an examination by a licensed physician of its choice and at its
expense.
In addition, the Company will waive the surrender charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is:
(1) admitted to a medical care facility after becoming the Owner or Annuitant
under the Contract and remains confined there until the later of one year
after the issue date or 90 consecutive days; or
(2) first diagnosed by a licensed physician as having a fatal illness after the
issue date of the Contract and after being named Owner or Annuitant.
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For purposes of the above provision, "medical care facility" means any
state-licensed facility or, in a state that does not require licensing, a
facility that is operating pursuant to state law, providing medically necessary
inpatient care which is prescribed by a licensed "physician" in writing and
based on physical limitations which prohibit daily living in a non-institutional
setting. "Fatal illness" means a condition diagnosed by a licensed "physician"
which is expected to result in death within two years of the diagnosis.
"Physician" means a person (other than the Owner, Annuitant or a member of one
of their families) who is state licensed to give medical care or treatment and
is acting within the scope of that license. "Physically disabled" means that the
Owner or Annuitant, as applicable, has been unable to engage in an occupation or
to conduct daily activities for a period of at least 12 consecutive months as a
result of disease or bodily injury.
Where surrender charges have been waived under any of the situations discussed
above, no additional payments under this Contract will be accepted unless
required by state law.
In addition, from time to time the Company may allow a reduction in or
elimination of the surrender charges, the period during which the charges apply,
or both, and/or credit additional amounts on Contracts, when Contracts are sold
to individuals or groups of individuals in a manner that reduces sales expenses.
The Company will consider factors such as the following:
- the size and type of group or class, and the persistency expected from
that group or class;
- the total amount of payments to be received, and the manner in which
payments are remitted;
- the purpose for which the Contracts are being purchased, and whether that
purpose makes it likely that costs and expenses will be reduced;
- other transactions where sales expenses are likely to be reduced; or
- the level of commissions paid to selling broker-dealers or certain
financial institutions with respect to Contracts within the same group or
class (for example, broker-dealers who offer this Contract in connection
with financial planning services offered on a fee-for-service basis).
The Company also may reduce or waive the surrender charge, and/or credit
additional amounts on 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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In addition, if permitted under state law, surrender charge will be waived under
403(b) Contracts where the amount withdrawn is being contributed to a life
policy issued by the Company as part of the individual's 403(b) plan.
Where an Owner who is trustee under a pension plan surrenders, in whole or in
part, a Contract on a terminating employee, the trustee will be permitted to
reallocate all or a part of the Accumulated Value under the Contract to other
Contracts issued by the Company and owned by the trustee, with no deduction for
any otherwise applicable surrender charge. Any such reallocation will be at the
unit values for the Sub-Accounts as of the Valuation Date on which a written,
signed request is received at the Principal Office.
Any reduction or elimination in the amount or duration of the surrender charge
will not discriminate unfairly among purchasers of this Contract. The Company
will not make any changes to this charge where prohibited by law.
F. 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 to reimburse it for
the expense of processing transfers. For more information, see "E. Transfer
Privilege" under "DESCRIPTION OF THE CONTRACT."
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 except in
California where it is accounted for in the Company's General 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%. The Guarantee Period Accounts are not available in New
York, Oregon, Maryland, and Pennsylvania.
To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Owners may allocate net payments or make transfers from any of the Sub-Accounts,
the Fixed Account or an existing Guarantee Period Account to establish a new
Guarantee Period Account at any time prior to the Annuity Date. Transfers from a
Guarantee Period Account on any date other than on the day following the
expiration of that Guarantee Period will be subject to a Market Value
Adjustment. The Company establishes a separate investment account each time the
Owner allocates or transfers amounts to a Guarantee Period except that amounts
allocated to the same Guarantee Period on the same day will be treated as one
Guarantee Period Account. The minimum that may be allocated to establish a
Guarantee Period Account is $1,000. If less than
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$1,000 is allocated, the Company reserves the right to apply that amount to the
Money Market Sub-Account. 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 at the
then current rate unless (1) less than $1,000 would remain in the Guarantee
Period Account on the expiration date, or (2) unless the Guarantee Period would
extend beyond the Annuity Date or is no longer available. In such cases, the
Guarantee Period Account value will be transferred to the Sub-Account investing
in the Money Market Sub-Account. 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.
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "Death Benefit." All other
transfers, withdrawals, or a surrender prior to the end of a Guarantee Period
will be subject to a Market Value Adjustment, which may increase or decrease the
account value. Amounts applied under an annuity option are treated as
withdrawals when calculating the Market Value Adjustment. The Market Value
Adjustment will be determined by multiplying the amount taken from each
Guarantee Period Account before deduction of any Surrender Charge by the market
value factor. The market value factor for each Guarantee Period Account is equal
to:
[(1+i)/(1+j)](n/365) - 1
where: i is the Guaranteed Interest Rate expressed as a decimal for
example: (3% = 0.03) being credited to the current Guarantee
Period;
j is the new Guaranteed Interest Rate, expressed as a decimal,
for a Guarantee Period with a duration equal to the number of
years remaining in the current Guarantee Period, rounded to
the next higher number of whole years. If that rate is not
available, the Company will use a suitable rate or index
allowed by the Department of Insurance; and
n is the number of days remaining from the Effective Valuation
Date to the end of the current Guarantee Period.
Based on the application of this formula, the value of a Guarantee Period
Account will increase after the Market Value Adjustment is applied if the then
current market rates are lower than the rate being credited to the Guarantee
Period Account. Similarly, the value of a Guarantee Period Account will decrease
after the Market Value Adjustment is applied if the then current market rates
are higher than the rate being credited to the Guarantee Period Account. The
Market Value Adjustment is limited; however, so that even if the account value
is decreased after application of a Market Value Adjustment, it will equal or
exceed the Owner's principal plus 3% earnings per year less applicable Contract
fees. Conversely, if the then current market rates are lower and the account
value is increased after the Market Value Adjustment is applied, the increase in
value is also affected by the minimum guaranteed rate of 3% such that the amount
that will be added to the Guarantee Period Account is limited to the difference
between the amount earned and the 3% minimum guaranteed earnings. For examples
of how the Market Value Adjustment works, See APPENDIX D, "SURRENDER CHARGES AND
THE MARKET VALUE ADJUSTMENT."
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WITHDRAWALS. Prior to the Annuity Date, the Owner may make withdrawals of
amounts held in the Guarantee Period Accounts. Withdrawals from these accounts
will be made in the same manner and be subject to the same rules as set forth
under "Withdrawals" and "Surrender." In addition, the following provisions also
apply to withdrawals from a Guarantee Period Account: (1) a Market Value
Adjustment will apply to all withdrawals, including Withdrawals Without
Surrender Charge, unless made at the end of the Guarantee Period; and (2) the
Company reserves the right to defer payments of amounts withdrawn from a
Guarantee Period Account for up to six months from the date it receives the
withdrawal request. If deferred for 30 days or more, the Company will pay
interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted or added to the amount remaining in the Guarantee Period
Account. If the entire amount in a Guarantee Period Account is requested, the
adjustment will be made to the amount payable. If a surrender charge applies to
the withdrawal, it will be calculated as set forth under "Surrender charge"
after application of the Market Value Adjustment.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Contract, on withdrawals or
surrenders, on annuity benefit payments, and on the economic benefit to the
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the IRS. In
addition, this discussion does not address state or local tax consequences that
may be associated with the Contract.
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
was 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 regulations under Section 817(h) relating to the diversification
requirements for variable annuity and variable life insurance provide that the
investments of a segregated asset account underlying a variable annuity contract
are adequately diversified if no more than 55% of the value of its assets is
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. It is anticipated that the Funds of 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
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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 (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 "Nonnatural Owner" below), be considered annuity
contracts under Section 72 of the Code. 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.
(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 Accumulated Value.)
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. 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.
WITHDRAWALS AFTER ANNUITIZATION. The Internal Revenue Service may take the view
that when withdrawals (other than annuity payments) are taken during the annuity
payout phase of the Contract, all amounts received by the taxpayer are taxable
as ordinary income rates as amounts "not received as an annuity." In addition,
such
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amounts are taxable to the recipient without regard to the owner's investment in
the Contract or any investment gain that which might be present in the current
annuity value.
For example, assume that a Contract owner with a Contract Value of $100,000 of
which $90,000 is comprised of investment in the Contract and $10,000 is
investment gain, makes a withdrawal of $20,000 during the annuity payout phase.
Under this view, the Contract owner would pay income taxes on the entire $20,000
amount in that tax year. For some taxpayers, such as those under age 59 1/2,
additional tax penalties may also apply.
OWNERS OF NONQUALIFIED CONTRACTS SHOULD CONSIDER CAREFULLY THE TAX IMPLICATIONS
OF ANY WITHDRAWAL REQUESTS AND THEIR NEED FOR CONTRACT FUNDS PRIOR TO THE
EXERCISE OF THE WITHDRAWAL RIGHT. CONTRACT OWNERS SHOULD ALSO CONTACT THEIR TAX
ADVISER PRIOR TO MAKING WITHDRAWALS.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments begin under
the Contract, generally a portion of each payment may be excluded from gross
income. The excludable portion generally is determined by a formula that
establishes the ratio that the investment in the Contract bears to the expected
return under the Contract. The portion of the payment in excess of this
excludable amount is taxable as ordinary income. Once all the investment in the
Contract is recovered, the entire payment is taxable. If the annuitant dies
before cost basis is recovered, a deduction for the difference is allowed on the
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 the Owner (or, if the Owner is not
an individual, the death of the primary Annuitant, as defined in the
Code); or
- in the case of the Owner's "total disability" (as defined in the Code); or
- if withdrawals from a qualified Contract are made to an employee who has
terminated employment after reaching age 55; or
- irrespective of age, if the amount received is one of a series of
"substantially equal" periodic payments made at least annually for the
life or life expectancy of the payee.
The requirement of "substantially equal" periodic payments 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 is also 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 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, 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 any LED-type 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.
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ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the Owner will incur taxable income at the time of the transfer. An exception is
provided for certain transfers between spouses. The amount of taxable income
upon such taxable transfer is equal to any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions. Where the Owner and Annuitant are different
persons, the change of ownership of the Contract to the Annuitant on the Annuity
Date, as required under the Contract, is a gift and will be taxable to the Owner
as such; however, the Owner will not incur taxable income. Instead, the
Annuitant will incur taxable income upon receipt of annuity benefit payments as
discussed above.
NONNATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"nonnatural 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 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.
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
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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 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 cancel the Contract as described in this
Prospectus. See "B. Right to Cancel 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.
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.
STATEMENTS AND REPORTS
An Owner is sent a report semi-annually which provides certain financial
information about the Underlying Funds. At least annually, but possibly as
frequently as quarterly, the Company will furnish a statement to the Owner
containing information about his or her Contract, including Accumulation Unit
Values and other information as required by applicable law, rules and
regulations. The Company will also send a confirmation statement to Owners each
time a transaction is made affecting the Contract Value. (Certain transactions
made under recurring payment plans may in the future be confirmed quarterly
rather than by immediate confirmations.) The Owner should review the information
in all statements carefully. All errors or corrections must be reported to the
Company immediately to assure proper crediting to the Contract. The Company will
assume that all transactions are accurately reported on confirmation statements
and quarterly/annual statements unless the Owner notifies the Principal Office
in writing within 30 days after receipt of the statement.
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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 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 Underlying Funds 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 is 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.
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CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend sales
of the Contract as presently offered, and to make any change to provisions of
the Contract to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation (or any laws, regulations or rules of any
jurisdiction in which the Company is doing business), including but not limited
to requirements for annuity contracts and retirement plans under the Code and
pertinent regulations or any state statute or regulation. Any such changes will
apply uniformly to all Contracts that are affected. Owners 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. Shares for which no timely instructions are received will be voted
in proportion to the instructions, which are received. The Company also will
vote shares in a Sub-Account that it owns and which are not attributable to
Contracts in the same proportion. If the 1940 Act or any rules thereunder should
be amended or if the present interpretation of the 1940 Act or such rules should
change, and as a result the Company determines that it is permitted to vote
shares in its own right, whether or not such shares are attributable to the
Contract, the Company reserves the right to do so.
The number of votes which an Owner or Annuitant may cast will be determined by
the Company as of the record date established by the Underlying Fund. During the
accumulation period, the number of Underlying Fund shares attributable to each
Owner will be determined by dividing the dollar value of the Accumulation Units
of the Sub-Account credited to the Contract by the net asset value of one
Underlying Fund share. During the annuity period, the number of Underlying Fund
shares attributable to each 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 6.0% of payments to broker-dealers
which sell the Contract. Alternative commission schedules are available with
lower initial commission amounts based on payments, plus ongoing annual
compensation of up to 1% of Contract value. To the extent permitted by NASD
rules, promotional incentives or payments also may be provided to such
broker-dealers based on sales volumes, the assumption of wholesaling functions,
or other sales-related criteria. Additional payments may be made for other
services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature, and
similar services.
The Company intends to recoup commissions and other sales expenses through a
combination of anticipated surrender charges and profits from the Company's
General Account, which may include amounts derived from mortality and risk
charges. Commissions paid on the Contract, including additional incentives or
payments, do not result in any additional charge to Owners or to the Variable
Account. The Company will retain any surrender charges assessed on a Contract.
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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 is a party,
or to which the assets of the Variable Account are subject. The Company and the
Principal Underwriter are not involved in any litigation that is of material
importance in relation to its total assets or that relates to the Separate
Account.
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 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 Company's involvement on a third
party's Year 2000 program, 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
issue, there can be no assurance that exposure for material contingencies will
not arise.
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The cost of the Year 2000 project will be expensed as incurred and is being
funded primarily through a reallocation of resources from discretionary projects
and a reduction in systems maintenance and support costs. 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.
The Company and its affiliates have incurred and expensed approximately $54
million related to the assessment, plan development and substantial completion
of the Year 2000 project through December 31, 1998. The total remaining cost of
the project is estimated between $20-$30 million
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.
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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.
STATE RESTRICTIONS. In Massachusetts, payments and transfers to the Fixed
Account are subject to the following restrictions:
If a Contract is issued prior to the Annuitant's 60th birthday,
allocations to the Fixed Account will be permitted until the
Annuitant's 61st birthday. On and after the Annuitant's 61st
birthday, no additional Fixed Account allocations will be
accepted. If a Contract is issued on or after the Annuitant's 60th
birthday, up through and including the Annuitant's 81st birthday,
Fixed Account allocations will be permitted during the first
Contract year. On and after the first Contract anniversary, no
additional allocations to the Fixed Account will be permitted. If
a Contract is issued after the Annuitant's 81st birthday, no
payments to the Fixed Account will be permitted at any time.
In Oregon, no payments to the Fixed Account will be permitted if a Contract is
issued after the Annuitant's 81st birthday. 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 Sub-Account.
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAMS. To the extent
permitted by law, the Company reserves the right to offer Enhanced Automatic
Transfer Program(s) from time to time. If you elect to participate, the Company
will credit an enhanced interest rate to payments made to the Enhanced Automatic
Transfer Program. Eligible payments:
- must be new payments to the contract, including the initial payment,
- must be allocated to the Fixed Account, which will be the source account,
- must be automatically transferred out of the Fixed Account to one or more
accounts (excluding the Fixed Account and the Guarantee Period Accounts)
over a specified time period and
- will receive the enhanced rate while they remain in the Fixed Account.
You may be able to establish more than one Enhanced Automatic Transfer Program.
Payments made to the contract during the same month will be part of the same
Enhanced Automatic Transfer program if the length of the time period is the same
and the enhanced rate is the same. The allocation for all of the amounts in the
same program will be in accordance with the instructions for the most recent
payment to this program. The monthly transfer will be made on the date
designated for the initial payment to this program. The amount allocated will be
determined by dividing the amount in the program by the number of remaining
months. For example, for a six-month program, the first automatic transfer will
be 1/6th of the balance; the second automatic transfer will be 1/5th of the
balance, and so on.
Payments to different Enhanced Automatic Transfer Programs will be handled in
accordance with the instructions for each particular program.
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APPENDIX B -- PERFORMANCE INFORMATION
This Contract was first offered to the public in 1999. However, in order to help
people understand how investment performance can affect money invested in the
Sub-Accounts, the Company may advertise "total return" and "average annual total
return" performance information based on (1) the periods that the Sub-Accounts
have been in existence and (2) the periods that the Underlying Funds have been
in existence. Performance results in Tables 1A and 2A reflect the applicable
deductions for the Contract fee, Sub-Account charges and Underlying Fund charges
under this Contract and also assume that the Contract is surrendered at the end
of the applicable period. Performance results in Tables 1B and 2B do not include
the Contract fee and assume that the Contract is not surrendered at the end of
the applicable period. Neither sets of tables include optional Rider Charges.
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.
Quotations of average annual total return as shown in Table 1A 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
effect of the $35 annual Contract fee, the Underlying Fund charges and the
surrender charge which would be assessed if the investment were completely
withdrawn at the end of the specified period. The calculation is not adjusted to
reflect the deduction of any optional Rider charges. Quotations of supplemental
average total returns, as shown in Table 1B, are calculated in exactly the same
manner and for the same periods of time except that it does not reflect the
Contract fee and assumes that the Contract is not surrendered at the end of the
periods shown.
The performance shown in Tables 2A and 2B of Appendix B and C is calculated in
exactly the same manner as those in Tables 1A and 1B of Appendix B and C
respectively; however, the period of time is based on the Underlying Fund's
lifetime, which may predate the Sub-Account's inception date. 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 this Contract.
For more detailed information about these performance calculations, including
actual formulas, see the Statement of Additional Information ("SAI").
B-1
<PAGE>
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; or
(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. In addition, relevant
broad-based indices and performance from independent sources may be used to
illustrate the performance of certain Contract features.
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.
B-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
SINCE
SUB-ACCOUNT FOR YEAR INCEPTION
INCEPTION ENDED OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND DATE 12/31/98 5 YEARS SUB-ACCOUNT
<S> <C> <C> <C> <C>
Select Emerging Markets Fund..............
Select International Equity Fund..........
T. Rowe Price International Stock
Portfolio................................
Select Aggressive Growth Fund.............
Select Capital Appreciation Fund..........
Select Value Opportunity Fund.............
Select Growth Fund........................
Select Strategic Growth Fund..............
Fidelity VIP Growth Portfolio.............
Select Growth and Income Fund.............
Fidelity VIP Equity-Income Portfolio......
Fidelity VIP High Income Portfolio........
Select Income Fund........................
Money Market Fund.........................
</TABLE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
SINCE
SUB-ACCOUNT FOR YEAR INCEPTION
INCEPTION ENDED OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND DATE 12/31/98 5 YEARS SUB-ACCOUNT
<S> <C> <C> <C> <C>
Select Emerging Markets Fund..............
Select International Equity Fund..........
T. Rowe Price International Stock
Portfolio................................
Select Aggressive Growth Fund.............
Select Capital Appreciation Fund..........
Select Value Opportunity Fund.............
Select Growth Fund........................
Select Strategic Growth Fund..............
Fidelity VIP Growth Portfolio.............
Select Growth and Income Fund.............
Fidelity VIP Equity-Income Portfolio......
Fidelity VIP High Income Portfolio........
Select Income Fund........................
Money Market Fund.........................
</TABLE>
B-3
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
UNDERLYING
FUND FOR YEAR SINCE INCEPTION
INCEPTION ENDED OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND DATE 12/31/98 5 YEARS UNDERLYING FUND
<S> <C> <C> <C> <C>
Select Emerging Markets Fund.............. 2/20/98
Select International Equity Fund.......... 5/2/94
T. Rowe Price International Stock
Portfolio................................ 3/31/94
Select Aggressive Growth Fund............. 8/21/92
Select Capital Appreciation Fund.......... 4/28/95
Select Value Opportunity Fund............. 4/30/93
Select Growth Fund........................ 8/21/92
Select Strategic Growth Fund.............. 2/20/98
Fidelity VIP Growth Portfolio............. 10/9/86
Select Growth and Income Fund............. 8/21/92
Fidelity VIP Equity-Income Portfolio...... 10/9/86
Fidelity VIP High Income Portfolio........ 9/19/85
Select Income Fund........................ 8/21/92
Money Market Fund......................... 4/29/85
</TABLE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
UNDERLYING
FUND FOR YEAR SINCE INCEPTION
INCEPTION ENDED OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND DATE 12/31/98 5 YEARS UNDERLYING FUND
<S> <C> <C> <C> <C>
Select Emerging Markets Fund.............. 2/20/98
Select International Equity Fund.......... 5/2/94
T. Rowe Price International Stock
Portfolio................................ 3/31/94
Select Aggressive Growth Fund............. 8/21/92
Select Capital Appreciation Fund.......... 4/28/95
Select Value Opportunity Fund............. 4/30/93
Select Growth Fund........................ 8/21/92
Select Strategic Growth Fund.............. 2/20/98
Fidelity VIP Growth Portfolio............. 10/9/86
Select Growth and Income Fund............. 8/21/92
Fidelity VIP Equity-Income Portfolio...... 10/9/86
Fidelity VIP High Income Portfolio........ 9/19/85
Select Income Fund........................ 8/21/92
Money Market Fund......................... 4/29/85
</TABLE>
B-4
<PAGE>
APPENDIX C
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER -- Assume a payment of $50,000 is made on the issue date and no
additional payments are made. Assume there are no partial withdrawals and that
the Withdrawal Without Surrender Charge Amount is equal to the greater of 10% of
the Accumulated Value or the accumulated earnings in the Contract. The table
below presents examples of the surrender charge resulting from a full surrender,
based on Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE CHARGE AMOUNT PERCENTAGE CHARGE
- -------- ----------- ----------------- ---------- ---------
<S> <C> <C> <C> <C>
1 $ 56,700 $ 7,500 8.5% $4,182
2 61,236 8,736 8.5% 4,250
3 66,135 13,635 8.5% 4,250
4 71,426 18,926 8.5% 4,250
5 77,140 24,640 7.5% 3,750
6 83.311 30,811 6.5% 3,250
7 89,976 37,476 5.5% 2,750
8 97,174 44,674 3.5% 1,750
9 104,948 52,448 1.5% 750
10 113,344 60,844 0.0% 0
</TABLE>
WITHDRAWALS -- Assume a payment of $50,000 is made on the issue date and no
additional payments are made. Assume that the Withdrawal Without Surrender
Charge Amount is equal to the greater of 10% of the current Accumulated Value or
the accumulated earnings in the Contract and there are withdrawals as detailed
below. The table below presents examples of the surrender charge resulting from
withdrawals, based on Hypothetical Accumulated Values:
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWALS CHARGE AMOUNT PERCENTAGE CHARGE
- -------- ----------- ----------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1 $56,700 $0 $ 7,500 8.5% $0
2 61,236 0 8,736 8.5% 0
3 66,135 0 13,635 8.5% 0
4 71,426 30,000 18,926 8.5% 941
5 44,740 10,000 5,839 7.5% 312
6 37,519 5,000 5,215 6.5% 0
7 35,120 10,000 5,215 5.5% 263
8 27,130 15,000 4,497 3.5% 368
9 13,100 5,000 2.921 1.5% 31
10 8,748 5,000 2,610 0.0% 0.00
</TABLE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)] to the power of 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 $66,134.88 at the
end of three years.
C-1
<PAGE>
4. No transfers or withdrawals affecting this Guarantee Period Account have
been made.
5. Surrender charges, if any, are calculated in the same manner as shown in
the examples in Part 1.
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)] to the power of n/365 - 1
= [(1+.08)/(1+.10)] to the power of 2555/365 - 1
= (.98182) to the power of 7 - 1
= -.12054
The market value = the market value factor multiplied by the withdrawal
adjustment
= -.12054 X $66,134.88
= -$7,971.71
</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)] to the power of n/365 - 1
= [(1+.08)/(1+.07)] to the power of 2555/365 - 1
= (1.0093) to the power of 7 - 1
= .06728
The market value = the market value factor multiplied by the withdrawal
adjustment
= .06728 X $66,134.88
= $4,449.79
</TABLE>
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)] to the power of n/365 - 1
= [(1+.08)/(1+.11)] to the power of 2555/365 - 1
= (.97297) to the power of 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 (-.17454 X $66,134.88 or -$11,498.53)
= Minimum (-$11,543.18 or -$11,498.53)
= -$11,498.53
</TABLE>
C-2
<PAGE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 5.00% or 0.05
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.05)] to the power of 2555/365 - 1
= (1.02857) to the power of 7 - 1
= .21798
The market value = Minimum of the market value factor multiplied by the
adjustment withdrawal or the excess interest earned over 3%
The market value factor = Minimum of (.21798 X $66,134.88 or $11,498.53)
= Minimum of ($14,416.27 or $11,498.53)
= $11,498.53
</TABLE>
C-3
<PAGE>
APPENDIX D
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECT EMERGING MARKETS
Unit Value:
Beginning of Period................... 0.000 N/A N/A N/A N/A N/A N/A
End of Period......................... 0.776 N/A N/A N/A N/A N/A N/A
Units Outstanding at End of Period (in
thousands)............................. 5,209 N/A N/A N/A N/A N/A N/A
SELECT INTERNATIONAL EQUITY
Unit Value:
Beginning of Period................... 1.400 1.357 1.128 0.956 1.000 N/A N/A
End of Period......................... 1.608 1.400 1.357 1.128 0.956 N/A N/A
Units Outstanding at End of Period (in
thousands)............................. 103,028 93,170 60,304 35,558 22,183 N/A N/A
T. ROWE PRICE INTERNATIONAL STOCK
Unit Value:
Beginning of Period................... 1.223 1.203 1.065 1.000 N/A N/A N/A
End of Period......................... 1.398 1.223 1.203 1.065 N/A N/A N/A
Units Outstanding at End of Period (in
thousands)............................. 41,458 33,977 16,510 4,066 N/A N/A N/A
SELECT AGGRESSIVE GROWTH
Unit Value:
Beginning of Period................... 2.419 2.066 1.768 1.354 1.405 1.192 1.192
End of Period......................... 2.637 2.419 2.066 1.768 1.354 1.405 1.192
Units Outstanding at End of Period (in
thousands)............................. 86,699 81,233 64,262 51,006 36,330 17,538 5,123
SELECT CAPITAL APPRECIATION
Unit Value:
Beginning of Period................... 1.672 1.484 1.383 1.000 N/A N/A N/A
End of Period......................... 1.878 1.672 1.484 1.383 N/A N/A N/A
Units Outstanding at End of Period in
housands).............................. 54,789 43,733 24,257 5,424 N/A N/A N/A
SELECT VALUE OPPORTUNITY
Unit Value:
Beginning of Period................... 0.000 N/A N/A N/A N/A N/A N/A
End of Period......................... 0.989 N/A N/A N/A N/A N/A N/A
Units Outstanding at End of Period (in
thousands)............................. 18,240 N/A N/A N/A N/A N/A N/A
SELECT GROWTH
Unit Value
Beginning of Period................... 2.091 1.582 1.315 1.069 1.101 1.104 1.000
End of Period......................... 2.793 2.091 1.582 1.315 1.069 1.101 1.104
Units Outstanding at End of Period in
housands).............................. 120,538 98,533 68,193 53,073 38,752 20,366 5,246
</TABLE>
D-1
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECT STRATEGIC GROWTH
Unit Value
Beginning of Period................... 0.000 N/A N/A N/A N/A N/A N/A
End of Period......................... 0.964 N/A N/A N/A N/A N/A N/A
Units Outstanding at End of Period in
housands).............................. 8,709 N/A N/A N/A N/A N/A N/A
FIDELITY VIP GROWTH
Unit Value:
Beginning of Period................... 1.701 1.397 1.235 1.000 N/A N/A N/A
End of Period......................... 2.340 1.701 1.397 1.235 N/A N/A N/A
Units Outstanding at End of Period in
housands).............................. 63,055 45,772 24,745 6,677 N/A N/A N/A
SELECT GROWTH AND INCOME
Unit Value:
Beginning of Period................... 1.996 1.652 1.382 1.074 1.082 0.994 1.000
End of Period......................... 2.292 1.996 1.652 1.382 1.074 1.082 0.994
Units Outstanding at End of Period (in
thousands)............................. 129,119 106,800 77,919 61,942 43,292 20,983 22,339
FIDELITY VIP EQUITY-INCOME
Unit Value:
Beginning of Period................... 1.696 1.342 1.191 1.000 N/A N/A N/A
End of Period......................... 1.867 1.696 1.342 1.191 N/A N/A N/A
Units Outstanding at End of Period in
housands).............................. 95,537 65,130 31,681 9,213 N/A N/A N/A
FIDELITY VIP HIGH INCOME
Unit Value:
Beginning of Period................... 1.430 1.233 1.096 1.000 N/A N/A N/A
End of Period......................... 1.350 1.430 1.233 1.096 N/A N/A N/A
Units Outstanding at End of Period (in
thousands)............................. 74,986 50,470 23,051 6,714 N/A N/A N/A
SELECT INCOME
Unit Value:
Beginning of Period................... 1.301 1.208 1.186 1.028 1.095 1.001 1.000
End of Period......................... 1.371 1.301 1.208 1.186 1.028 1.095 1.001
Units Outstanding at End of Period (in
thousands)............................. 102,171 72,394 58,751 46,845 32,823 18,320 5,372
MONEY MARKET
Unit Value:
Beginning of Period................... 1.179 1.133 1.091 1.045 1.019 1.003 1.000
End of Period......................... 1.227 1.179 1.133 1.091 1.045 1.019 1.003
Units Outstanding at End of Period (in
thousands)............................. 92,796 65,441 60,691 45,589 31,836 19,802 1,447
</TABLE>
D-2
<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 ALLMERICA SELECT REWARD PROSPECTUS OF ALLMERICA
SELECT SEPARATE ACCOUNT DATED , 1999 ("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 , 1999
Allmerica Select Reward
<PAGE>
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................................................ 5
FINANCIAL STATEMENTS................................................... F-1
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, 1998, the Company had over $14
billion in assets and over $26 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 among the five oldest
life insurance companies in America. As of December 31, 1998, First Allmerica
and its subsidiaries (including the Company) had over $27 billion in combined
assets and over $48 billion in life insurance in force.
Currently, 14 Sub-Accounts of the Variable Account are available under the
Allmerica Select Reward contract (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 different funds of the Trust are available under the
Contract: the Select Emerging Markets Fund, Select
2
<PAGE>
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, 1998 and
1997 and for each of the three years in the period ended December 31, 1998,
and the financial statements of Allmerica Select Separate Account of the
Company as of December 31, 1998 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
PricewaterhouseCoopers 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.
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.
3
<PAGE>
All persons selling the Contract are required to be licensed by their
respective state insurance authorities for the sale of variable annuity
contracts. The Company pays commissions, not to exceed 6.0% of purchase
payments, to entities which sell the Contract. To the extent permitted by
NASD rules, promotional incentives or payments also may be provided to such
entities based on sales volumes, the assumption of wholesaling functions or
other sales-related criteria. Additional payments may be made for other
services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature
and similar services.
Commissions paid by the Company do not result in any charge to Owners or to
the Variable Account in addition to the charges described under "CHARGES AND
DEDUCTIONS" in the Prospectus. The Company intends to recoup the commission
and other sales expense through a combination of anticipated surrender,
withdrawal and/or annuitization charges, profits from the Company's general
account, including the investment earnings on amounts allocated to accumulate
on a fixed basis in excess of the interest credited on fixed accumulations by
the Company, and the profit, if any, from the mortality and expense risk
charge.
The aggregate amounts of commissions retained by Allmerica Investments for
sales of contracts funded by Allmerica Select Separate Account for the years
1996, 1997 and 1998 were $316.41, $747.30 and $619.00, respectively.
No commissions were paid for sales of Contract Form A3028-99 since it was not
offered until .
ANNUITY BENEFIT PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "Computation of Values" in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated
by the following hypothetical example: Assume that the assets of a
Sub-Account at the beginning of a one-day Valuation Period were $5,000,000;
that the value of an Accumulation Unit on the previous date was $1.135000;
and that during the Valuation Period, the investment income and net realized
and unrealized capital gains exceed net realized and unrealized capital
losses by $1,675. The Accumulation Unit Value at the end of the current
Valuation Period would be calculated as follows:
(1) Accumulation Unit Value -- Previous Valuation Period . . . . . . $ 1.135000
(2) Value of Assets -- Beginning of Valuation Period . . . . . . . $ 5,000,000
(3) Excess of Investment Income and Net Gains Over Capital Losses . . $ 1,675
(4) Adjusted Gross Investment Rate for the Valuation Period (3)
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
(8) Accumulation Unit Value -- Current Period (1) x (7) . . . . . . $ 1.135336
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and
4
<PAGE>
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, 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.
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.
5
<PAGE>
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment
in a Sub-Account and of the changes of value of the principal invested (due
to realized and unrealized capital gains or losses) for a specified period,
reduced by the Sub-Account's asset charge and any applicable surrender charge
which would be assessed upon complete withdrawal of the investment.
Total Return figures are calculated by standardized methods prescribed by
rules of the Securities and Exchange Commission (the "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 deduction of the surrender charge, if any,
applicable at the end of the period is included in the calculation, according
to the following schedule:
<TABLE>
<CAPTION>
YEARS FROM CHARGE AS
DATE OF PERCENTAGE OF
PAYMENT TO NEW PURCHASE
DATE OF PAYMENTS
WITHDRAWAL WITHDRAWN*
---------- -------------
<S> <C>
0 - 4 8.5%
More than 4 7.5%
More than 5 6.5%
More than 6 5.5%
More than 7 3.5%
More than 8 1.5%
More than 9 0
</TABLE>
* Subject to the maximum limit described in the Prospectus.
No surrender charge is deducted upon expiration of the periods specified
above. In each calendar year, a certain amount (withdrawal without surrender
charge amount, as described in the Prospectus) is not subject to the
surrender charge.
The calculations of Total Return include the deduction of the $35 annual
Contract fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return Information in this section refers to the total
of the income generated by an investment in a Sub-Account and of the changes
of value of the principal invested (due to realized and
6
<PAGE>
unrealized capital gains or losses) for a specified period reduced by the
Sub-Account's asset charges. It is assumed, however, that the investment is
NOT withdrawn at the end of each period.
The quotations of Supplemental Total Return are computed by finding the
average annual compounded rates of return over the specified periods that
would equate the initial amount invested to the ending values, according to
the following formula:
P(1 + T) (n) = EV
Where: P = a hypothetical initial payment to the Variable Account of
$1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end
of the specified period.
The calculation of Supplemental Total Return reflects the 1.40% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
Contract is NOT surrendered at the end of the specified period, and therefore
there is no adjustment for the surrender charge that would be applicable if
the Contract was surrendered at the end of the period. The calculation of
Supplemental Total Return does not include the deduction of the $30 annual
Contract fee.
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, 1998:
Yield 3.59%
Effective Yield 3.66%
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, dividing
the difference by the value of the account at the beginning of the same
period to obtain the base period return, for a seven-day base period by
(365/7), with the resulting yield carried to the nearest hundredth of one
percent.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
Effective Yield = [(base period return + 1) (365/7) ] - 1
The calculations of yield and effective yield reflect the $30 annual Contract
fee.
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Allmerica Select Separate Account.
7
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<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, comprehensive income, shareholder's equity
and cash flows present fairly, in all material respects, the financial position
of Allmerica Financial Life Insurance and Annuity Company (the "Company") at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 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/ PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 1999, except for paragraph 2 of Note 12,
which is as of March 19, 1999
<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) 1998 1997 1996
----------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums................................... $ 0.5 $ 22.8 $ 32.7
Universal life and investment product
policy fees.............................. 267.4 212.2 176.2
Net investment income...................... 151.3 164.2 171.7
Net realized investment gains (losses)..... 20.0 2.9 (3.6)
Other income............................... 0.6 1.4 0.9
------- ------- -------
Total revenues......................... 439.8 403.5 377.9
------- ------- -------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 153.9 187.8 192.6
Policy acquisition expenses................ 64.6 2.8 49.9
Sales practice litigation.................. 21.0 -- --
Loss from cession of disability income
business................................. -- 53.9 --
Other operating expenses................... 104.1 101.3 86.6
------- ------- -------
Total benefits, losses and expenses.... 343.6 345.8 329.1
------- ------- -------
Income before federal income taxes............. 96.2 57.7 48.8
------- ------- -------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 22.1 13.9 26.9
Deferred................................... 11.8 7.1 (9.8)
------- ------- -------
Total federal income tax expense....... 33.9 21.0 17.1
------- ------- -------
Net income..................................... $ 62.3 $ 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) 1998 1997
-------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,284.6 and $1,340.5)............................ $ 1,330.4 $ 1,402.5
Equity securities at fair value (cost of $27.4 and
$34.4)............................................ 31.8 54.0
Mortgage loans...................................... 230.0 228.2
Real estate......................................... 14.5 12.0
Policy loans........................................ 151.5 140.1
Other long-term investments......................... 9.1 20.3
---------- ----------
Total investments............................... 1,767.3 1,857.1
---------- ----------
Cash and cash equivalents............................. 217.9 31.1
Accrued investment income............................. 33.5 34.2
Deferred policy acquisition costs..................... 950.5 765.3
Reinsurance receivables on paid and unpaid losses,
future policy benefits and unearned premiums........ 308.0 251.1
Other assets.......................................... 46.9 10.7
Separate account assets............................... 11,020.4 7,567.3
---------- ----------
Total assets.................................... $ 14,344.5 $ 10,516.8
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,284.8 $ 2,097.3
Outstanding claims, losses and loss adjustment
expenses.......................................... 17.9 18.5
Unearned premiums................................... 2.7 1.8
Contractholder deposit funds and other policy
liabilities....................................... 38.1 32.5
---------- ----------
Total policy liabilities and accruals........... 2,343.5 2,150.1
---------- ----------
Expenses and taxes payable............................ 146.2 77.6
Reinsurance premiums payable.......................... 45.7 4.9
Deferred federal income taxes......................... 78.8 75.9
Separate account liabilities.......................... 11,020.4 7,567.3
---------- ----------
Total liabilities............................... 13,634.6 9,875.8
---------- ----------
Commitments and contingencies (Note 12)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,524 and 2,521 shares issued and
outstanding......................................... 2.5 2.5
Additional paid-in capital............................ 407.9 386.9
Accumulated other comprehensive income................ 24.1 38.5
Retained earnings..................................... 275.4 213.1
---------- ----------
Total shareholder's equity...................... 709.9 641.0
---------- ----------
Total liabilities and shareholder's equity...... $ 14,344.5 $ 10,516.8
---------- ----------
---------- ----------
</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) 1998 1997 1996
----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
COMMON STOCK................................... $ 2.5 $ 2.5 $ 2.5
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 386.9 346.3 324.3
Issuance of common stock................... 21.0 40.6 22.0
-------- -------- --------
Balance at end of period................... 407.9 386.9 346.3
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net unrealized appreciation on investments:
Balance at beginning of period............. 38.5 20.5 23.8
Appreciation (depreciation) during the
period:
Net (depreciation) appreciation on
available-for-sale securities........ (23.4) 27.0 (5.1)
Benefit (provision) for deferred
federal income taxes................. 9.0 (9.0) 1.8
-------- -------- --------
(14.4) 18.0 (3.3)
-------- -------- --------
Balance at end of period................... 24.1 38.5 20.5
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of period............. 213.1 176.4 144.7
Net income................................. 62.3 36.7 31.7
-------- -------- --------
Balance at end of period................... 275.4 213.1 176.4
-------- -------- --------
Total shareholder's equity............. $ 709.9 $ 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 COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
-------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net income.................................. $ 62.3 $ 36.7 $ 31.7
Other comprehensive income:
Net (depreciation) appreciation on
available-for-sale securities......... (23.4) 27.0 (5.1)
Benefit (provision) for deferred federal
income taxes.......................... 9.0 (9.0) 1.8
------- ------- -------
Other comprehensive income.......... (14.4) 18.0 (3.3)
------- ------- -------
Comprehensive income.................... 47.9 $ 54.7 $ 28.4
------- ------- -------
------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<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) 1998 1997 1996
-------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 62.3 $ 36.7 $ 31.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized gains.................. (20.0) (2.9) 3.6
Net amortization and depreciation... (7.1) -- 3.5
Sales practice litigation expense... 21.0
Loss from cession of disability
income business................... -- 53.9 --
Deferred federal income taxes....... 11.8 7.1 (9.8)
Payment related to cession of
disability income business........ -- (207.0) --
Change in deferred acquisition
costs............................. (177.8) (181.3) (66.8)
Change in reinsurance premiums
payable........................... 40.8 3.9 (0.2)
Change in accrued investment
income............................ 0.7 3.5 1.2
Change in policy liabilities and
accruals, net..................... 193.1 (72.4) (39.9)
Change in reinsurance receivable.... (56.9) 22.1 (1.5)
Change in expenses and taxes
payable........................... 55.4 0.2 32.3
Separate account activity, net...... (0.5) 1.6 8.0
Other, net.......................... (28.0) (8.7) 2.3
-------- -------- --------
Net cash provided by (used in)
operating activities.......... 94.8 (343.3) (35.6)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 187.0 909.7 809.4
Proceeds from disposals of equity
securities............................ 53.3 2.4 1.5
Proceeds from disposals of other
investments........................... 22.7 23.7 17.4
Proceeds from mortgages matured or
collected............................. 60.1 62.9 34.0
Purchase of available-for-sale fixed
maturities............................ (136.0) (579.7) (795.8)
Purchase of equity securities........... (30.6) (3.2) (13.2)
Purchase of other investments........... (22.7) (9.0) (13.9)
Purchase of mortgages................... (58.9) (70.4) (22.3)
Other investing activities, net......... (3.9) -- (2.0)
-------- -------- --------
Net cash provided by investing
activities........................ 71.0 336.4 15.1
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
capital paid in....................... 21.0 19.2 22.0
-------- -------- --------
Net cash provided by financing
activities........................ 21.0 19.2 22.0
-------- -------- --------
Net change in cash and cash equivalents..... 186.8 12.3 1.5
Cash and cash equivalents, beginning of
period..................................... 31.1 18.8 17.3
-------- -------- --------
Cash and cash equivalents, end of period.... $ 217.9 $ 31.1 $ 18.8
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 0.6 $ -- $ 3.4
Income taxes paid....................... $ 36.2 $ 5.4 $ 16.5
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
NOTES TO CONSOLIDATED 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, which was transferred from
SMAFCO effective November 30, 1997 and dissolved as a subsidiary, effective
November 30, 1998. Its results of operations are included for 11 months of 1998
and for the month of December, 1997.
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 the Company 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.
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 re-evaluates such designation as of each balance sheet date.
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholder's equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income.
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 the Company 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 the Company believes may not be collectible in
full. In establishing reserves, the Company 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 adopted to a plan to dispose of all real estate assets
by the end of 1998. As of December 31, 1998, there was 1 property remaining in
the Company's real estate portfolio, which is being actively marketed. As a
result of the Plan, real estate held by the Company and real estate joint
ventures were written down to the estimated fair value less cost of disposal.
Depreciation is not recorded on this asset while it is held for disposal.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans 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, the Company 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, disability income 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
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 3% to 6% for life
insurance and 3 1/2% to 9 1/2% for 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 disability income 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 for individual life and disability income policies.
These estimates are continually reviewed and adjusted as necessary; such
adjustments are reflected in current operations.
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, the Company
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 individual annuity products, excluding
universal life and investment-related products, are considered revenue when due.
Individual disability income insurance premiums are recognized as revenue over
the related contract periods. The unexpired portion of these premiums is
recorded as unearned premiums. 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, with
mortality, administration and surrender charges assessed against the fund
values. Related benefit expenses include universal life benefit claims 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 and its domestic subsidiaries file a 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 tax losses that can be
applied to offset life insurance company taxable income.
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
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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" (Statement
No. 109). These differences result primarily from policy reserves, policy
acquisition expenses, and unrealized appreciation or depreciation on
investments.
J. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which establishes
accounting and reporting standards for derivative instruments. Statement No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges; fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investment in foreign operations. This statement is effective for fiscal years
beginning after June 15, 1999. The Company is currently assessing the impact of
adoption of Statement No. 133.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter, the Company adopted
SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax income
of $9.8 million through December 31, 1998. The adoption of SoP 98-1 did not have
a material effect on the results of operations or financial position for the
three months ended March 31, 1998.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments" ("SoP 97-3"). SoP 97-3 provides
guidance when a liability should be recognized for guaranty fund and other
assessments and how to measure the liability. This statement allows for the
discounting of the liability if the amount and timing of the cash payments are
fixed and determinable. In addition, it provides criteria for when an asset may
be recognized for a portion or all of the assessment liability or paid
assessment that can be recovered through premium tax offsets or policy
surcharges. This statement is effective for fiscal years beginning after
December 15, 1998. The Company believes that the adoption of this statement will
not have a material effect on the results of operations or financial position.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("Statement No. 131"). 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
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
beginning after December 15, 1997. AFLIAC consists of one segment, Allmerica
Financial Services, which underwrites and distributes variable annuities and
variable universal life via retail channels.
In June 1997, the FASB also issued Statement No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"), 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 adopted Statement No. 130 for the first quarter of 1998,
which resulted primarily in reporting unrealized gains and losses on investments
in debt and equity securities in comprehensive income.
2. SIGNIFICANT TRANSACTIONS
Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on the universal life and
variable universal life blocks of business. The agreement does not have a
material effect on the results of operations or financial position of the
Company.
On April 14, 1997, the Company entered into an agreement in principle to cede
substantially all of the Company's individual disability income line of business
under a 100% coinsurance agreement with a highly rated reinsurer. 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 1998, 1997 and 1996 , SMAFCO contributed $21.0 million, $40.6 million and
$22.0 million, respectively, of additional paid-in capital to the Company. The
nature of the 1997 contribution was $19.2 million in cash and $21.4 million in
other assets including Somerset Square, Inc.
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 Statement No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1998
----------------------------------------------
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....... $ 5.8 $ 0.8 $-- $ 6.6
States and political subdivisions....... 2.7 0.2 -- 2.9
Foreign governments..................... 48.8 1.6 1.5 48.9
Corporate fixed maturities.............. 1,096.0 58.0 17.7 1,136.3
Mortgage-backed securities.............. 131.3 5.8 1.4 135.7
--------- ----- ----- --------
Total fixed maturities.................. $ 1,284.6 $66.4 $20.6 $1,330.4
--------- ----- ----- --------
--------- ----- ----- --------
Equity securities....................... $ 27.4 $ 8.9 $ 4.5 $ 31.8
--------- ----- ----- --------
--------- ----- ----- --------
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
1997
----------------------------------------------
<CAPTION>
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 $ 0.5 $-- $ 6.8
States and political subdivisions....... 2.8 0.2 -- 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.................. $ 1,340.5 $66.6 $ 4.6 $1,402.5
--------- ----- ----- --------
--------- ----- ----- --------
Equity securities....................... $ 34.4 $19.9 $ 0.3 $ 54.0
--------- ----- ----- --------
--------- ----- ----- --------
</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, 1998, the amortized
cost and market value of these assets on deposit in New York were $268.5 million
and $284.1 million, respectively. At December 31, 1997, the amortized cost and
market value of assets on deposit were $276.8 million and $291.7 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, 1998 and 1997.
There were no contractual fixed maturity investment commitments at December 31,
1998 and 1997, respectively.
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>
1998
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 97.7 $ 98.9
Due after one year through five years....................... 269.1 278.3
Due after five years through ten years...................... 638.2 658.5
Due after ten years......................................... 279.6 294.7
--------- --------
Total....................................................... $ 1,284.6 $1,330.4
--------- --------
--------- --------
</TABLE>
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
FOR THE YEARS ENDED DECEMBER 31, PROCEEDS FROM GROSS GROSS
(IN MILLIONS) VOLUNTARY SALES GAINS LOSSES
- ------------------------------------------------------------ --------------- ----- ------
<S> <C> <C> <C>
1998
Fixed maturities............................................ $ 60.0 $ 2.0 $ 2.0
Equity securities........................................... $ 52.6 $17.5 $ 0.9
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 YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- -------
<S> <C> <C> <C>
1998
Net appreciation, beginning of year......................... $ 22.1 $ 16.4 $ 38.5
---------- ------ -------
Net depreciation on available-for-sale securities........... (16.2) (14.3) (30.5)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 7.1 -- 7.1
Benefit from deferred federal income taxes.................. 3.2 5.8 9.0
---------- ------ -------
(5.9) (8.5) (14.4)
---------- ------ -------
Net appreciation, end of year............................... $ 16.2 $ 7.9 $ 24.1
---------- ------ -------
---------- ------ -------
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
---------- ------ -------
---------- ------ -------
1996
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>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) Includes net appreciation on other investments of $.9 million, $1.3 million,
and $2.2 million in 1998, 1997, and 1996, respectively.
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) 1998 1997
- ------------------------------------------------------------ ------- -------
<S> <C> <C>
Mortgage loans.............................................. $ 230.0 $ 228.2
Real estate held for sale................................... 14.5 12.0
------- -------
Total mortgage loans and real estate........................ $ 244.5 $ 240.2
------- -------
------- -------
</TABLE>
Reserves for mortgage loans were $3.3 million and $9.4 million at December 31,
1998 and 1997, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. At December 31, 1998, there was 1 property remaining
in the Company's real estate portfolio, which is being actively marketed. As a
result of the Plan, during 1997, 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 was not recorded on these assets while they were held
for disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1998 and 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.
There were no contractual commitments to extend credit under commercial mortgage
loan agreements at December 31, 1998. These commitments generally expire within
one year.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Property type:
Office building........................................... $129.2 $101.7
Residential............................................... 18.9 19.3
Retail.................................................... 37.4 42.2
Industrial/warehouse...................................... 59.2 61.9
Other..................................................... 3.1 24.5
Valuation allowances...................................... (3.3) (9.4)
------ ------
Total....................................................... $244.5 $240.2
------ ------
------ ------
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
Geographic region:
<S> <C> <C>
South Atlantic............................................ $ 55.5 $ 68.7
Pacific................................................... 80.0 56.6
East North Central........................................ 41.4 61.4
Middle Atlantic........................................... 22.5 29.8
West South Central........................................ 6.7 6.9
New England............................................... 26.9 12.4
Other..................................................... 14.8 13.8
Valuation allowances...................................... (3.3) (9.4)
------ ------
Total....................................................... $244.5 $240.2
------ ------
------ ------
</TABLE>
At December 31, 1998, scheduled mortgage loan maturities were as follows: 1999
- -- $24.8 million; 2000 -- $43.5 million; 2001 -- $6.6 million; 2002 -- $11.5
million; 2003 -- $0.6 million; and $143.0 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 1998, 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 YEARS ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 PROVISIONS WRITE-OFFS DECEMBER 31
- ------------------------------------------------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998
Mortgage loans.............................................. $ 9.4 $(4.5) $1.6 $ 3.3
----- ----- --- -----
----- ----- --- -----
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>
Provisions on mortgages during 1998 reflect the release of redundant reserves.
Write-offs of $5.4 million to the investment valuation allowance related to real
estate in 1997 primarily reflect write downs to the estimated fair value less
cost to sell pursuant to the aforementioned 1997 plan of disposal.
The carrying value of impaired loans was $15.3 million and $20.6 million, with
related reserves of $1.5 million and $7.1 million as of December 31, 1998 and
1997, respectively. All impaired loans were reserved as of December 31, 1998 and
1997.
The average carrying value of impaired loans was $17.0 million, $19.8 million
and $26.3 million, with related interest income while such loans were impaired
of $2.0 million, $2.2 million and $3.4 million as of December 31, 1998, 1997 and
1996, respectively.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. OTHER
At December 31, 1998, 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 YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $107.7 $130.0 $137.2
Mortgage loans.............................................. 25.5 20.4 22.0
Equity securities........................................... 0.3 1.3 0.7
Policy loans................................................ 11.7 10.8 10.2
Real estate................................................. 3.3 3.9 6.2
Other long-term investments................................. 1.5 1.0 0.8
Short-term investments...................................... 4.2 1.4 1.4
------ ------ ------
Gross investment income..................................... 154.2 168.8 178.5
Less investment expenses.................................... (2.9) (4.6) (6.8)
------ ------ ------
Net investment income....................................... $151.3 $164.2 $171.7
------ ------ ------
------ ------ ------
</TABLE>
There were no mortgage loans or fixed maturities on non-accrual status at
December 31, 1998. 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 1998 and 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 $12.6 million, $21.1 million and $25.4 million at December 31,
1998, 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 $1.4 million, $1.9 million and $3.6 million in 1998,
1997, and 1996, respectively. Actual interest income on these loans included in
net investment income aggregated $1.8 million, $2.1 million and $2.2 million in
1998, 1997, and 1996, respectively.
There were no fixed maturities or mortgage loans which, were non-income
producing for the twelve months ended December 31, 1998.
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $ (6.1) $ 3.0 $ (3.3)
Mortgage loans.............................................. 8.0 (1.1) (3.2)
Equity securities........................................... 15.7 0.5 0.3
Real estate................................................. 2.4 (1.5) 2.5
Other....................................................... -- 2.0 0.1
------ ------ ------
Net realized investment gains (losses)...................... $ 20.0 $ 2.9 $ (3.6)
------ ------ ------
------ ------ ------
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. OTHER COMPREHENSIVE INCOME RECONCILIATION
The following table provides a reconciliation of gross unrealized gains to the
net balance shown in the Statement of Comprehensive income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period (net of taxes
of $(5.6) million, $10.2 million and $(2.9) million in
1998, 1997 and 1996 respectively).......................... $ (8.2) $ 20.3 $ (5.3)
Less: reclassification adjustment for gains included in net
income (net of taxes of $3.4 million, $1.2 million and
$(1.0) million in 1998, 1997 and 1996 respectively)........ 6.2 2.3 (2.0)
------- ------- -------
Other comprehensive income.................................. $ (14.4) $ 18.0 $ (3.3)
------- ------- -------
------- ------- -------
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures about Fair Value of Financial Instruments"
("Statement No, 107"), 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 is
limited to the lesser of the present value of the cash flows or book value.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
1998 1997
--------------------- ---------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 217.9 $ 217.9 $ 31.1 $ 31.1
Fixed maturities.......................................... 1,330.4 1,330.4 1,402.5 1,402.5
Equity securities......................................... 31.8 31.8 54.0 54.0
Mortgage loans............................................ 230.0 241.9 228.2 239.8
Policy loans.............................................. 151.5 151.5 140.1 140.1
--------- --------- --------- ---------
$ 1,961.6 $ 1,973.5 $ 1,855.9 $ 1,867.5
--------- --------- --------- ---------
--------- --------- --------- ---------
FINANCIAL LIABILITIES
Individual fixed annuity contracts........................ $ 1,069.4 $ 1,034.6 $ 876.0 $ 850.6
Supplemental contracts without life Contingencies......... 16.6 16.6 15.3 15.3
--------- --------- --------- ---------
$ 1,086.0 $ 1,051.2 $ 891.3 $ 865.9
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of Statement No. 109. A summary of the federal income tax expense
(benefit) in the statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ----- ----- -----
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current................................................... $22.1 $13.9 $26.9
Deferred.................................................. 11.8 7.1 (9.8)
----- ----- -----
Total....................................................... $33.9 $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.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The deferred tax liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Deferred tax (assets) liabilities
Policy reserves........................................... $ (205.1) $ (175.8)
Deferred acquisition costs................................ 278.8 226.4
Investments, net.......................................... 12.5 27.0
Sales practice litigation................................. (7.4) --
Bad debt reserve.......................................... (0.4) (2.0)
Other, net................................................ 0.4 0.3
-------- --------
Deferred tax liability, net................................. $ 78.8 $ 75.9
-------- --------
-------- --------
</TABLE>
Gross deferred income tax liabilities totaled $291.7 million and $253.7 million
at December 31, 1998 and 1997, respectively. Gross deferred income tax assets
totaled $212.9 million and $177.8 at December 31, 1998 and 1997, respectively.
The Company believes, based on its 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, the Company 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 consolidated group's federal
income tax returns through 1994. The Company has appealed certain adjustments
proposed by the IRS with respect to the consolidated group's federal income tax
returns for 1992, 1993, and 1994. Also, certain adjustments proposed by the IRS
with respect to FAFLIC/AFLIAC's federal income tax returns for 1982 and 1983
remain unresolved. If upheld, these adjustments would result in additional
payments; however, the Company will vigorously defend its position with respect
to these adjustments. In the Company'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.
7. 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 $145.4 million and $124.1 million in 1998 and 1997. The
net amounts payable to FAFLIC and affiliates for accrued expenses and various
other liabilities and receivables were $16.4 million and $15.0 million at
December 31, 1998 and 1997, respectively.
8. 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
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
No dividends were declared by the Company during 1998, 1997 and 1996. During
1999, AFLIAC could pay dividends of $26.1 million to FAFLIC without prior
approval.
9. 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 Statement No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts" ("Statement No.
113").
The Company reinsures 100% of its traditional individual life and certain blocks
of its universal life business, substantially all of its disability income
business, and effective January 1, 1998, the mortality risk on the variable
universal life and remaining universal life blocks of business in-force at
December 31, 1997.
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.
Amounts recoverable from reinsurers at December 31, 1998 and 1997 for the
disability income business were $230.8 million and $216.1 million, respectively,
traditional life were $11.4 million and $15.2 million, respectively, and
universal and variable universal life were $65.8 million and $19.8 million,
respectively.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Insurance premiums:
Direct.................................................... $ 45.5 $ 48.8 $ 53.3
Assumed................................................... -- 2.6 3.1
Ceded..................................................... (45.0) (28.6) (23.7)
------ ------ ------
Net premiums................................................ $ 0.5 $ 22.8 $ 32.7
------ ------ ------
------ ------ ------
</TABLE>
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
<S> <C> <C> <C>
Direct.................................................... $204.0 $226.0 $206.4
Assumed................................................... -- 4.2 4.5
Ceded..................................................... (50.1) (42.4) (18.3)
------ ------ ------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $153.9 $187.8 $192.6
------ ------ ------
------ ------ ------
</TABLE>
10. DEFERRED POLICY ACQUISITION COSTS
The following reflects the changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Balance at beginning of year................................ $765.3 $632.7 $555.7
Acquisition expenses deferred............................. 242.4 184.2 116.6
Amortized to expense during the year...................... (64.6) (53.1) (49.9)
Adjustment to equity during the year...................... 7.4 (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...................................... $950.5 $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.
11. LIABILITIES FOR INDIVIDUAL DISABILITY INCOME 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 recorded in
results of operations in the year such changes are determined to be needed.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's disability income business was
$233.3 million and $219.9 million at December 31, 1998 and 1997. Due to the
reinsurance agreement whereby the Company has ceded substantially all of its
disability income business to a highly rated reinsurer, the Company 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.
12. 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
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries including AFLIAC, 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 filed a substantially similar action in Federal District Court in Worcester,
Massachusetts. In early November 1998, AFC and the plaintiffs entered into a
settlement agreement, to which the court granted preliminary approval on
December 4, 1998. A hearing was held on March 19, 1999 to consider final
approval of the settlement agreement. A decision by the court is expected to be
rendered in the near future. Accordingly, AFLIAC recognized a $21.0 million
pre-tax expense during the third quarter of 1998 related to this litigation.
Although the Company believes that this expense reflects appropriate recognition
of its obligation under the settlement, this estimate assumes the availability
of insurance coverage for certain claims, and the estimate may be revised based
on the amount of reimbursement actually tendered by AFC's insurance carriers, if
any, and based on changes in the Company's estimate of the ultimate cost of the
benefits to be provided to members of the class.
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the Company's opinion of, 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.
13. 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
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) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Statutory net income........................................ $ (8.2) $ 31.5 $ 5.4
Statutory shareholder's surplus............................. $309.7 $307.1 $234.0
</TABLE>
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance and Annuity
Company and the Contractowners 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 changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Allmerica Select Separate Account of Allmerica Financial Life
Insurance and Annuity Company at December 31, 1998, the results of each of their
operations and the changes in each of their net assets for each of the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Allmerica Financial Life
Insurance and Annuity Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the Funds, provide a reasonable basis for the opinion
expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SELECT
AGGRESSIVE SELECT SELECT GROWTH SELECT
GROWTH GROWTH AND INCOME INCOME
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $228,649,110 $336,704,259 $295,912,048 $140,061,555
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).... -- -- 14,258 --
------------ ------------ ------------- -------------
Total assets.............................. 228,649,110 336,704,259 295,926,306 140,061,555
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company (Sponsor).... 773 51,859 -- 27,082
------------ ------------ ------------- -------------
Net assets................................ $228,648,337 $336,652,400 $295,926,306 $140,034,473
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Net asset distribution by category:
Qualified variable annuity contracts...... $ 79,475,593 $104,744,491 $ 89,963,271 $ 47,733,147
Non-qualified variable annuity
contracts............................... 149,172,744 231,907,909 205,963,035 92,301,326
------------ ------------ ------------- -------------
$228,648,337 $336,652,400 $295,926,306 $140,034,473
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Qualified units outstanding, December 31,
1998....................................... 30,135,760 37,503,752 39,252,772 34,826,842
Net asset value per qualified unit, December
31, 1998................................... $ 2.637252 $ 2.792907 $ 2.291896 $ 1.370585
Non-qualified units outstanding, December
31, 1998................................... 56,563,704 83,034,597 89,865,786 67,344,474
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 2.637252 $ 2.792907 $ 2.291896 $ 1.370585
<CAPTION>
SELECT SELECT
MONEY INTERNATIONAL CAPITAL
MARKET EQUITY APPRECIATION
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $113,859,875 $165,703,596 $102,870,665
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).... -- -- --
------------ ------------- ------------
Total assets.............................. 113,859,875 165,703,596 102,870,665
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company (Sponsor).... 44,786 -- --
------------ ------------- ------------
Net assets................................ $113,815,089 $165,703,596 $102,870,665
------------ ------------- ------------
------------ ------------- ------------
Net asset distribution by category:
Qualified variable annuity contracts...... $ 33,102,121 $ 55,886,977 $34,926,665
Non-qualified variable annuity
contracts............................... 80,712,968 109,816,619 67,944,000
------------ ------------- ------------
$113,815,089 $165,703,596 $102,870,665
------------ ------------- ------------
------------ ------------- ------------
Qualified units outstanding, December 31,
1998....................................... 26,989,026 34,748,214 18,601,998
Net asset value per qualified unit, December
31, 1998................................... $ 1.226503 $ 1.608341 $ 1.877576
Non-qualified units outstanding, December
31, 1998................................... 65,807,394 68,279,437 36,187,084
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 1.226503 $ 1.608341 $ 1.877576
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SELECT SELECT SELECT T. ROWE PRICE
EMERGING VALUE STRATEGIC FIDELITY VIP FIDELITY VIP FIDELITY VIP INTERNATIONAL
MARKETS OPPORTUNITY GROWTH HIGH INCOME EQUITY-INCOME GROWTH STOCK
---------- ----------- ---------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of
Allmerica Investment Trust... $4,042,580 $18,034,508 $8,392,045 $ -- $ -- $ -- $ --
Investments in shares of
Fidelity Variable Insurance
Products Fund (VIP).......... -- -- -- 101,203,216 178,330,222 147,531,533 --
Investment in shares of T.
Rowe Price International
Series, Inc.................. -- -- -- -- -- -- 57,943,955
Receivable from Allmerica
Financial Life Insurance and
Annuity Company (Sponsor).... -- -- -- -- -- -- --
---------- ----------- ---------- ------------ ------------- ------------ -------------
Total assets.................. 4,042,580 18,034,508 8,392,045 101,203,216 178,330,222 147,531,533 57,943,955
LIABILITIES:
Payable to Allmerica Financial
Life Insurance and Annuity
Company (Sponsor)............ -- -- -- -- -- -- --
---------- ----------- ---------- ------------ ------------- ------------ -------------
Net assets.................... $4,042,580 $18,034,508 $8,392,045 $101,203,216 $178,330,222 $147,531,533 $57,943,955
---------- ----------- ---------- ------------ ------------- ------------ -------------
---------- ----------- ---------- ------------ ------------- ------------ -------------
Net asset distribution by
category:
Qualified variable annuity
contracts................. $1,503,793 $6,034,114 $2,793,756 $ 33,723,717 $ 49,381,970 $ 46,070,951 $17,698,051
Non-qualified variable
annuity contracts......... 2,538,787 12,000,394 5,598,289 67,479,499 128,948,252 101,460,582 40,245,904
---------- ----------- ---------- ------------ ------------- ------------ -------------
$4,042,580 $18,034,508 $8,392,045 $101,203,216 $178,330,222 $147,531,533 $57,943,955
---------- ----------- ---------- ------------ ------------- ------------ -------------
---------- ----------- ---------- ------------ ------------- ------------ -------------
Qualified units outstanding,
December 31, 1998............ 1,937,832 6,102,727 2,899,110 24,987,324 26,455,515 19,690,822 12,662,557
Net asset value per qualified
unit, December 31, 1998...... $ 0.776018 $ 0.988757 $ 0.963660 $ 1.349633 $ 1.866604 $ 2.339717 $ 1.397668
Non-qualified units
outstanding, December 31,
1998......................... 3,271,557 12,136,849 5,809,402 49,998,407 69,081,740 43,364,469 28,795,038
Net asset value per
non-qualified unit, December
31, 1998..................... $ 0.776018 $ 0.988757 $ 0.963660 $ 1.349633 $ 1.866604 $ 2.339717 $ 1.397668
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SELECT
AGGRESSIVE GROWTH SELECT GROWTH
----------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ -- $ -- $ 217,779 $ 594,234
Mortality and expense risk fees............ (2,636,982) (2,015,705) (3,272,612) (1,909,171)
Administrative expense fees................ (325,919) (249,132) (404,481) (235,965)
------------- ------------- ------------- -------------
Net investment income (loss)............. (2,962,901) (2,264,837) (3,459,314) (1,550,902)
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- 15,267,707 2,708,827 10,519,168
Net realized gain (loss) from sales of
investments.............................. 3,969,770 1,569,746 3,364,057 784,352
------------- ------------- ------------- -------------
Net realized gain (loss)................... 3,969,770 16,837,453 6,072,884 11,303,520
Net unrealized gain (loss)................. 17,405,709 9,062,264 74,575,052 31,295,973
------------- ------------- ------------- -------------
Net realized and unrealized gain
(loss).................................. 21,375,479 25,899,717 80,647,936 42,599,493
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from
operations............................... 18,412,578 23,634,880 77,188,622 41,048,591
------------- ------------- ------------- -------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 36,061,562 35,797,976 70,613,422 48,274,492
Withdrawals................................ (13,438,781) (7,811,125) (15,891,976) (7,969,058)
Contract benefits.......................... (2,728,888) (1,379,292) (3,404,074) (1,551,120)
Contract charges........................... (89,767) (77,043) (89,116) (62,180)
Transfers between sub-accounts (including
fixed account), net...................... (7,180,823) 11,700,863 266,856 16,263,001
Other transfers from (to) the General
Account.................................. 1,134,404 1,835,272 1,932,745 2,183,627
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from
contract transactions.................... 13,757,707 40,066,651 53,427,857 57,138,762
------------- ------------- ------------- -------------
Net increase (decrease) in net assets...... 32,170,285 63,701,531 130,616,479 98,187,353
NET ASSETS:
Beginning of year.......................... 196,478,052 132,776,521 206,035,921 107,848,568
------------- ------------- ------------- -------------
End of year................................ $ 228,648,337 $ 196,478,052 $ 336,652,400 $ 206,035,921
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
SELECT GROWTH AND INCOME
-----------------------------
YEAR ENDED DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 3,198,324 $ 2,276,955
Mortality and expense risk fees............ (3,145,481) (2,111,147)
Administrative expense fees................ (388,767) (260,929)
------------- -------------
Net investment income (loss)............. (335,924) (95,121)
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 924,289 18,113,569
Net realized gain (loss) from sales of
investments.............................. 1,064,670 854,942
------------- -------------
Net realized gain (loss)................... 1,988,959 18,968,511
Net unrealized gain (loss)................. 32,750,667 12,001,401
------------- -------------
Net realized and unrealized gain
(loss).................................. 34,739,626 30,969,912
------------- -------------
Net increase (decrease) in net assets from
operations............................... 34,403,702 30,874,791
------------- -------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 63,681,715 46,842,354
Withdrawals................................ (15,115,743) (8,766,378)
Contract benefits.......................... (4,138,997) (2,390,486)
Contract charges........................... (85,677) (69,205)
Transfers between sub-accounts (including
fixed account), net...................... 106,049 15,332,554
Other transfers from (to) the General
Account.................................. 3,902,001 2,625,475
------------- -------------
Net increase (decrease) in net assets from
contract transactions.................... 48,349,348 53,574,314
------------- -------------
Net increase (decrease) in net assets...... 82,753,050 84,449,105
NET ASSETS:
Beginning of year.......................... 213,173,256 128,724,151
------------- -------------
End of year................................ $ 295,926,306 $ 213,173,256
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT INCOME MONEY MARKET
---------------------------- ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 6,954,415 $ 5,022,772 $ 5,221,319 $ 4,384,109
Mortality and expense risk fees............ (1,469,378) (998,230) (1,211,909) (1,016,141)
Administrative expense fees................ (181,608) (123,377) (149,786) (125,591)
------------- ------------ ------------- --------------
Net investment income (loss)............. 5,303,429 3,901,165 3,859,624 3,242,377
------------- ------------ ------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- -- -- --
Net realized gain (loss) from sales of
investments.............................. 191,685 22,839 -- --
------------- ------------ ------------- --------------
Net realized gain (loss)................... 191,685 22,839 -- --
Net unrealized gain (loss)................. 575,603 2,251,800 -- --
------------- ------------ ------------- --------------
Net realized and unrealized gain
(loss).................................. 767,288 2,274,639 -- --
------------- ------------ ------------- --------------
Net increase (decrease) in net assets from
operations............................... 6,070,717 6,175,804 3,859,624 3,242,377
------------- ------------ ------------- --------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 43,005,439 18,288,534 65,100,611 129,227,661
Withdrawals................................ (8,082,420) (4,662,262) (20,168,912) (9,185,006)
Contract benefits.......................... (1,772,510) (1,408,135) (5,486,115) (2,972,579)
Contract charges........................... (37,909) (34,436) (24,776) (23,565)
Transfers between sub-accounts (including
fixed account), net...................... 3,617,459 3,517,315 (7,256,363) (114,998,424)
Other transfers from (to) the General
Account.................................. 3,052,759 1,318,021 645,196 3,070,706
------------- ------------ ------------- --------------
Net increase (decrease) in net assets from
contract transactions.................... 39,782,818 17,019,037 32,809,641 5,118,793
------------- ------------ ------------- --------------
Net increase (decrease) in net assets...... 45,853,535 23,194,841 36,669,265 8,361,170
NET ASSETS:
Beginning of year.......................... 94,180,938 70,986,097 77,145,824 68,784,654
------------- ------------ ------------- --------------
End of year................................ $ 140,034,473 $ 94,180,938 $ 113,815,089 $ 77,145,824
------------- ------------ ------------- --------------
------------- ------------ ------------- --------------
<CAPTION>
SELECT INTERNATIONAL EQUITY
-----------------------------
YEAR ENDED DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 2,110,384 $ 2,964,278
Mortality and expense risk fees............ (1,871,430) (1,350,796)
Administrative expense fees................ (231,300) (166,952)
------------- -------------
Net investment income (loss)............. 7,654 1,446,530
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- 4,123,293
Net realized gain (loss) from sales of
investments.............................. 1,650,381 941,203
------------- -------------
Net realized gain (loss)................... 1,650,381 5,064,496
Net unrealized gain (loss)................. 17,773,061 (4,292,377)
------------- -------------
Net realized and unrealized gain
(loss).................................. 19,423,442 772,119
------------- -------------
Net increase (decrease) in net assets from
operations............................... 19,431,096 2,218,649
------------- -------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 29,615,052 33,743,058
Withdrawals................................ (8,122,159) (5,026,523)
Contract benefits.......................... (1,791,387) (830,243)
Contract charges........................... (56,589) (45,226)
Transfers between sub-accounts (including
fixed account), net...................... (5,116,809) 16,445,449
Other transfers from (to) the General
Account.................................. 1,294,775 2,131,290
------------- -------------
Net increase (decrease) in net assets from
contract transactions.................... 15,822,883 46,417,805
------------- -------------
Net increase (decrease) in net assets...... 35,253,979 48,636,454
NET ASSETS:
Beginning of year.......................... 130,449,617 81,813,163
------------- -------------
End of year................................ $ 165,703,596 $ 130,449,617
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT EMERGING
SELECT CAPITAL APPRECIATION MARKETS
---------------------------- ---------------------
YEAR ENDED DECEMBER 31, PERIOD FROM
1998 1997 2/20/98** TO 12/31/98
------------- ------------ ---------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ -- $ -- $ 7,175
Mortality and expense risk fees............ (1,046,274) (636,664) (20,600)
Administrative expense fees................ (129,315) (78,689) (2,546)
------------- ------------ -----------
Net investment income (loss)............... (1,175,589) (715,353) (15,971)
------------- ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 15,561,260 -- --
Net realized gain (loss) from sales of
investments.............................. 1,026,367 122,244 (24,720)
------------- ------------ -----------
Net realized gain (loss)................... 16,587,627 122,244 (24,720)
Net unrealized gain (loss)................. (4,726,710) 8,440,399 (309,858)
------------- ------------ -----------
Net realized and unrealized gain
(loss).................................. 11,860,917 8,562,643 (334,578)
------------- ------------ -----------
Net increase (decrease) in net assets from
operations............................... 10,685,328 7,847,290 (350,549)
------------- ------------ -----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 25,436,320 23,378,356 3,000,520
Withdrawals................................ (3,623,727) (1,984,458) (61,386)
Contract benefits.......................... (1,106,068) (728,926) (9,898)
Contract charges........................... (30,776) (19,236) (134)
Transfers between sub-accounts (including
fixed account), net...................... (2,261,255) 6,974,304 1,172,968
Other transfers from (to) the General
Account.................................. 654,274 1,663,876 291,059
------------- ------------ -----------
Net increase (decrease) in net assets from
contract transactions.................... 19,068,768 29,283,916 4,393,129
------------- ------------ -----------
Net increase (decrease) in net assets...... 29,754,096 37,131,206 4,042,580
NET ASSETS:
Beginning of year.......................... 73,116,569 35,985,363 --
------------- ------------ -----------
End of year................................ $ 102,870,665 $ 73,116,569 $4,042,580
------------- ------------ -----------
------------- ------------ -----------
<CAPTION>
SELECT VALUE SELECT STRATEGIC
OPPORTUNITY GROWTH
--------------------- ---------------------
PERIOD FROM PERIOD FROM
2/20/98** TO 12/31/98 2/20/98** TO 12/31/98
--------------------- ---------------------
<S> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 150,189 $ 19,691
Mortality and expense risk fees............ (89,478) (42,877)
Administrative expense fees................ (11,060) (5,300)
--------------------- -----------
Net investment income (loss)............... 49,651 (28,486)
--------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 25,524 --
Net realized gain (loss) from sales of
investments.............................. (29,187) (151,091)
--------------------- -----------
Net realized gain (loss)................... (3,663) (151,091)
Net unrealized gain (loss)................. 160,234 219,846
--------------------- -----------
Net realized and unrealized gain
(loss).................................. 156,571 68,755
--------------------- -----------
Net increase (decrease) in net assets from
operations............................... 206,222 40,269
--------------------- -----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 12,809,082 5,671,296
Withdrawals................................ (356,168) (209,854)
Contract benefits.......................... (49,956) (20,535)
Contract charges........................... (478) (338)
Transfers between sub-accounts (including
fixed account), net...................... 4,206,999 2,187,617
Other transfers from (to) the General
Account.................................. 1,218,807 723,590
--------------------- -----------
Net increase (decrease) in net assets from
contract transactions.................... 17,828,286 8,351,776
--------------------- -----------
Net increase (decrease) in net assets...... 18,034,508 8,392,045
NET ASSETS:
Beginning of year.......................... -- --
--------------------- -----------
End of year................................ $18,034,508 $8,392,045
--------------------- -----------
--------------------- -----------
</TABLE>
** Date of initial investment
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP
FIDELITY VIP HIGH INCOME EQUITY-INCOME
---------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 5,463,771 $ 2,360,937 $ 1,609,296 $ 800,519
Mortality and expense risk fees............ (1,129,683) (618,957) (1,802,457) (903,314)
Administrative expense fees................ (139,623) (76,500) (222,776) (111,646)
------------- ------------ ------------- -------------
Net investment income (loss)............. 4,194,465 1,665,480 (415,937) (214,441)
------------- ------------ ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 3,471,771 291,801 5,727,200 4,024,829
Net realized gain (loss) from sales of
investments.............................. (410,592) 153,432 454,647 173,070
------------- ------------ ------------- -------------
Net realized gain (loss)................... 3,061,179 445,233 6,181,847 4,197,899
Net unrealized gain (loss)................. (13,622,064) 5,256,704 7,180,318 11,931,704
------------- ------------ ------------- -------------
Net realized and unrealized gain
(loss)................................. (10,560,885) 5,701,937 13,362,165 16,129,603
------------- ------------ ------------- -------------
Net increase (decrease) in net assets from
operations............................... (6,366,420) 7,367,417 12,946,228 15,915,162
------------- ------------ ------------- -------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 33,755,346 24,147,277 57,177,724 37,371,024
Withdrawals................................ (4,291,123) (1,540,245) (6,972,862) (3,009,887)
Contract benefits.......................... (1,095,080) (642,692) (1,970,745) (501,372)
Contract charges........................... (24,772) (15,225) (41,629) (24,945)
Transfers between sub-accounts (including
fixed account), net...................... 5,384,061 13,083,846 3,401,689 16,129,962
Other transfers from (to) the General
Account.................................. 1,643,387 1,382,727 3,352,791 2,039,756
------------- ------------ ------------- -------------
Net increase (decrease) in net assets from
contract transactions.................... 35,371,819 36,415,688 54,946,968 52,004,538
------------- ------------ ------------- -------------
Net increase (decrease) in net assets...... 29,005,399 43,783,105 67,893,196 67,919,700
NET ASSETS:
Beginning of year.......................... 72,197,817 28,414,712 110,437,026 42,517,326
------------- ------------ ------------- -------------
End of year................................ $ 101,203,216 $ 72,197,817 $ 178,330,222 $ 110,437,026
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
<CAPTION>
T. ROWE PRICE
FIDELITY VIP INTERNATIONAL
GROWTH STOCK
---------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 413,212 $ 255,385 $ 663,390 $ 380,324
Mortality and expense risk fees............ (1,334,435) (685,823) (627,152) (394,964)
Administrative expense fees................ (164,930) (84,765) (77,513) (48,816)
------------- ------------ ------------ ------------
Net investment income (loss)............. (1,086,153) (515,203) (41,275) (63,456)
------------- ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 10,808,765 1,143,150 234,138 538,793
Net realized gain (loss) from sales of
investments.............................. 1,061,177 252,760 151,115 932,107
------------- ------------ ------------ ------------
Net realized gain (loss)................... 11,869,942 1,395,910 385,253 1,470,900
Net unrealized gain (loss)................. 25,112,290 9,153,516 5,788,775 (1,612,907)
------------- ------------ ------------ ------------
Net realized and unrealized gain
(loss)................................. 36,982,232 10,549,426 6,174,028 (142,007)
------------- ------------ ------------ ------------
Net increase (decrease) in net assets from
operations............................... 35,896,079 10,034,223 6,132,753 (205,463)
------------- ------------ ------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 35,768,091 26,585,405 14,149,159 16,331,917
Withdrawals................................ (5,164,629) (2,025,514) (2,057,947) (1,619,234)
Contract benefits.......................... (1,505,737) (774,277) (649,684) (397,243)
Contract charges........................... (37,556) (22,196) (18,009) (11,423)
Transfers between sub-accounts (including
fixed account), net...................... 3,426,882 8,237,545 (1,989,024) 6,388,208
Other transfers from (to) the General
Account.................................. 1,296,933 1,256,357 812,777 1,212,597
------------- ------------ ------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 33,783,984 33,257,320 10,247,272 21,904,822
------------- ------------ ------------ ------------
Net increase (decrease) in net assets...... 69,680,063 43,291,543 16,380,025 21,699,359
NET ASSETS:
Beginning of year.......................... 77,851,470 34,559,927 41,563,930 19,864,571
------------- ------------ ------------ ------------
End of year................................ $ 147,531,533 $ 77,851,470 $ 57,943,955 $ 41,563,930
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-6
<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 fourteen Sub-Accounts. Each Sub-Account invests exclusively in
a corresponding investment portfolio of the Allmerica Investment Trust (the
Trust) managed by Allmerica Financial Investment Management Services, Inc.
(AFIMS) (successor to 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 & Research Company
(FMR); or of the 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 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 Funds. 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 Funds 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-7
<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 Funds at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
-----------------------------------
NET
ASSET
VALUE
NUMBER OF AGGREGATE PER
INVESTMENT PORTFOLIO SHARES COST SHARE
- ---------------------------------------- ----------- ------------ --------
<S> <C> <C> <C>
Select Aggressive Growth.............. . 92,946,793 $176,479,934 $ 2.460
Select Growth........................... 138,675,560 219,038,878 2.428
Select Growth and Income................ 166,336,171 231,011,231 1.779
Select Income........................... 135,718,561 137,625,649 1.032
Money Market............................ 113,859,875 113,859,875 1.000
Select International Equity............. 107,460,179 138,459,337 1.542
Select Capital Appreciation............. 62,726,015 98,278,605 1.640
Select Emerging Markets................. 5,156,352 4,352,438 0.784
Select Value Opportunity................ 10,702,972 17,874,274 1.685
Select Strategic Growth................. 8,624,918 8,172,199 0.973
Fidelity VIP High Income................ 8,777,382 108,048,761 11.530
Fidelity VIP Equity-Income.............. 7,015,351 155,707,691 25.420
Fidelity VIP Growth..................... 3,287,977 111,568,787 44.870
T. Rowe Price International Stock....... 3,990,630 52,472,892 14.520
</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 0.15% 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 is deducted on the contract anniversary and upon full surrender of
the contract. For contracts issued on Form A3025-96 (Allmerica Select Resource
II), a contract fee is deducted on the contract anniversary and upon full
surrender if the accumulated value is less than $50,000. The fee is currently
waived for Allmerica Select Resource II contracts issued to and maintained by
the trustee of a 401(k) plan.
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
certain independent broker-dealers. The Allmerica Select Resource I and II
contracts have a contingent deferred sales charge and no deduction is made for
sales charges at the time of the sale. For the years ended December 31, 1998 and
1997, the Company received $1,530,964 and $793,493, respectively, for contingent
deferred sales charges applicable to Allmerica Select Separate Account.
SA-8
<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,
1998 1997
------------------------------ -----------------------------
UNITS AMOUNT UNITS AMOUNT
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Select Aggressive Growth
Issuance of Units.......................... 28,443,354 $ 71,461,752 33,846,682 $ 75,147,109
Redemption of Units........................ (22,974,119) (57,704,045) (16,878,413) (35,080,458)
------------- -------------- ------------- -------------
Net increase (decrease).................. 5,469,235 $ 13,757,707 16,968,269 $ 40,066,651
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Select Growth
Issuance of Units.......................... 48,669,777 $ 117,987,024 46,267,945 $ 85,189,100
Redemption of Units........................ (26,664,319) (64,559,167) (15,928,340) (28,050,338)
------------- -------------- ------------- -------------
Net increase (decrease).................. 22,005,458 $ 53,427,857 30,339,605 $ 57,138,762
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Select Growth and Income
Issuance of Units.......................... 45,914,205 $ 99,392,688 44,731,254 $ 80,982,519
Redemption of Units...................... . (23,587,262) (51,043,340) (15,854,780) (27,408,205)
------------- -------------- ------------- -------------
Net increase (decrease).................. 22,326,943 $ 48,349,348 28,876,474 $ 53,574,314
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Select Income
Issuance of Units.......................... 59,979,984 $ 80,651,018 28,213,650 $ 34,575,615
Redemption of Units...................... . (30,202,528) (40,868,200) (14,565,754) (17,556,578)
------------- -------------- ------------- -------------
Net increase (decrease)................ . 29,777,456 $ 39,782,818 13,647,896 $ 17,019,037
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Money Market
Issuance of Units.......................... 160,175,464 $ 193,712,183 184,460,786 $ 205,139,510
Redemption of Units...................... . (132,822,470) (160,902,542) (179,708,703) (200,020,717)
------------- -------------- ------------- -------------
Net increase (decrease).................. 27,352,994 $ 32,809,641 4,752,083 $ 5,118,793
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Select International Equity
Issuance of Units.......................... 35,836,093 $ 56,782,369 50,880,736 $ 70,478,183
Redemption of Units........................ (25,978,288) (40,959,486) (18,015,151) (24,060,378)
------------- -------------- ------------- -------------
Net increase (decrease).................. 9,857,805 $ 15,822,883 32,865,585 $ 46,417,805
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Select Capital Appreciation
Issuance of Units.......................... 25,684,264 $ 44,175,487 29,860,999 $ 43,787,971
Redemption of Units...................... . (14,627,907) (25,106,719) (10,385,180) (14,504,055)
------------- -------------- ------------- -------------
Net increase (decrease).................. 11,056,357 $ 19,068,768 19,475,819 $ 29,283,916
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Select Emerging Markets
Issuance of Units.......................... 6,117,004 $ 5,235,588 -- $ --
Redemption of Units........................ (907,615) (842,459) -- --
------------- -------------- ------------- -------------
Net increase (decrease).................. 5,209,389 $ 4,393,129 -- $ --
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
</TABLE>
SA-9
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
------------------------------ -----------------------------
UNITS AMOUNT UNITS AMOUNT
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Select Value Opportunity
Issuance of Units.......................... 20,566,820 $ 20,586,826 -- $ --
Redemption of Units........................ (2,327,244) (2,758,540) -- --
------------- -------------- ------------- -------------
Net increase (decrease).................. 18,239,576 $ 17,828,286 -- $ --
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Select Strategic Growth
Issuance of Units.......................... 10,583,703 $ 10,307,180 -- $ --
Redemption of Units........................ (1,875,191) (1,955,404) -- --
------------- -------------- ------------- -------------
Net increase (decrease).................. 8,708,512 $ 8,351,776 -- $ --
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Fidelity VIP High Income
Issuance of Units.......................... 42,299,742 $ 60,272,832 40,320,288 $ 52,914,842
Redemption of Units........................ (17,784,384) (24,901,013) (12,900,932) (16,499,154)
------------- -------------- ------------- -------------
Net increase (decrease).................. 24,515,358 $ 35,371,819 27,419,356 $ 36,415,688
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Fidelity VIP Equity-Income
Issuance of Units.......................... 48,319,788 $ 87,225,760 44,976,217 $ 67,922,420
Redemption of Units........................ (17,913,028) (32,278,792) (11,526,295) (15,917,882)
------------- -------------- ------------- -------------
Net increase (decrease).................. 30,406,760 $ 54,946,968 33,449,922 $ 52,004,538
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Fidelity VIP Growth
Issuance of Units.......................... 32,964,840 $ 65,335,816 29,081,173 $ 44,906,335
Redemption of Units...................... . (15,681,080) (31,551,832) (8,054,427) (11,649,015)
------------- -------------- ------------- -------------
Net increase (decrease).................. 17,283,760 $ 33,783,984 21,026,746 $ 33,257,320
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
T. Rowe Price International Stock
Issuance of Units.......................... 17,721,810 $ 23,965,360 32,358,642 $ 40,274,630
Redemption of Units...................... . (10,241,106) (13,718,088) (14,891,726) (18,369,808)
------------- -------------- ------------- -------------
Net increase (decrease).................. 7,480,704 $ 10,247,272 17,466,916 $ 21,904,822
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
</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-10
<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 shares of the Funds by
Allmerica Select during the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------- ------------ ------------
<S> <C> <C>
Select Aggressive Growth............................... $ 31,905,921 $ 21,116,601
Select Growth.......................................... 66,752,075 14,023,151
Select Growth and Income............................... 56,761,065 7,853,839
Select Income.......................................... 52,061,641 6,948,820
Money Market........................................... 101,896,643 65,179,446
Select International Equity............................ 28,715,202 12,884,665
Select Capital Appreciation............................ 42,248,036 8,793,597
Select Emerging Markets................................ 4,586,750 209,592
Select Value Opportunity............................... 19,115,410 1,211,949
Select Strategic Growth................................ 9,437,611 1,114,321
Fidelity VIP High Income............................... 50,494,226 7,456,171
Fidelity VIP Equity-Income............................. 66,365,787 6,107,556
Fidelity VIP Growth.................................... 52,632,705 9,126,109
T. Rowe Price International Stock...................... 14,266,496 3,826,362
------------ ------------
Totals............................................... $597,239,568 $165,852,179
------------ ------------
------------ ------------
</TABLE>
SA-11
<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 and
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 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 Post-Effective Amendment No. 16 and is
incorporated by reference herein.
(B) Bonus Product Commissions Schedule is filed
herewith. Sales Agreements (Select) with Commission
Schedule were previously filed on April 24, 1998
in Post-Effective Amendment No. 16 and are
incorporated by reference herein.
(C) General Agent's Agreement was previously filed
on April 24, 1998 in Post-Effective Amendment
No. 16 and is incorporated by reference herein.
(D) Career Agent Agreement was previously filed on
April 24, 1998 in Post-Effective Amendment No.
16 and is incorporated by reference herein.
(E) Registered Representative's Agreement was
previously filed on April 24, 1998 in
Post-Effective Amendment No. 16 and is
incorporated by reference herein.
EXHIBIT 4 The following are filed herewith:
(a) Contract Form A3028-99;
(b) Specification pages Form A8028-99;
(c) Enhanced Death Benefit "EDB" Rider (Form 3263-99);
(d) Minimum Guaranteed Annuity Payout ("M-GAP")
Rider Form (3269-99);
(e) Annuitization Payment Ratchet Rider (Form 3270-99);
(f) Trail Employee Program Endorsement (Form 3275-99);
(g) Trail Employee Program Endorsement (Form 3275-99);
(h) Annuitization Withdrawal Endorsement (Form 3276-99);
<PAGE>
EXHIBIT 5 Application Form AS-563 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 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 Post-Effective
Amendment No. 16 and are incorporated by reference
herein.
(F) Directors' Power of Attorney is filed herewith.
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 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 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 Post-Effective Amendment
No. 16 and is incorporated by reference herein.
<PAGE>
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
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 (since 1996), Vice President (since 1984) and
Director Assistant Secretary (since 1992) of First Allmerica
Abigail M. Armstrong Secretary (since 1996) and Counsel (since 1991) of First
Secretary and Counsel Allmerica; Secretary (since 1988) and Counsel (since 1994)
of Allmerica Investments, Inc.; and Secretary (since 1990)
of Allmerica Financial Investment Management Services, Inc.
Warren E. Barnes Vice President (since 1996) and Corporate Controller (since
Vice President and Corporate Controller 1998) of First Allmerica
Robert E. Bruce Director and Chief Information Officer (since 1997) and
Director and Chief Information Officer Vice President (since 1995) of First Allmerica; and Corporate
Manager (1979 to 1995) of Digital Equipment Corporation
John P. Kavanaugh Director and Chief Investment Officer (since 1996) and
Director, Vice President and Vice President (since 1991) of First Allmerica; and Vice
Chief Investment Officer President (since 1998) of Allmerica Financial Investment
Management Services, Inc.
John F. Kelly Director (since 1996), Senior Vice President (since 1986),
Director, Vice President and General Counsel (since 1981) and Assistant Secretary (since
General Counsel 1991) of First Allmerica; Director (since 1985) of Allmerica
Investments, Inc.; and Director (since 1990) of Allmerica
Financial Investment Management Services, Inc.
J. Barry May Director (since 1996) of First Allmerica; Director and President
Director (since 1996) of The Hanover Insurance Company; and Vice President
(1993 to 1996) of The Hanover Insurance Company
James R. McAuliffe Director (since 1996) of First Allmerica; Director (since 1992),
Director President (since 1994) and Chief Executive Officer (since 1996)
of Citizens Insurance Company of America
John F. O'Brien Director, President and Chief Executive Officer (since 1989) of
Director and Chairman of the Board First Allmerica; Director (since 1989) of Allmerica Investments,
Inc.; and Director and Chairman of the Board (since 1990) of
Allmerica Financial Investment Management Services, Inc.
Edward J. Parry, III Director and Chief Financial Officer (since 1996) and Vice
Director, Vice President President and Treasurer (since 1993) of First Allmerica;
Chief Financial Officer Treasurer (since 1993) of Allmerica Investments, Inc.; and
and Treasurer Treasurer (since 1993) of Allmerica Financial Investment
Management Services, Inc.
Richard M. Reilly Director (since 1996) and Vice President (since 1990) of First
Director, President and Allmerica; Director (since 1990) of Allmerica Investments, Inc.;
Chief Executive Officer and Director and President (since 1998) of Allmerica Financial
Investment Management Services, Inc.
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First Allmerica;
Director Chief Executive Officer (1996 to 1998) of Travelers Property &
Casualty; Senior Vice President (1993 to 1996) of Aetna Life &
Casualty Company
Eric A. Simonsen Director (since 1996) and Vice President (since 1990) of First
Director and Vice President Allmerica; Director (since 1991) of Allmerica Investments, Inc.;
and Director (since 1991) of Allmerica Financial Investment Management
Services, Inc.
Phillip E. Soule Director (since 1996) and Vice President (since 1987) of First
Director Allmerica
</TABLE>
<PAGE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
<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
| |
30% _________________ _____________
| |
100% 100%
SMA First Sterling
Financial Corp. Reinsurance
Company
Limited
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%
APC The Hanover Allmerica Citizens
Funding Corp. Insurance Financial Insurance
Company Insurance Company of
Brokers, Inc. Illinois
Massachusetts New Hampshire Massachusetts Illinois
|
______________________________________________________________________________________________________________________
| | | | |
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
Company Worcester MA 01605 insurance
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.
and 440 Financial Group of
Worcester, 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
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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 South Multi-line property and casualty
Midwest South Drive, Suite 200 insurance
Indianapolis IN 46280
Citizens Insurance Company of Ohio 8101 N. High Street Multi-line property and casualty
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 Insurance 440 Lincoln Street Life, pension, annuity, accident
Company (formerly State Mutual Life Worcester MA 01653 and health insurance company
Assurance Company of America)
First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653
First Sterling Reinsurance Company 440 Lincoln Street Reinsurance Company
Limited Worcester MA 01653
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
Sterling Risk Management Services, Inc. 440 Lincoln Street Risk management services
Worcester MA 01653
</TABLE>
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 30, 1999, there were 13,557 Contact Owners of qualified
Contracts and 19,904 Contract Owners of non-qualified Contracts.
As of April 30, 1999, there were no Contract Form A3028-99 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.
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, and 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, Allmerica Select Separate
Account II, 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
<PAGE>
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
Philip L. Heffernan Vice President
John F. Kelly Director
Daniel Mastrototaro Vice President
William F. Monroe, Jr. Vice President
David J. Mueller Vice President and Controller
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
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.
<PAGE>
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.
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 initial Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Worcester, and Commonwealth of Massachusetts, on
the 7th day of May, 1999.
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 initial
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
--------------------- ---------------------------- -----------------
<S> <C> <C>
/s/ Warren E. Barnes Vice President and Corporate May 7, 1999
--------------------------- Controller
Warren E. Barnes
Edward J. Parry III* Director, Vice President, Chief May 7, 1999
--------------------------- Financial Officer and Treasurer
Richard M. Reilly* Director, President and May 7, 1999
--------------------------- Chief Executive Officer
John F. O'Brien* Director and Chairman of May 7, 1999
--------------------------- the Board
Bruce C. Anderson* Director May 7, 1999
---------------------------
Robert E. Bruce* Director and Chief Information May 7, 1999
--------------------------- Officer
John P. Kavanaugh* Director, Vice President and May 7, 1999
--------------------------- Chief Investment Officer
John F. Kelly* Director, Vice President and May 7, 1999
--------------------------- General Counsel
J. Barry May* Director May 7, 1999
---------------------------
James R. McAuliffe* Director May 7, 1999
---------------------------
Robert P. Restrepo, Jr.* Director May 7, 1999
---------------------------
Eric A. Simonsen* Director and Vice President May 7, 1999
---------------------------
Phillip E. Soule* Director May 7, 1999
---------------------------
</TABLE>
*Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated April 1, 1999 duly
executed by such persons.
/s/ Sheila B. St. Hilaire
---------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
<PAGE>
EXHIBIT TABLE
Exhibit 3(b) Bonus Product Commissions Schedule
Exhibit 4 Contract Form A3028-99, Specification Pages Form A8028-99,
Riders and Endorsements
Exhibit 5 Application Form AS-563
Exhibit 8(f) Directors' Power of Attorney
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
<PAGE>
Exhibit 3(b)
BONUS
PRODUCT
COMMISSIONS
<TABLE>
<CAPTION>
SELECT 5.00% credit
Issue Issue
Ages 80 Ages 81
& Under & Over
Trail Trail
------------------------ ------------------------
During During
Upfront SC period Thereafter Upfront SC period Thereafter
----------------------------------- ----------------------------------
----------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trail
Commission
on Option
A 5.00% 0.00% 0.00% 3.00% 0.00% 0.00%
B 4.25% 0.25% 0.25% 2.50% 0.25% 0.25%
C 3.00% 0.50% 0.50% 1.50% 0.50% 0.50%
D 2.50% 0.50% 1.00% 1.25% 0.50% 1.00%
</TABLE>
<PAGE>
Exhibit 4(a)
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 Accumulated Value, after
application of any Market Value Adjustment, plus any fees or other charges
imposed and less any Payment Credits. These values are determined as of the
date the contract is returned to the Company. If, however, the contract is
issued as an Individual Retirement Annuity (IRA), the Company will refund
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 payments beginning on the Annuity Date
or to pay a Death Benefit to the Beneficiary if an Owner dies prior to the
Annuity Date.
Flexible Payment Deferred Variable and Fixed Annuity
Annuity Benefit Payments Payable on the Annuity Date
Death Benefit Payable to Beneficiary if Owner Dies prior to Annuity Date
Non-Participating
FORM A3028-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
OWNER, ANNUITANT AND BENEFICIARY . . . . . . . . . . . . . . . . . . . . . . 9
THE ACCUMULATION PHASE . . . . . . . . . . . . . . . . . . . . . . . . . . .
PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
PAYMENT CREDITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
VALUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
WITHDRAWAL AND SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . . .14
DEATH BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
THE PAYOUT PHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANNUITY BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
WITHDRAWAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
PRESENT VALUE OF ANNUITY BENEFIT PAYMENTS. . . . . . . . . . . . . . . . . .23
DEATH OF THE ANNUITANT . . . . . . . . . . . . . . . . . . . . . . . . . . .23
ANNUITY BENEFIT PAYMENT OPTIONS. . . . . . . . . . . . . . . . . . . . . . .24
ANNUITY BENEFIT PAYMENT GUARANTEE OPTIONS. . . . . . . . . . . . . . . . . .24
ANNUITY OPTION RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
FORM A3028-99
<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 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 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 Death
Benefit prior to the Annuity Date or any annuity
benefit payments upon the death of the Owner on or
after the Annuity Date.
Company Allmerica Financial Life Insurance and Annuity
Company.
Contract Year A one-year period based on the issue date or an
anniversary thereof.
Effective Valuation Date The Valuation Date on or immediately following the
day a payment, request for transfer, withdrawal or
surrender, or proof of death is received at the
Principal Office.
Fixed Account The part of the Company's General Account to which
all or a portion of a Payment or transfer may be
allocated.
Fund Each separate investment 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.
Gross Payment Base Total gross payments made to the contract reduced by
withdrawals which exceed the Withdrawal Without
Surrender Charge amount.
Guarantee Period The number of years that a Guaranteed Interest Rate
applies 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 Separate Account. The
Owner may only invest in a Guarantee Period Account
prior to the Annuity Date.
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.
FORM A3028-99 7
<PAGE>
Owner The person, persons or entity entitled to exercise
the rights and privileges under this contract.
Joint Owners are permitted and unless otherwise
indicated, any reference to Owner shall include
Joint Owners.
Payment Credit The amount credited to the contract by the Company
each time a Payment is made into the contract.
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.
Request A request or notice made by the Owner, in a manner
consistent with the Company's current procedures,
which is received by the Company.
Qualified Contract A contract that is purchased in connection with a
retirement plan which meets the requirements of
Sections 401, 403, 408 and 408A, of the Internal
Revenue Code.
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.
State The state or jurisdiction in which the contract is
issued.
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,
surrender charge and Contract Fee.
Survivor Annuity Benefit The number of Annuity Units (under a variable joint
Percentage life annuitization option) or the dollar value of
the annuity benefit payments (under a fixed joint
life annuitization option) paid during the
surviving Annuitant's life may be less than or
equal to the amount paid when both individuals are
living. The Survivor Annuity Benefit Percentage is
the percentage of total Annuity Units or dollars
paid in each annuity benefit during the survivor's
life. For example, with a Joint and Two-thirds
Survivor Option, the Survivor Annuity Benefit
Percentage is 66 2/3 %. This percentage is only
applicable after the death of the first Annuitant.
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 such 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.
FORM A3028-99 8
<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 Maximum
Alternative 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 there are joint Owners, 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 actually received a Request in writing and
recorded the change at the Principal Office. The
Company will not be deemed to know of the assignment
until such time. 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 Beneficiary will be
subject to any assignment.
Annuitant When the contract is issued, the Annuitant will be
as shown on the Specifications page. The Annuitant
may be 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 the Annuitant dies and a
replacement is not named, the Owner will be
considered to be the new Annuitant. Upon the death
of an Annuitant prior to the Annuity Date, a Death
Benefit is not paid unless the Owner is a
non-natural person.
A change of Annuitant will take place only when the
Company has actually received a Request in writing
and recorded the change at the Principal Office.
The Company will not be deemed to know of the change
of Annuitant until such time. 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.
FORM A3028-99 9
<PAGE>
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 the 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 in a
form acceptable to the Company 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 an Owner
or the 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 benefits payable to the Beneficiary under 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 in a particular class, then the benefit
is divided equally among the surviving Beneficiaries
of the next class. If there is no surviving
Beneficiary, the deceased Beneficiary's interest
will pass to the Owner or the Owner's estate. At
the death of the first joint Owner prior to the
Annuity Date, the surviving joint Owner is the sole,
primary Beneficiary notwithstanding that the
designated Beneficiary may be different.
The Beneficiary can not assign, transfer, commute,
anticipate or encumber the proceeds or payments
unless given that right by the Owner.
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.
FORM A3028-99 10
<PAGE>
THE ACCUMULATION PHASE
PAYMENTS
Payments Each 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 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.
Initial Payment The Initial Payment is shown on the Specifications
page.
Additional Payments Prior to the Annuity Date and before the death of an
Owner, the Owner may make additional Payments of at
least the Minimum Additional Payment Amount (see
Specifications page). Total Payments made may not
exceed [$5,000,000] without the Company's consent.
Payment Allocations The Initial Payment is allocated in accordance with
the Payment Allocation, shown on the Specifications
page. Each subsequent Payment will be allocated in
the same manner unless allocation instructions
accompany the Payment or the Payment Allocation is
changed by the Owner.
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.]
PAYMENT CREDITS
Each time the Owner makes a Payment to the contract,
the Company will credit an amount equal to or
greater than such Payment multiplied by the Payment
Credit Percentage (see Specifications page). This
amount will be credited to the contract's
Accumulated Value. Each Payment Credit will be
allocated in the same manner as its corresponding
Payment.
The Payment Credit will be deducted from the amount
paid to the Owner if the Owner exercises the Right
To Examine Contract provision.
VALUES
Value of the Variable The value of a Sub-Account on a Valuation Date is
Account determined by multiplying the Accumulation Units in
that Sub-Account by the Accumulation Unit Value as
of the Valuation Date.
FORM A3028-99 11
<PAGE>
Accumulation Units are purchased when an amount is
allocated to a Sub-Account. The number of
Accumulation Units purchased equals that amount
divided by the applicable Accumulation Unit Value as
of the Valuation Date.
Accumulation Unit The value of a Sub-Account Accumulation Unit as of
Values 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 (which may be positive or
negative) 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;
(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
applicable to the current Valuation Period
(see Specifications page) plus any applicable
Rider charges; and
(d) is the Administrative Charge applicable to
the current Valuation Period (see
Specifications page).
The Company assumes the risk that its actual
mortality expense experience 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 Amounts allocated to the Fixed Account receive
Account interest at rates periodically set by the Company.
The Company guarantees that the initial rate of
interest in effect when an amount is allocated to
the Fixed Account will remain in effect for that
amount for one year or until such amount is
transferred out of the Fixed Account, whichever is
sooner. 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.
FORM A3028-99 12
<PAGE>
Value of the Guarantee Amounts allocated to the same Guarantee Period
Period Accounts Account 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 Account is guaranteed for the duration of
the Guarantee Period. Each time the Guaranteed
Interest Rate changes for a particular Guarantee
Period, a new Guarantee Period Account is
established.
The value of a Guarantee Period Account on any date
is the sum of amounts allocated to that Guarantee
Period Account plus interest compounded and credited
daily at the rate applicable to that amount.
Guaranteed Interest The Company will periodically set Guaranteed
Rates Interest Rates for each available Guarantee Period.
These rates will be guaranteed for the duration of
the respective Guarantee Periods. A Guaranteed
Interest Rate will never be less than the Guarantee
Period Account Minimum Interest Rate (see
Specifications page).
Renewal Guarantee At least 45 days (but not more than 75 days) prior
Periods 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 [8].
Guaranteed Interest Rates corresponding to the
available Guarantee Periods may be higher or lower
than the previous Guaranteed Interest Rates. 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:
(a) less than the Guarantee Period Account Minimum
Allocation Amount (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 Prior to the Annuity Dates on each contract
anniversary and when the contract is surrendered,
the Company will deduct a Contract Fee (see
Specifications page) Pro Rata.
FORM A3028-99 13
<PAGE>
TRANSFER
Prior to the Annuity Date, the Owner may transfer
amounts among accounts by Request to the Principal
Office. Transfers to a Guarantee Period Account
must be at least equal to the Guarantee Period
Account Minimum 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.
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
Request, withdraw a part of the Surrender 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 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.
When surrendered, this contract terminates and the
Company has no further liability under it. The
Surrender Value will be based on the Accumulated
Value on the Effective Valuation Date.
Amounts taken from the Variable Account will be paid
within 7 days of the date a Request is received.
The Company reserves the right to delay payments
subject to 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 the date a Request is received.
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 rate mandated by the appropriate State.
FORM A3028-99 14
<PAGE>
Withdrawal Without In each calendar year, withdrawals up to the
Surrender Charge greater of (a) or (b) may be made without a
surrender charge where:
(a) is cumulative earnings excluding Payment
Credits, calculated by determining the
Accumulated Value as of the Effective Valuation
Date reduced by total gross payments and
Payment Credits not previously withdrawn; and
(b) is a percent (see Specifications page) of the
Gross Payment Base as of the Effective
Valuation Date, reduced by any prior Withdrawal
Without Surrender Charge made in the same
calendar year.
The Withdrawal Without Surrender Charge will first
be deducted from cumulative earnings even if it is
based upon (b) above. To the extent that it exceeds
cumulative earnings, the excess will be considered
withdrawn on a last-in, first-out basis from
Payments not previously withdrawn. Amounts
withdrawn from a Guarantee Period Account prior to
the end of the applicable Guarantee Period will be
subject to a Market Value Adjustment.
Life Expectancy For Qualified Contracts and contracts funding
Distribution Benefit employer-sponsored Internal Revenue Code section
457 plans, in each calendar year, the amount of the
Life Expectancy Distribution ("LED") benefit
available under the Company's then current LED
rules that exceeds the Withdrawal Without Surrender
Charge amount may also be withdrawn without charge.
Each calendar year the LED benefit available is
reduced by any prior Withdrawal Without Surrender
Charge in the same year. LED benefits are based on
the life expectancy of the Owner or the joint life
expectancies of the Owner and the Beneficiary.
Withdrawal With Any amounts withdrawn or surrendered in excess of
Surrender Charge the Withdrawal Without Surrender Charge amount or
Life Expectancy Distribution benefit, if
applicable, may be subject to a surrender charge.
These amounts will be taken on a first-in, first-out
basis from Payments not previously considered
withdrawn. The Company will compute applicable
charges using the Surrender Charge Table (see
Specifications page).
FORM A3028-99 15
<PAGE>
Waiver of Surrender The surrender charge will be waived if an Owner, or
Charge the Annuitant if the Owner is a non-natural person,
is:
(a) admitted to a "medical care facility" after
being named Owner or Annuitant and remains
confined there until the later of one year
after the issue date or 90 consecutive days;
(b) first diagnosed by a licensed "physician" as
having a "fatal illness" after the issue date
and after being named Owner or Annuitant; or
(c) "physically disabled" after the issue date
and after being named Owner or Annuitant and
before attaining age 65. The Company may
require proof of continuing disability, and
reserves the right to obtain an examination by
a licensed "physician" of its choice and at
its expense.
"Medical care facility" means any State licensed
facility providing medically necessary inpatient
care which is prescribed by a licensed "physician"
in writing and based on physical limitations which
prohibit daily living in a non-institutional
setting. "Fatal illness" means a condition
diagnosed by a licensed "physician" which is
expected to result in death within two years of the
diagnosis. "Physician" means a person other than
the Owner, the Annuitant or a member of one of their
families who is State licensed to give medical care
or treatment and is acting within the scope of that
license. "Physically disabled" means the Owner or
Annuitant has been unable to engage in an occupation
or to conduct daily activities for a period of at
least 12 consecutive months as a result of disease
or bodily injury.
No additional Payments are permitted after this
provision becomes effective.
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, withdrawals or surrenders from
a Guarantee Period Account. Amounts in a Guarantee
Period Account that are 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:
n/365
(1+i)
-----
(1+j)- 1
where:
i - is the Guaranteed Interest Rate expressed
as a decimal (for example: 3% = 0.03) being
credited to the current Guarantee Period;
FORM A3028-99 16
<PAGE>
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 an amount based on the
Guarantee Period Account Minimum Interest Rate (see
Specifications page).
DEATH BENEFIT
At the death of an Owner prior to the Annuity Date,
the Company will pay to the Beneficiary a Death
Benefit upon receipt at the Principal Office of
proof of death. If the Owner is a non-natural
person, prior to the Annuity Date, a Death Benefit
is paid on the death of an Annuitant upon receipt at
the Principal Office of proof of death.
Death Benefit The Death Benefit will be the greater of:
(a) the Accumulated Value on the Effective
Valuation Date, increased by any positive
Market Value Adjustment; or
(b) the sum of the gross payments made under this
contract prior to the date of death,
proportionately reduced to reflect all partial
withdrawals.
For each withdrawal, the proportionate
reduction is calculated by multiplying the
Death Benefit under the (b) option, immediately
prior to the withdrawal, by the following:
Amount of the withdrawal
------------------------
Accumulated Value immediately
prior to the withdrawal
FORM A3028-99 17
<PAGE>
Payment of the Death Unless the Owner has specified otherwise, the Death
Benefit Benefit will be paid to the Beneficiary within 7
days of the Effective Valuation Date.
Alternatively, the Beneficiary may, by a Request in
writing, 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 distributions over his/her life
expectancy (or over a period not extending
beyond such life expectancy). Distributions
must begin within one year from the date of
death.
If distribution of the Death Benefit is deferred
under (a) or (b), any value in the Guarantee Period
Accounts will be transferred to the [money market
Sub-Account]. The excess, if any, of the Death
Benefit over the Accumulated Value will also be
transferred to the [money market Sub-Account.] The
Beneficiary may, by 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 Request in writing,
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
transferred 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.
FORM A3028-99 18
<PAGE>
THE PAYOUT PHASE
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 annuity benefit payments
will be made under the Fixed Life Annuity with Cash
Back option.
The Owner may also elect to have the Death Benefit
applied under any Annuity Option not extending
beyond the Beneficiary's life expectancy. Such an
election may not be altered by the Beneficiary.
Fixed annuity options are funded through the General
Account. Variable annuity options may be funded
through one or more of the Sub-Accounts. Not all
Sub-Accounts may be made available.
Selection of Annuity The Owner must select an Annuity Benefit Payment
Benefit Payments Option (see page 24 for a list of such options).
Annuity benefit payments will be paid monthly or at
any other frequency currently offered by the
Company. If the first payment would be less than
the Minimum Annuity Benefit Payment (see
Specifications page), a single payment will be made
instead. If a life annuity option has been
elected, satisfactory proof of the date of birth of
the Annuitant must be received at the Principal
Office before any payment is made. Also, if a life
annuity option has been elected, the Company may
require from time to time satisfactory proof that
the Annuitant is alive.
Annuity Benefit In the case of a variable annuity option, the Owner
Payment Change Frequency must select an Annuity Benefit Payment Change
Frequency. This is the frequency of change in the
dollar value of the variable annuity benefit
payments. For example, if an annual Annuity
Benefit Payment Change Frequency is chosen, the
dollar value of variable annuity benefit payments
will remain constant within each one-year period.
The Owner must also select the date of the first
change.
Assumed Investment In the case of a variable annuity option, the Owner
Return must select an Assumed Investment Return ("AIR").
This rate is used to determine the initial variable
annuity benefit payment and how the payment will
change over time in response to the performance of
the selected Sub-Accounts. If the actual
performance of the selected Sub-Account (as
measured by the Net Investment Factor) is equal to
the AIR, the annuity benefit payment attributable
to that Sub-Account will be constant. If the
actual performance is greater than the AIR, the
annuity benefit payment will increase. If the
actual performance is less than the AIR, the
annuity benefit payment will decrease.
Reversal of Decision The Owner may reverse the decision to annuitize by
To Annuitize a Request in writing within 90 days after the
Annuity Date. Upon receipt of such notice, the
Company will place the contract back to the
Accumulation Phase subject to the following:
FORM A3028-99 19
<PAGE>
(a) The funds applied under a variable annuity
option during this period will be treated as if
they had been invested in the Accumulation
Phase of the contract, with the same
allocations that were in effect since the
Annuity Date.
(b) The funds applied under a fixed annuity
option during this period will be treated as if
they had been invested in the Accumulation
Phase of the contract in the Fixed Account,
since the Annuity Date.
(c) Any annuity benefit payment paid or
withdrawal taken during this period will
treated as a withdrawal of the Surrender Value
as of the date of the payment or withdrawal.
Fixed annuity benefit payments will be treated
as withdrawals from the Fixed Account. Variable
annuity benefit payments will be treated as
withdrawals from the variable Sub-Accounts.
Surrender charges may apply to these
withdrawals.
(d) If the Company learns of the Owner's
decision to reverse after the Maximum
Alternative Annuity Date (see Specifications
page) the Owner must immediately select another
Annuity Benefit Payment Option.
Annuity Value The Annuity Value will be the Accumulated Value,
after application of any applicable Market Value
Adjustment less any applicable premium tax. For a
Death Benefit annuity, the Annuity Value will be the
amount of the Death Benefit, less any applicable
premium tax. 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.
The amount of the first annuity benefit payment
under all available options except period certain
options will depend on the age and/or sex of the
Annuitant on the Annuity Date and the Annuity Value
applied. Period certain options are based only on
the duration of payments and the Annuity Value.
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
Investment Return; 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 Survivor Option, after the first
death, the number of units in each payment is equal
to the total number of units multiplied by the
Survivor Annuity Benefit Percentage.
FORM A3028-99 20
<PAGE>
Variable annuity benefit payments will increase or
decrease with the value of the Annuity Units as of
the date of the first payment of each Annuity
Benefit Payment Change Frequency. 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 For each Sub-Account 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, a withdrawal or a transfer is made.
Payment of Annuity Annuity benefit payments are paid to the Owner. By
Benefit Payments request in writing, the Owner may direct that
payments are made to another person, persons or
entity. If an Owner, who is not also an Annuitant,
dies on or after the Annuity Date, the following
occurs:
(a) If the deceased Owner was the sole Owner,
then the remaining annuity benefit payments
will be payable to the Beneficiary in
accordance with the terms of the Annuity Option
selected. Upon the death of a sole Owner, the
Beneficiary becomes the Owner of the contract.
(b) If the contract has joint Owners, then the
remaining annuity benefit payments will be
payable to the surviving joint Owner in
accordance with the terms of the Annuity Option
selected. Upon the death of the surviving
joint Owner, the Beneficiary becomes the Owner
of the contract.
TRANSFER
After the Annuity Date and prior to the death of the
Annuitant, the Owner may transfer among Sub-Accounts
by Request to the Principal Office.
Transfers may increase or decrease the number of
Annuity Units in each subsequent payment.
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
After the Annuity Date and prior to the death of the
Annuitant, the Owner may have the right, based on
the Annuity Option selected, to make withdrawals.
If the Death Benefit is applied under an Annuity
Option the Beneficiary may also make withdrawals in
accordance with this provision.
FORM A3028-99 21
<PAGE>
Amounts withdrawn that were applied under a variable
Annuity Option will be paid within 7 days of the
date a Request is received. The Company reserves
the right to delay payments subject to applicable
laws, rules and regulations governing variable
annuities.
Amounts withdrawn that were applied under a fixed
Annuity Option will normally be paid within 7 days
of the date a Request is received. The Company may
defer payment for up to six months from the date a
Request is received. 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.
Only one Request for withdrawal under each of the
following provisions may be made each calendar year.
Payment Withdrawal Each calendar year, the Owner can request a
Amount Option withdrawal up to an amount equal to the Payment
Withdrawal Amount (see Specifications page)
multiplied by the previous annuity benefit payment.
For fixed Annuity Options, each withdrawal
proportionately reduces the dollar amount of each
future annuity benefit payment. The proportionate
reduction is calculated by multiplying the dollar
amount of each future annuity benefit payment by the
following:
Amount of the withdrawal
------------------------
Present Value of all remaining
fixed annuity benefit payments
immediately prior to the withdrawal.
For variable Annuity Options, each withdrawal
proportionately reduces the number of Annuity Units
in each future annuity benefit payment. The
proportionate reduction is calculated by multiplying
the number of Annuity Units in each future annuity
benefit payment by the following:
Amount of the withdrawal
------------------------
Present Value of all remaining
variable annuity benefit payments
immediately prior to the withdrawal.
Present Value Over the life of the contract, for period certain,
Withdrawal Option life with period certain and cash back Annuity
Options when there are remaining guaranteed
payments, the Owner may request withdrawals which
represent a percentage of the Present Value of
those remaining guaranteed annuity benefit
payments. Each year a withdrawal is taken under
this provision, the Company records the percentage
withdrawn. Each withdrawal proportionately reduces
future annuity benefit payments. (See
proportionate reduction calculation below.) The
total percentage withdrawn over the life of the
contract cannot exceed the Present Value Withdrawal
Amount (see Specifications page).
FORM A3028-99 22
<PAGE>
For fixed Annuity Options, each withdrawal
proportionately reduces the dollar amount of each
future annuity benefit payment. The proportionate
reduction is calculated by multiplying the dollar
amount of each future annuity benefit payment by the
following:
Amount of the withdrawal
------------------------
Present Value of all remaining
fixed guaranteed annuity benefit payments
immediately prior to the withdrawal.
For variable Annuity Options, each withdrawal
proportionately reduces any remaining guaranteed
payments. The proportionate reduction is calculated
by multiplying the number of Annuity Units in each
future annuity benefit payment by the following:
Amount of the withdrawal
------------------------
Present Value of all remaining
variable guaranteed annuity benefit payments
immediately prior to the withdrawal.
If an Annuitant is still living after there are no
remaining guaranteed payments under a life with
period certain or life with cash back payout:
(a) for variable Annuity Options, the number of
Annuity Units will increase to the number of
Annuity Units payable prior to any withdrawals,
adjusted for transfers.
(b) for fixed Annuity Options, the dollar amount
of the annuity benefit payments will increase
to the amount payable prior to any withdrawals,
adjusted for transfers.
PRESENT VALUE OF ANNUITY BENEFIT PAYMENTS
For a variety of purposes, it is at times necessary
to determine the Present Value of either all future
annuity benefit payments or of future guaranteed
annuity benefit payments. Present Values are
calculated based on the Annuity 2000 Mortality
Table, male, female or unisex rates as appropriate,
and the interest rate or AIR used to determine the
annuity benefit payments increased by the following
adjustments:
Adjustment
<TABLE>
<S> <C>
Death of the Annuitant 0.00%
Withdrawals
5 or more years after the issue date 0.00%
Within 5 years of issue date:
15 or more years of annuity benefit payments being valued 1.00%
10-14 years of annuity benefit payments being valued 1.50%
Less than 10 years of annuity benefit payments being valued 2.00%
</TABLE>
DEATH OF THE ANNUITANT
Unless otherwise indicated by the Owner, upon the
death of the Annuitant, the Present Value of the
remaining guaranteed annuity benefit payments may be
paid to the Owner.
FORM A3028-99 23
<PAGE>
ANNUITY BENEFIT PAYMENT OPTIONS
PERIOD CERTAIN ANNUITY:
Periodic annuity benefit payments for a chosen
number of years. The number of years selected may
be from 5 to 30.
LIFE ANNUITY:
(a) Single Life - Periodic annuity benefit
payments during the Annuitant's life. The
annuity benefit payments do not continue after
the death of the Annuitant.
(b) Joint and Survivor - Periodic annuity benefit
payments during the joint lifetime of the joint
Annuitants. For variable options, after the
first death, the number of units in each
payment during the lifetime of the survivor is
equal to the total number of units multiplied
by the Survivor Annuity Benefit Percentage.
For fixed options, after the first death, the
dollar amount of each payment during the
lifetime of the survivor is equal to the dollar
value of each payment paid prior to such death
multiplied by the Survivor Annuity Benefit
Percentage.
ANNUITY BENEFIT PAYMENT GUARANTEE OPTIONS
If a life Annuity Option has been elected, the Owner
may also select one of the following guarantees:
PERIOD CERTAIN
Periodic guaranteed payments for a period of ten
years, or any other period currently made available
by the Company.
CASH BACK:
Upon notification of the Annuitant's death, any
excess of the Annuity Value applied over the total
amount of annuity benefit payments made will be paid
to the Owner or Beneficiary, whichever is
applicable.
ANNUITY OPTION RATES
The first variable annuity benefit payment will be
based on the Annuity Option Rates made available by
the Company on the rate basis available at the time
the Annuity Option is selected. The fixed annuity
benefit payments will be based on the greater of
the guaranteed Annuity Option Rates shown in the
tables on the following pages or the Company's
non-guaranteed current Annuity Option Rates
applicable to this class of contracts. The Company
guarantees that once an Annuity Option is selected,
the annuity benefit payments will not be affected
by changes in mortality and expense experience.
FORM A3028-99 24
<PAGE>
ANNUITY OPTION TABLES
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<CAPTION>
Age Life Annuity with Life Life Annuity
Nearest Payments Guaranteed Annuity with Cashback
Payment for 10 Years
Male Female Unisex Male Female Unisex Male Female Unisex
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 4.05 3.81 3.91 4.08 3.83 3.93 3.90 3.72 3.79
51 4.11 3.87 3.97 4.15 3.89 3.99 3.96 3.77 3.85
52 4.18 3.93 4.03 4.22 3.95 4.06 4.01 3.82 3.90
53 4.25 3.99 4.10 4.30 4.01 4.13 4.07 3.88 3.96
54 4.33 4.06 4.17 4.38 4.08 4.20 4.14 3.94 4.02
55 4.41 4.13 4.24 4.46 4.15 4.28 4.20 3.99 4.07
56 4.49 4.20 4.32 4.55 4.23 4.36 4.27 4.06 4.14
57 4.58 4.28 4.40 4.65 4.31 4.45 4.34 4.12 4.21
58 4.68 4.36 4.49 4.75 4.40 4.54 4.42 4.19 4.28
59 4.78 4.45 4.58 4.86 4.49 4.64 4.50 4.26 4.36
60 4.88 4.54 4.67 4.98 4.59 4.74 4.58 4.34 4.44
61 4.99 4.63 4.77 5.10 4.69 4.85 4.67 4.42 4.52
62 5.10 4.73 4.88 5.23 4.80 4.97 4.76 4.50 4.60
63 5.23 4.84 4.99 5.37 4.92 5.10 4.85 4.59 4.69
64 5.35 4.95 5.11 5.52 5.04 5.24 4.95 4.68 4.79
65 5.48 5.07 5.24 5.69 5.18 5.38 5.06 4.78 4.89
66 5.62 5.20 5.37 5.86 5.32 5.54 5.17 4.89 5.00
67 5.77 5.33 5.51 6.04 5.47 5.70 5.28 4.99 5.11
68 5.92 5.47 5.65 6.24 5.64 5.88 5.40 5.11 5.23
69 6.07 5.62 5.80 6.45 5.82 6.07 5.52 5.23 5.35
70 6.23 5.78 5.96 6.67 6.01 6.27 5.66 5.36 5.48
71 6.39 5.94 6.12 6.90 6.21 6.49 5.79 5.49 5.61
72 6.56 6.11 6.29 7.16 6.44 6.72 5.94 5.63 5.75
73 6.73 6.29 6.47 7.43 6.68 6.98 6.09 5.78 5.90
74 6.90 6.48 6.65 7.71 6.94 7.25 6.24 5.94 6.06
75 7.08 6.67 6.83 8.02 7.22 7.54 6.41 6.11 6.23
</TABLE>
These tables are based on an annual interest rate of 3%
and the Annuity 2000 Mortality Tables.
FORM A3028-99 25
<PAGE>
ANNUITY OPTION TABLES (CONTINUED)
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Joint and Survivor Life Annuity
Older Age
50 55 60 65 70 75 80
Y 50 3.53 3.61 3.68 3.73 3.76 3.79 3.80
O
U 55 3.77 3.88 3.97 4.04 4.08 4.11
N
G 60 4.10 4.25 4.36 4.45 4.50
E
R 65 4.55 4.74 4.90 5.01
70 5.16 5.43 5.64
A
G 75 6.02 6.41
E
80 7.25
Joint and Two-Thirds Survivor Life Annuity
Older Age
50 55 60 65 70 75 80
Y 50 3.80 3.93 4.09 4.25 4.43 4.61 4.80
O
U 55 4.11 4.29 4.49 4.70 4.91 5.13
N
G 60 4.53 4.77 5.02 5.29 5.55
E
R 65 5.09 5.42 5.75 6.07
A 70 5.88 6.31 6.75
G
E 75 6.99 7.59
80 8.58
These tables are based on an annual interest rate of 3%
and the Annuity 2000 Mortality Tables.
FORM A3028-99 26
<PAGE>
ANNUITY OPTION TABLES (CONTINUED)
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Number Variable or Certain Annuity
of Years for a Certain Period
5 17.91
10 9.61
15 6.87
20 5.51
25 4.71
30 4.18
These tables are based on an annual interest rate of 3%.
and the Annuity 2000 Mortality Tables.
FORM A3028-99 27
<PAGE>
GENERAL PROVISIONS
Entire Contract The entire contract consists of this contract, any
application attached at issue, riders,
Specifications pages and endorsements.
Misstatement of Age If the age or sex of an individual is misstated,
or Sex the Company will adjust all benefits payable to
that which would be available at the correct age or
sex. Any underpayments already made by the Company
will be paid immediately. Any overpayments will be
deducted from future annuity benefit payments.
Failure to Notify Company After the Annuity Date and once notified of the
of Annuitant Death Annuitant's death, the Company reserves the right
to recover any overpaid annuity benefit payments.
Modifications Only the President or Vice President 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 challenge the validity of this
contract after it has been in force for more than
two years from the issue date.
Change of Annuity Date The Owner may change the Annuity Date by Request at
any time after the issue date. The request must be
received at the Principal Office at least one month
before the new Annuity Date. To the extent
permitted by applicable laws, rules and regulations
governing variable annuities, the new Annuity Date
must be no later than the Maximum Alternative
Annuity Date shown on the Specifications page.
Minimums All values and benefits 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 The Company reserves the right, subject to
Substitution of compliance with applicable law, to add to, delete
Investments 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.
FORM A3028-99 28
<PAGE>
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 the 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 the Act in the event
registration is no longer required, or may be
combined with other accounts of the Company.
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 The Variable Account is not currently subject to
Considerations 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 The investment performance of Separate Account
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.
FORM A3028-99 29
<PAGE>
Flexible Payment Deferred Variable and Fixed Annuity
Annuity Benefit Payments Payable on the Annuity Date
Death Benefit Payable to Beneficiary if Owner Dies prior to Annuity Date
Non-Participating
FORM A3028-99 30
<PAGE>
Exhibit 4(b)
SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C>
Contract Type:[Non Qualified] Contract Number:[00000000000]
Issue Date:[04/01/1999] Annuity Date:[10/01/2025]
(Must be at least [2] years after issue date)
Owner:[John Doe] Owner Date of Birth:[10/25/1960]
Joint Owner:[Jack Doe] Joint Owner Date of Birth:[07/12/1960]
Annuitant:[Mary Doe] Annuitant Date of Birth:[03/19/1945]
Joint Annuitant:[Michael Doe] Joint Annuitant Date of Birth:[08/20/1954]
Annuitant Sex:[Female] Beneficiary(ies):
Joint Annuitant Sex:[Male] Primary:Surviving Joint Owner, if any
1st Contingent:[Michael Doe]
2nd Contingent:[Jack Doe]
Payment Credit Percentage: [No less than 5% of each payment under $x]
[No less than 5% of each payment
equal to or over $x]
Minimum Fixed Account Minimum Additional Payment
Guaranteed Interest Rate:[3%] Amount:[$100.00]
Guarantee Period Account Guarantee Period Account
Minimum Interest Rate:[3%] Minimum Allocation Amount:[$1,000.00]
Minimum Withdrawal Minimum Accumulated Value
Amount:[$100.00] After Withdrawal:[$1,000.00]
Minimum Annuity Maximum Alternative Annuity Date:[04/01/2045]
Benefit Payment:[$50.00] (Must be at least [2] years after the issue date)
Surrender Charge Table:
<CAPTION>
Years From Surrender Charge as a
Date of Payment Percent of the Payments
To Date of Withdrawal Withdrawn
<S> <C>
[Less than: 1 8 1/2%
2 8 1/2%
3 8 1/2%
4 8 1/2%
5 7 1/2%
6 6 1/2%
7 5 1/2%
8 3 1/2%
9 1 1/2%
Thereafter 0%"""""]
</TABLE>
Withdrawal Without Surrender Charge Percentage:"[15% of Gross Payment Base]
Mortality and Expense Risk Charge:"[1.25%] on an annual basis of the daily value
of the Sub-Account assets.
Administrative Charge:"[1.5%] 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. Waived for
401(k)s.]
Principal Office:"440 Lincoln St, Worcester, Massachusetts 01653. ({PROD PHONE})
FORM A8028-99 3 {JURISDICTION}({FORM PROD})
<PAGE>
SPECIFICATIONS (CONTINUED)
Owner:[John Doe] Contract Number:[00000000000]
Joint Owner:[Jack Doe]
Initial Payment:[$25,000.00]
Payment Allocation: (The Initial Payment is allocated in the following manner:)
VARIABLE SUB-ACCOUNTS:
[Select Emerging Markets 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.
Select Value Opp. Allmerica Money Market]
Select Growth
Select Strategic Gr.
Fidelity VIP Growth
FIXED ACCOUNT
FORM A8028-99 4
<PAGE>
SPECIFICATIONS (CONTINUED)
Owner:[John Doe] Contract Number:[00000000000]
Joint Owner:[Jack Doe]
GUARANTEE PERIOD ACCOUNTS
GUARANTEE INTEREST EXPIRATION
"PERIOD"RATE "DATE
["2 years
"3 years
"4 years
"5 years
"6 years
"7 years
"8 years
"9 years
10 years]
----
100% TOTAL
FORM A8028-99 5
<PAGE>
SPECIFICATIONS (CONTINUED)
Owner:[John Doe] Contract Number:[00000000000]
Joint Owner:[Jack Doe]
RIDER(S) SELECTED:
<TABLE>
<CAPTION>
<S> <C>
[Enhanced Death Benefit Rider:]
[EDB Effective Annual Yield [5%]]
[EDB Charge: [.25%] on an annual basis of the Accumulated Value
of the contract deducted Pro Rata on the last day of each contract
month]
[Minimum Guaranteed Annuity Payout Rider:]
[M-GAP Effective Date: 04/01/1999
M-GAP Waiting Period: [10] years
M-GAP Effective Annual Yield: [5%]
M-GAP Annual Rider Charge: [x%]]
[Guaranteed Principal Protection Rider:]
[GPP Effective Date: 04/01/1999
GPP Waiting Period: [10] years
GPP Principal Protection Rate: [100%]
GPP Annual Rider Charge: [x%]]
ACCOUNTS:
---------
[Select Emerging Markets 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.
Select Value Opp. Allmerica Money Market]
Select Growth
Select Strategic Gr.
Fidelity VIP Growth
</TABLE>
FORM A8028-99 6
<PAGE>
SPECIFICATIONS (SUPPLEMENT)
<TABLE>
<CAPTION>
<S> <C>
Contract Type:[Non Qualified] Contract Number:[0000000000]
Owner:[John Doe] Owner Date of Birth:[10/25/1960]
Joint Owner:[Jack Doe] Joint Owner Date of Birth:[07/12/1960]
Annuitant:[Mary Doe] Annuitant Date of Birth:[03/19/1945]
Joint Annuitant:[Michael Doe] Joint Annuitant Date of Birth:[08/20/1954]
Annuitant Sex:[Female] Beneficiary(ies):
Joint Annuitant Sex:[Male] Primary:Surviving Joint Owner, if any
1st Contingent:[Michael Doe]
2nd Contingent:[Jack Doe]
Payee: [John Doe]
Payee Address: [1 Main St, Anywhere, USA 00000]
Annuity Date: [07/06/1999]
Expiration of 90-Day Period: [10/06/1999]
Annuity Benefit Payment Option: [Joint with 2/3 Survivor Option]
Survivor Annuity Benefit Percentage: [66 2/3%]
Percentage under a Fixed Annuity Option: [30%]
Percentage under a Variable Annuity Option: [70%]
Assumed Investment Return: [4%]
Annuity Benefit Payment Change Frequency
: [Annual, beginning on 07/07/2000]
Annuity Benefit Frequency: [Monthly, Quarterly,
Semi-annual, Annual]
Variable Allocation on Annuity Date:
"SUB-ACCOUNTS
[Select Emerging Markets 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.
Select Value Opp. Allmerica Money Market]
Select Growth
Select Strategic Gr.
Fidelity VIP Growth
</TABLE>
FORM A8028-99 3A
<PAGE>
SPECIFICATIONS (SUPPLEMENT)
<TABLE>
<CAPTION>
<S> <C>
[Variable Annuitization Rider:]
"[Payment Rachet:
APR Maximum Benefit Increase Percentage: [x%]
"[Payment Floor:
MAF Amount: [$xxx]
Amount of First Monthly Annuity Benefit Payment: [$xxx]
[Without the rider, the first monthly annuity benefit payment would have been $xxx]
Payment Withdrawal Amount: [[x] times the previous annuity benefit payment but not
more than the remaining guaranteed annuity benefit
payments.]
Present Value Withdrawal Amount: [[x%] of Present Value of remaining guaranteed
annuity payments.]
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.
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653. ({PROD PHONE})
FORM A8028-99 4A
</TABLE>
<PAGE>
Exhibit 4(c)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ENHANCED DEATH BENEFIT "EDB" RIDER
OVERVIEW:
The EDB Rider ("Rider") is an optional rider the Owner has selected. It
provides an enhanced Death Benefit, which guarantees [5%] growth and provides a
ratchet.
APPLICABILITY:
The Rider is made a part of the contract to which it is attached and is
effective on the issue date.
BENEFIT:
The "Death Benefit" provision on [page XX] of the contract is replaced by the
following:
I. If an Owner, or an Annuitant if the Owner is a non-natural person, dies
before the Annuity Date and before his/her [90th birthday, the Death
Benefit will be the greatest of:
(a) the Accumulated Value on the Effective Valuation Date increased
for any positive Market Value Adjustment ("MVA");
(b) gross payments accumulated daily at the "EDB Effective Annual
Yield" shown on the Specifications page, starting on the
Effective Valuation Date of each gross payment and ending on the
date of death, proportionately reduced for subsequent
withdrawals; and
(c) the highest Accumulated Value on any contract anniversary prior
to the date of death, as determined after being increased for any
positive MVA and subsequent payments and proportionately reduced
for subsequent withdrawals.
II. If an Owner, or an Annuitant if the Owner is a non-natural person, dies
before the Annuity Date but after his/her [90th birthday, the death
benefit will be the greater of:
(a) the Accumulated Value on the Effective Valuation Date increased
for any positive MVA; or
(b) the Death Benefit, as calculated under Section I, that would have
been payable on the contract anniversary prior to the deceased's
[90th birthday, increased for subsequent payments and
proportionately reduced for subsequent withdrawals.
PROPORTIONATE REDUCTION:
Sections I(b), I(c) and II(b) refer to a proportionate reduction. This
proportionate reduction is calculated by multiplying the (b) or (c) value,
whichever is applicable, determined immediately prior to the withdrawal by the
following:
Amount of the withdrawal
------------------------
Accumulated Value determined immediately prior to the withdrawal
FORM 3263-99
<PAGE>
CHARGE FOR BENEFIT:
While this Rider is in effect, the Company will assess the EDB Charge (see the
Specifications page).
TERMINATION:
This Rider will terminate on the earliest of the following:
(a) the Annuity Date;
(b) when a Death Benefit is payable and the contract is not continued
under a spousal takeover; or
(c) surrender of the contract.
Signed for the Company at Dover, Delaware
FORM 3263-99
<PAGE>
Exhibit 4(d)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
MINIMUM GUARANTEED ANNUITY PAYOUT ("M-GAP") RIDER
OVERVIEW:
The M-GAP Rider ("Rider") is an optional rider the Owner has selected. It
guarantees a minimum Annuity Value provided the Owner elects to begin annuity
benefit payments in accordance with the provisions of the Rider.
DEFINITIONS:
"M-GAP Effective Date" - [xx/yy/zz]
The date on which the Rider is effective. If the Rider is selected (1) at
issue or within the 30-day period immediately thereafter, the "M-GAP
Effective Date" is the contract issue date. If the Rider is selected on
a contract anniversary or within the 30-day period immediately
thereafter, the "M-GAP Effective Date" is that contract anniversary. If
the Rider is selected at any other time, the "M-GAP Effective Date" is
the next contract anniversary following the date of selection of the
Rider.
"M-GAP Effective Annual Yield" - [5%]
"M-GAP Initial Payment Amount" - The Accumulated Value on the "M-GAP Effective
Date."
"M-GAP Waiting Period" - the [10] - year period which begins on the "M-GAP
Effective Date." The Rider can only be exercised after the expiration of the
"M-GAP Waiting Period" and during a "M-GAP Benefit Window."
"M-GAP Annual Rider Charge" - [.25%]
"M-GAP Benefit Window" - the 30-day periods during which the Rider can be
exercised. The "M-GAP Benefit Window" always begins on a contract anniversary.
The first "M-GAP Benefit Window" begins on the contract anniversary immediately
following the "M-GAP Waiting Period." Subsequent "M-GAP Benefit Windows" occur
on each contract anniversary thereafter.
APPLICABILITY:
This Rider is part of the contract to which it is attached and is effective on
the "M-GAP Effective Date." The Rider can be exercised only when the Owner
elects to begin annuity benefit payments under all of the following conditions:
(a) during an "M-GAP Benefit Window;"
(b) under a fixed annuity option involving a life contingency; and
(c) at the guaranteed annuity purchase rates specified under the
Annuity Option Tables in the contract.
(1)In order to be "selected," the Company must have received and recorded the
Owner's selection of the Rider.
FORM 3269-99
<PAGE>
BENEFIT:
When the Rider is exercised, the M-GAP Benefit Base, less any applicable premium
tax, is the Annuity Value. On each contract anniversary, commencing with the
"M-GAP Effective Date," the M-GAP Benefit Base is determined. The M-GAP Benefit
Base is equal to the greatest of the following:
(a) the Accumulated Value increased by any positive Market Value
Adjustment ("MVA"), if applicable;
(b) the sum of:
1) the "M-GAP Initial Payment Amount" accumulated daily at the
"M-GAP Effective Annual Yield" starting on the "M-GAP
Effective Date" and
2) gross payments to the contract after the "M-GAP Effective
Date" accumulated daily at the "M-GAP Effective Annual
Yield" starting on the Effective Valuation Date of each
gross payment,
Proportionately reduced to reflect withdrawals; and
(c) the highest Accumulated Value on any contract anniversary since
the "M-GAP Effective Date" as determined after being increased for any
positive MVA and proportionately reduced for subsequent withdrawals.
PROPORTIONATE REDUCTION:
Sections b(2) and (c) refer to a proportionate reduction. This proportionate
reduction is calculated by multiplying the (b) or (c) value, whichever is
applicable, determined immediately prior to the withdrawal by the following:
Amount of the withdrawal
------------------------
Accumulated Value determined immediately prior to the withdrawal
The M-GAP Benefit Base does not create an Accumulated Value. It is used solely
to determine the Annuity Value when the Rider is exercised.
REVERSAL OF DECISION TO ANNUITIZE:
If the Owner reverses the decision to annuitize, the excess of the M-GAP Benefit
Base over the Annuity Value without the Rider, if any, will not be credited to
the contract's Acccumulated Value.
CHARGE FOR BENEFITS:
From the "M-GAP Effective Date" until the date the Rider is terminated, the
Company will assess a monthly rider charge which will be deducted Pro Rata on
the last day of each contract month and on the date the Rider terminates. The
charge will be equal to the Accumulated Value on such date multiplied by
1/12 th of the "M-GAP Annual Rider Charge."
FORM 3269-99
<PAGE>
TERMINATION:
This Rider will terminate on the earliest of the following dates:
(a) the Annuity Date;
(b) when a Death Benefit is payable and the contract is not continued
under a spousal takeover;
(c) surrender of the contract; or
(d) receipt of the Owner's Written Request to terminate the Rider.
The Owner may terminate the Rider anytime after the end of the 7-year
period beginning on the "M-GAP Effective Date." The Rider may be
terminated prior to the end of such 7-year period only if such
termination occurs on a contract anniversary or within the 30-day period
immediately thereafter and in conjunction with the Owner's exercise of
the "Repurchase Option," described below.
REPURCHASE OPTION:
If an Owner terminates the Rider on a contract anniversary or within the 30-day
period immediately thereafter, the Owner may purchase another M-GAP Rider, at
its then current charge, only if on the date of termination:
1) an M-GAP Rider is still being offered by the Company and
2) the Owner purchases an M-GAP Rider, with an "M-GAP Waiting
Period" equal to or longer than the "M-GAP Waiting Period" for this
Rider.
For purposes of determining the "M-GAP Effective Date" of the new Rider, the
date of termination of this Rider will be considered to be the date of selection
of the new Rider.
Signed for the Company at Dover, Delaware
FORM 3269-99
<PAGE>
Exhibit 4(e)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ANNUITIZATION PAYMENT RATCHET ("APR") RIDER
OVERVIEW:
The "APR" Rider ("Rider") is an optional rider the Owner has selected. It
guarantees that variable annuity benefit payments within each Annuity Benefit
Payment Change Frequency will be equal to or exceed the "Current Rachet Amount."
DEFINITIONS:
"APR Maximum Benefit Increase Percentage" - [yy%]
"Current Rachet Amount" - The amount of the last monthly variable annuity
beneift payment in the previous Annuity Benefit Payment Change Frequency cycle.
For joint annuitization options, upon the death of the first Annuitant the
Current Rachet Amount is adjusted by multiplying it by the Survivor Annuity
Benefit Percentage.
APPLICABILITY:
This Rider is a part of the contract to which it is attached and it is effective
on the Annuity Date.
BENEFIT:
While this Rider is in effect, the following is guaranteed:
The first monthly variable annuity benefit payment will not be less than
its Annuity Unit Value on the Annuity Date.
Subsequent monthly variable annuity benefit payments will never be less
than the "Current Ratchet Amount," proportionately reduced for any
subsequent withdrawals from the variable Sub-Accounts after the Annuity
Date.
The first annuity benefit payment of any Annuity Benefit Payment Change
Frequency cycle will never exceed the last payment of the previous cycle by an
amount greater than such last payment multiplied by the "APR Maximum Benefit
Increase Percentage."
PROPORTIONATE REDUCTION:
The proportionate reduction is calculated by multiplying the "Current Rachet
Amount," determined immediately prior to the withdrawal, by the following:
Amount of the withdrawal
------------------------
The Present Value of future annuity benefit payments
immediately prior to the withdrawal
CHARGE FOR BENEFITS:
There is no periodic charge for the Rider. Instead, lower Annuity Option Rates
are used to determine the first annuity benefit payment. The first annuity
benefit payment is lower than it would have been had the Rider not been
selected. Future annuity benefit payments will also be lower except when the
"Current Rachet Amount" takes effect and provides a greater benefit. (See
Specifications page.)
FORM 3270-99
<PAGE>
TERMINATION:
This Rider will terminate upon the payment of the last annuity benefit payment.
Signed for the Company at Dover, Delaware
FORM 3270-99
<PAGE>
Exhibit 4(f)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ENDORSEMENT
This endorsement applies to the following class of individuals when the Owner,
Joint Owner (if applicable), Annuitant and Joint Annuitant (if applicable) are
all within the group set forth below:
[Any employee of the Company located at its Principal Office or at off-site
locations if such employees are on the Company's Principal Office payroll;
any director of the Company; any retiree who elects to retire on his/her
retirement date; the immediate family members of those persons identified
above residing in the same household; and any beneficiary who receives a
death benefit under a deceased employee's or retiree's progess sharing
plan.
For purposes of the above class of individuals, "the Company" includes
affiliates and subsidiaries; "immediate family members" means children,
siblings, parents and grandparents; "retirement date" means an employee's
early, normal or late retirement date as defined in the Company's Pension
Plan or any successor plan; and "progress sharing" means the First
Allmerica Financial Life Insurance Company Employee's Incentive and Pofit
Sharing Plan or any successor plan.]
Eligibility for the class is based upon the Owner's, Joint Owner's (if
applicable), Annuitant's and Joint Annuitant's (if applicable) status on the
Issue Date.
This contract is amended as of its Issue Date as follows:
1. The Payment Credit Percentage on page [3] of the contract is replaced by
[5%.]
2. The first paragraph of the "Payment Credits" provision on page [14] of
the contract is replaced by the following:
"Each time the Owner makes a Payment to the contract, the Company will
credit an amount equal to or greater than the product of such Payment
and (1% plus the Payment Credit Percentage). This amount will be
credited to the contract's Accumulated Value. Each Payment Credit will
be allocated in the same manner as its corresponding Payment."
3. The second paragraph of the "Value of the Fixed Account" on page [15] of
the contract is replaced by the following:
"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.
In addition, on each contract anniversary, an amount equal to 1.0% of
the contract's Accumulated Value, net of any contract loan, if
applicable, will be credited to the Fixed Account.
Signed for the Company by:
FORM 3275-99{FORM PROD}
<PAGE>
Exhibit 4(g)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ENDORSEMENT
This endorsement applies to the following class of individuals when the Owner,
Joint Owner (if applicable), Annuitant and Joint Annuitant (if applicable) are
all within the group set forth below:
[Employees and registered representatives of any broker/dealer who have
entered into a Sales Agreement with the Company to sell the Allmerica
Select Resource variable annuity.
Spouses and children or other legal dependents of the above-referenced
persons under the age of 21.]
Eligibility for the class is based upon the Owner's, Joint Owner's (if
applicable), Annuitant's and Joint Annuitant's (if applicable) status on the
Issue Date.
This contract is amended as of its Issue Date as follows:
1. The Payment Credit Percentage on page [3] of the contract is replaced by
[5%.]
2. The first paragraph of the "Payment Credits" provision on page [14] of
the contract is replaced by the following:
"Each time the Owner makes a Payment to the contract, the Company will
credit an amount equal to or greater than the product of such Payment
and (1% plus the Payment Credit Percentage). This amount will be
credited to the contract's Accumulated Value. Each Payment Credit will
be allocated in the same manner as its corresponding Payment."
3. The second paragraph of the "Value of the Fixed Account" on page [15] of
the contract is replaced by the following:
"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.
In addition, on each contract anniversary, an amount equal to 1.0% of
the contract's Accumulated Value, net of any contract loan, if
applicable, will be credited to the Fixed Account.
Signed for the Company by:
FORM 3275-99{FORM PROD}
<PAGE>
Exhibit 4(h)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ENDORSEMENT
This endorsement applies to the following:
- Qualified contracts, excluding contracts meeting the requirements
of Internal Revenue Code ("Code") Section 408A (Roth IRAs),
before and after the death of the Owner.
- contracts funding employer-sponsored Code Section 457 plans,
before and after the death of the Owner.
- contracts meeting the requirements of Code Section 408A (Roth
IRAs), after the death of the Owner.
- contracts that are not Qualified and contracts that do not fund
employer-sponsored Code Section 457 plans, where the Beneficiary
has chosen a commutable Annuity Benefit Payment Option.
This contract is amended as of the Issue Date as follows:
- - In the Specifications page of the contract, on page 4a, "Payment Withdrawal
Amount" and "Present Value Withdrawal Amount" are deleted.
- - In the "Payout Phase" of the contract, the "Withdrawal" section, beginning
on page 21, is deleted.
- - In the "Present Value of Annuity Benefit Payments" section of the contract,
on page 23, the "Withdrawals" section is deleted.
- - Any other reference to withdrawals during the Payout Phase in the contract
or any other endorsement or rider does not apply.
Signed for the Company by:
FORM 3276-99
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ALLMERICA SELECT ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
A HIGHER STANDARD 440 LINCOLN STREET, WORCESTER, MA 01653
VARIABLE ANNUITY APPLICATION [ALLMERICA SELECT REWARD]
- --------------------------------------------------------------------------------------------------------------
1 MY INVESTMENT HOW MUCH I WANT TO INVEST.
- --------------------------------------------------------------------------------------------------------------
I am investing $________________ in Allmerica Select Reward.
(Minimum $1,000. 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
/ / 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 Account
_____ % Select Growth
_____ % Select Strategic Gr.
_____ % Fidelity VIP Growth
Guarantee Period Accounts (GPA) ($1,000 minimum per Account)
GPAS ARE NOT AVAILABLE IN MARYLAND, OREGON, OR PENNSYLVANIA.
____ % 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-Annually / /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 / /3 Mos. / /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
- --------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------
OWNER'S First Name Middle Last
- ---------------------------------------------------------------------
Street Address
- ---------------------------------------------------------------------
City State Zip
- ---------------------------------------------------------------------
Owner's Social Security Number Date of Birth/Trust Sex
- ---------------------------------------------------------------------
Daytime Phone Number
- ---------------------------------------------------------------------
JOINT OWNER'S First Name Middle Last
- ---------------------------------------------------------------------
Joint Owner's Social Security Number Date of Birth Sex
- --------------------------------------------------------------------------------------------------------------
6 THE ANNUITANT PLEASE PRINT CLEARLY
- --------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------
Annuitant's First Name Middle Last
- - - / / M F
- ---------------------------------------------------------------------
Annuitant's Social Security Number Date of Birth Sex
- ---------------------------------------------------------------------
JOINT ANNUITANT'S First Name Middle Last
- - - / / M F
- ---------------------------------------------------------------------
Joint Annuitant's Social Security Number Date of Birth Sex
- --------------------------------------------------------------------------------------------------------------
7 BENEFICIARY PLEASE PRINT CLEARLY
- --------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------
If there are Joint Owners, the survivor is always Primary Beneficiary.
- ---------------------------------------------------------------------
Name of Primary Beneficiary Relationship to Owner
- ---------------------------------------------------------------------
Name of Contingent Beneficiary Relationship to Owner
- --------------------------------------------------------------------------------------------------------------
8 OPTIONAL RIDERS
- --------------------------------------------------------------------------------------------------------------
I elect: / /Enhanced Death Benefit - Option _____________________
/ /Guaranteed Principal Protection / /10 Yr. / /15 Yr.
/ /Minimum Guaranteed Annuity Payout / / 10 Yr. / / 15 Yr.
- --------------------------------------------------------------------------------------------------------------
9 REPLACEMENT
- --------------------------------------------------------------------------------------------------------------
Will the proposed contract replace any existing annuity or life insurance
policy? / /Yes / /No
(If yes, list company name and policy number.)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
AS-563
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------------------------
10 TYPE OF ACCOUNT TO BE ISSUED
- --------------------------------------------------------------------------------------------------------------
(CHECK ONLY ONE.)
/ /Non-Qualified / / Non-Qualified Deferred Comp.
/ /Regular IRA / / Roth IRA / / SEP-IRA*
/ /Pension/Profit Sharing (401(a))*
/ /Profit Sharing (401(k))*
/ /Tax-Sheltered Annuity Plan (Section 403(b))*
/ /Deferred Compensation Plan (Section 457)*
*Attach required additional forms. Existing Case # ______________
- --------------------------------------------------------------------------------------------------------------
11 TELEPHONE AUTHORIZATION
- --------------------------------------------------------------------------------------------------------------
You will automatically be able to transfer account values, change the allocation
of future investments and obtain account values by telephone unless you check
the box below.
/ /I DO NOT accept this Telephone authorization.
(Please see additional information in Section 13 below.)
- --------------------------------------------------------------------------------------------------------------
12 REMARKS
- --------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
NOTICE TO ARKANSAS/NEW JERSEY/OHIO RESIDENTS ONLY: "Any person who includes any
false or misleading information on an application for an insurance
policy/certificate is subject to criminal and civil penalties."
NOTICE TO COLORADO/KENTUCKY/MAINE/NEW MEXICO/PENNSYLVANIA RESIDENTS ONLY: "Any person
who knowingly and with intent to defraud any insurance company or other person files
an application for insurance or statement of claim containing any materially
false information or conceals for the purpose of misleading, information
concerning any fact material thereto commits a fraudulent insurance act, which
is a crime and subjects such person to criminal and civil penalties."
NOTICE TO FLORIDA RESIDENTS ONLY: "Any person who knowingly and with intent to injure,
defraud, or deceive any insurer files a statement of claim or an application
containing a false, incomplete, or misleading information is guilty of a felony
of the third degree."
- -----------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
13 SIGNATURES
I/We represent to the best of my/our knowledge and belief that the statements
made in this application are true and complete. I/We agree to all terms and
conditions as shown on the front and back. It is indicated and agreed that the
only statements which are to be construed as the basis of the contract are those
contained in this application. I/We acknowledge receipt of a current prospectus
describing the contract applied for. 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 (WHERE GPAS ARE AVAILABLE) ARE SUBJECT TO A MARKET VALUE ADJUSTMENT
FORMULA, THE OPERATION OF WHICH MAY RESULT IN EITHER AN UPWARD OR DOWNWARD
ADJUSTMENT.
If I/we accepted the Telephone Authorization privilege in Section 11
above, I/we understand that Allmerica Financial Life Insurance and Annuity
Company is authorized to honor telephone requests by any person who can furnish
proper identification to transfer account values among Allmerica Select
investment options, change the allocation of my future investments and obtain
account values. Neither the Company nor its affiliates and their collective
directors, officers, employees and agents will be responsible for any claim
arising from such action if the Company acted on instructions in good faith in
reliance on this authorization.
/ /Please send me a Statement of Additional Information (SAI).
- --------------------------------------------------------------------------------------------------------------
Signature of Owner Signed at (City and State) Date
- --------------------------------------------------------------------------------------------------------------
Signature of Joint Owner Signed at (City and State) Date
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
14 FOR REGISTERED REP USE ONLY
- --------------------------------------------------------------------------------------------------------------
DOES THE CONTRACT APPLIED FOR REPLACE AN EXISTING ANNUITY OR LIFE INSURANCE
POLICY(IES)? / /YES / / NO If yes, attach replacement forms as required. As Registered
Representative, I certify witnessing the signature of the applicant(s) 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 contract 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.
- --------------------------------------------------------------------------------------------------------------
Signature of Registered Representative Print Name of Registered Representative Telephone
- --------------------------------------------------------------------------------------------------------------
TR Code Social Security # Registered Rep # E-Mail Address
- --------------------------------------------------------------------------------------------------------------
Name of Broker/Dealer Branch #
- --------------------------------------------------------------------------------------------------------------
Branch Office Street Address for Contract Delivery City State Zip
ALLMERICA SELECT o ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 LINCOLN STREET o WORCESTER, MA 01653
</TABLE>
AS-563
<PAGE>
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint Richard M. Reilly,
John F. Kelly, Joseph W. MacDougall, Jr., and Sheila B. St. Hilaire, and each of
them singly, our true and lawful attorneys, with full power to them and each of
them, to sign for us, and in our names and in any and all capacities, any and
all amendments, including post-effective amendments, to the Registration
Statements on Form N-4 of Separate Account VA-K, Separate Account VA-P,
Allmerica Select Separate Account, Separate Account KG, Separate Account KGC and
Fulcrum Separate Account of Allmerica Financial Life Insurance and Annuity
Company, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys and each of them, acting alone, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
the premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue hereof. Witness our hands on
the date set forth below.
Signature Title Date
- --------- ----- ----
/s/ John F. O'Brien Director and Chairman of the Board 4/1/99
- ------------------------------ ------
John F. O'Brien
/s/ Bruce C. Anderson Director 4/1/99
- ------------------------------ ------
Bruce C. Anderson
/s/ Robert E. Bruce Director and Chief Information 4/1/99
- ------------------------------ Officer ------
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President and 4/1/99
- ------------------------------ Chief Investment Officer ------
John P. Kavanaugh
/s/ John F. Kelly Director, Vice President and 4/1/99
- ------------------------------ General Counsel ------
John F. Kelly
/s/ J. Barry May Director 4/1/99
- ------------------------------ ------
J. Barry May
/s/ James R. McAuliffe Director 4/1/99
- ------------------------------ ------
James R. McAuliffe
/s/ Edward J. Parry, III Director, Vice President, Chief 4/1/99
- ------------------------------ Financial Officer and Treasurer ------
Edward J. Parry, III
/s/ Richard M. Reilly Director, President and 4/1/99
- ------------------------------ Chief Executive Officer ------
Richard M. Reilly
/s/ Robert P. Restrepo, Jr. Director 4/1/99
- ------------------------------ ------
Robert P. Restrepo, Jr.
/s/ Eric A. Simonsen Director and Vice President 4/1/99
- ------------------------------ ------
Eric A. Simonsen
/s/ Phillip E. Soule Director 4/1/99
- ------------------------------ ------
Phillip E. Soule
<PAGE>
April 30, 1999
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
Gentlemen:
In my capacity as Assistant Vice President and Counsel of Allmerica Financial
Life Insurance and Annuity Company (the "Company"), I have participated in
the preparation of the initial 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 Post-Effective Amendment to 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 initial
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/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Assistant Vice President and Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this initial Registration Statement of Allmerica Select
Separate Account of Allmerica Financial Life Insurance and Annuity Company on
Form N-4 of our report dated February 2, 1999, except for paragraph 2 of Note
12, which is as of March 19, 1999, relating to the financial statements of
Allmerica Financial Life Insurance and Annuity Company, and our report dated
March 26, 1999, 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
May 7, 1999