<PAGE>
File Nos. 33-47216
811-6632
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 21
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 32
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)
Mary Eldridge, Secretary
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
----
X on May 1, 2000 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 has registered that an indefinite amount of its securities is
being registered under the Securities Act of 1933 ("1933 Act"). The Rule 24f-2
Notice for the issuer's fiscal year ended December 31, 1999 will be filed on or
before March 30, 2000.
<PAGE>
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, the Trust, Fidelity VIP,
and T. Rowe Price
6.............................Charges and Deductions
7.............................Description of the Contract
8.............................Electing the Form of Annuity and the Annuity Date; Description of Variable
Annuity Payout Options; Annuity Benefit Payments
9.............................Death Benefit
10............................Payments; Computation of Values; Distribution
11............................Surrender; Withdrawals; Charge for Surrender and Withdrawal; Withdrawal
Without Surrender Charge; Texas Optional Retirement Program
12............................Federal Tax Considerations
13............................Legal Matters
14............................Statement of Additional Information - Table of Contents
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
15............................Cover Page
16............................Table of Contents
17............................General Information and History
18............................Services
19............................Underwriters
21............................Performance Information
22............................Annuity Benefit Payments
23............................Financial Statements
</TABLE>
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
(ALLMERICA SELECT RESOURCE I and II)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
SUPPLEMENT TO PROSPECTUS DATED MAY 1, 2000
* * *
An Application for an Order of Exemption has been filed with the Securities and
Exchange Commission on behalf of Allmerica Financial Life Insurance and Annuity
Company, First Allmerica Financial Life Insurance Company, Allmerica Select
Separate Account, and Allmerica Investments, Inc. (collectively referred to
herein as the "Applicants"), to permit the Applicants to deduct a charge for
an optional benefit rider in the manner set out in "WHAT CHARGES WILL I INCUR
UNDER MY CONTRACT?" under the SUMMARY OF CONTRACT FEATURES, and "C. Optional
Minimum Guaranteed Annuity Payout Rider Charge" under the CHARGES AND
DEDUCTIONS sections of the prospectus. The language contained in the prospectus
describing the charge for the optional benefit rider will apply once the
Application for an Order of Exemption has been granted.
While the Application for an Order of Exemption is pending, the fifth paragraph
of "WHAT CHARGES WILL I INCUR UNDER MY CONTRACT" and the first two paragraphs
of "C. Optional Minimum Guaranteed Annuity Payout Rider Charge" are hereby
replaced by the following:
Subject to state availability, the Company offers an optional Minimum
Guaranteed Annuity Payout Rider that may be elected by the Owner. A separate
monthly charge is made for the Rider. On the last day of each month a charge
equal to 1/12th of the applicable annual rate (see table below) is made against
the Accumulated Value of the Contract at that time. The charge is made through
a pro-rata reduction of the Accumulated Value of the Sub-Accounts, the Fixed
Account and the Guarantee Period Accounts (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).
The applicable charge is assessed on the Accumulated Value on the last day of
each month, multiplied by 1/12th of the following annual percentage rates:
* * *
SUPPLEMENT DATED MAY 1, 2000
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WORCESTER, MASSACHUSETTS
This Prospectus provides important information about the Allmerica Select
Resource II variable annuity contracts issued by Allmerica Financial Life
Insurance and Annuity Company (in all jurisdictions except Hawaii and New York)
and First Allmerica Financial Life Insurance Company in New York and Hawaii. The
contract is a flexible payment tax-deferred combination variable and fixed
annuity offered on both a group and individual basis. PLEASE READ THIS
PROSPECTUS CAREFULLY BEFORE INVESTING AND KEEP IT FOR FUTURE REFERENCE.
ANNUITIES INVOLVE RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This Prospectus also includes important information about the Allmerica Select
Resource I contract which is no longer being sold. See Appendix F.
A Statement of Additional Information dated May 1, 2000 containing more
information about this annuity 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 Variable Account, known as the Allmerica Select Separate Account is
subdivided into Sub-Accounts. Each Sub-Account offered as an investment option
under this contract invests exclusively in shares of one of the following funds:
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER
- ---- ------------------
<S> <C>
Select Emerging Markets Fund Schroder Investment Management North America Inc.
Select International Equity Fund Bank of Ireland Asset Management (U.S.) Limited
T. Rowe Price International Stock Portfolio Rowe Price-Fleming International, Inc.
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 TCW Investment Management Company
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>
*On or about July 1, 2000, subject to regulatory approval, shares of the Select
Investment Grade Income Fund will be substituted for shares of the Select Income
Fund. As of the substitution date, shares of the Select Investment Grade Income
Fund will be available and shares of the Select Income Fund will no longer be
offered.
The Fixed Account, which is part of the Company's General Account, is an
investment option that pays an interest rate guaranteed for one year from the
time a payment is received. Another investment option, the Guarantee Period
Accounts, offers fixed rates of interest for specified periods ranging from 3 to
10 years. A Market Value Adjustment is applied to payments removed from a
Guarantee Period Account before the end of the specified period. The Market
Value Adjustment may be positive or negative. Payments allocated to a Guarantee
Period Account are held in the Company's Separate Account GPA (except in
California where they are allocated to the General Account).
THIS ANNUITY IS NOT A BANK DEPOSIT OR OBLIGATION; FEDERALLY INSURED; OR ENDORSED
BY ANY BANK OR GOVERNMENTAL AGENCY.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
DATED MAY 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS............................................... 4
SUMMARY OF FEES AND EXPENSES................................ 6
SUMMARY OF CONTRACT FEATURES................................ 11
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS, THE
TRUST,
FIDELITY VIP AND T. ROWE PRICE............................. 18
INVESTMENT OBJECTIVES AND POLICIES.......................... 20
PERFORMANCE INFORMATION..................................... 22
DESCRIPTION OF THE CONTRACT................................. 24
A. Payments............................................. 24
B. Right to Cancel Individual Retirement Annuity........ 24
C. Right to Cancel All Other Contracts.................. 25
D. Transfer Privilege................................... 25
Asset Allocation Model Reallocations................ 26
Automatic Transfers and Automatic Account
Rebalancing Options................................. 26
E. Surrender............................................ 27
F. Withdrawals.......................................... 27
Systematic Withdrawals.............................. 28
Life Expectancy Distributions....................... 28
G. Death Benefit........................................ 29
Death of the Annuitant Prior to the Annuity Date.... 29
Death of an Owner Who is Not Also the Annuitant
Prior to the Annuity Date........................... 29
Payment of the Death Benefit Prior to the Annuity
Date................................................ 29
Death of the Annuitant On or After the Annuity
Date................................................ 30
H. The Spouse of the Owner as Beneficiary............... 30
I. Assignment........................................... 30
J. Electing the Form of Annuity and the Annuity Date.... 30
K. Description of Variable Annuity Payout Options....... 31
L. Annuity Benefit Payments............................. 32
Determination of the First Variable Annuity Benefit
Payment............................................. 32
The Annuity Unit.................................... 33
Determination of the Number of Annuity Units........ 33
Dollar Amount of Subsequent Variable Annuity Benefit
Payments............................................ 33
M. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider................................................... 34
N. NORRIS Decision...................................... 36
O. Computation of Values................................ 36
The Accumulation Unit............................... 36
Net Investment Factor............................... 36
CHARGES AND DEDUCTIONS...................................... 37
A. Variable Account Deductions.......................... 37
Mortality and Expense Risk Charge................... 37
Administrative Expense Charge....................... 37
Other Charges....................................... 37
B. Contract Fee......................................... 38
C. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider Charge............................................ 38
D. Premium Taxes........................................ 38
E. Surrender Charge..................................... 39
Charge for Surrender and Withdrawal................. 39
Reduction or Elimination of Surrender Charge and
Additional Amounts Credited......................... 40
Withdrawal Without Surrender Charge................. 41
Surrenders.......................................... 41
Charge at the Time Annuity Benefit Payments Begin... 41
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
F. Transfer Charge...................................... 42
GUARANTEE PERIOD ACCOUNTS................................... 43
FEDERAL TAX CONSIDERATIONS.................................. 45
A. General.............................................. 45
The Company......................................... 45
Diversification Requirements........................ 45
Investor Control.................................... 45
B. Qualified and Non-Qualified Contracts................ 46
C. Taxation of the Contracts in General................. 46
Withdrawals Prior to Annuitization.................. 46
Annuity Payouts After Annuitization................. 46
Penalty on Distribution............................. 46
Assignments or Transfers............................ 47
Nonnatural Owners................................... 47
Deferred Compensation Plans of State and Local
Government and Tax-Exempt Organizations............. 47
D. Tax Withholding...................................... 47
E. Provisions Applicable to Qualified Employer Plans.... 48
Corporate and Self-Employed Pension and Profit
Sharing Plans....................................... 48
Individual Retirement Annuities..................... 48
Tax-Sheltered Annuities............................. 48
Texas Optional Retirement Program................... 49
STATEMENTS AND REPORTS...................................... 49
LOANS (QUALIFIED CONTRACTS ONLY)............................ 49
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS........... 49
CHANGES TO COMPLY WITH LAW AND AMENDMENTS................... 50
VOTING RIGHTS............................................... 51
DISTRIBUTION................................................ 51
LEGAL MATTERS............................................... 51
FURTHER INFORMATION......................................... 52
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT...... A-1
APPENDIX B -- PERFORMANCE TABLES (ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY COMPANY)............................. B-1
APPENDIX C -- PERFORMANCE TABLES (FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY).................................... C-1
APPENDIX D -- SURRENDER CHARGES AND THE MARKET VALUE
ADJUSTMENT................................................. D-1
APPENDIX E -- THE DEATH BENEFIT............................. E-1
APPENDIX F -- DIFFERENCES UNDER THE ALLMERICA SELECT
RESOURCE I CONTRACT........................................ F-1
APPENDIX G -- CONDENSED FINANCIAL INFORMATION............... G-1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY............................. 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE
COMPANY.................................................... 3
SERVICES.................................................... 3
UNDERWRITERS................................................ 3
ANNUITY BENEFIT PAYMENTS.................................... 4
EXCHANGE OFFER.............................................. 5
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING)
PROGRAM.................................................... 7
PERFORMANCE INFORMATION..................................... 8
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
3
<PAGE>
SPECIAL TERMS
ACCUMULATED VALUE: the total value of all Accumulation Units in the Sub-Accounts
plus the value of all accumulations in the Fixed Account and Guarantee Period
Accounts credited to the Contract on any date before the Annuity Date.
ACCUMULATION UNIT: a unit of measure used to calculate the value of a
Sub-Account before annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity benefit
payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin. This date may
not be later than the first day of the month before the Annuitant's 90th
birthday.
ANNUITY UNIT: a unit of measure used to calculate the value of the periodic
annuity benefit payments under the Contract.
COMPANY: unless otherwise specified, any reference to the "Company" shall refer
exclusively to Allmerica Financial Life Insurance and Annuity Company for
contracts issued in all jurisdictions except Hawaii and New York and exclusively
to First Allmerica Financial Life Insurance Company for contracts issued in
Hawaii and New York.
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 providing for annuity benefit
payments which remain fixed in amount throughout the annuity benefit payment
period selected.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
OWNER (YOU): the person, persons or entity entitled to exercise the rights and
privileges under this Contract. Joint Owners are permitted if one of the two is
the Annuitant.
SUB-ACCOUNT: a subdivision of the Variable Account investing exclusively in the
shares of a corresponding fund of Allmerica Investment Trust ("Trust"), a
corresponding portfolio of the Fidelity 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 charge and
Market Value Adjustment.
4
<PAGE>
UNDERLYING FUNDS (FUNDS): an investment portfolio of the Trust, Fidelity VIP or
T. Rowe Price in which a Sub-Account invests.
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 are not
chargeable with liabilities arising out of any other business which the Company
may conduct.
VARIABLE ANNUITY PAYOUT: an annuity payout option providing for payments varying
in amount in accordance with the investment experience of certain of the
Underlying Funds.
5
<PAGE>
SUMMARY OF FEES AND EXPENSES
There are certain fees and expenses that you will bear under the Allmerica
Select Resource II Contract. The purpose of the following tables is to assist
you in understanding these fees and expenses. The tables show (1) charges under
the Contract, (2) annual expenses of the Sub-Accounts, and (3) annual expenses
of the Funds. In addition to the charges and expenses described below, premium
taxes are applicable in some states and are deducted as described under "D.
Premium Taxes" in CHARGES AND DEDUCTIONS.
<TABLE>
<CAPTION>
YEARS FROM
DATE OF PAYMENT CHARGE
(1) CONTRACT CHARGES: --------------- ------
<S> <C> <C>
0-1 6.5%
2 6.0%
3 5.0%
4 4.0%
5 3.0%
6 2.0%
7 1.0%
More than 7 0.0%
SURRENDER CHARGE:*
This charge may be assessed upon surrender, withdrawal or
annuitization under any commutable period certain option
or a noncommutable fixed period certain option of less
than ten years. The charge is a percentage of payments
applied to the amount surrendered (in excess of any amount
that is free of surrender charge) within the indicated
time period.
TRANSFER CHARGE: None
The Company currently makes no charge for processing
transfers and guarantees that the first 12 transfers in a
Contract year will not be subject to a transfer charge.
For each subsequent transfer, the Company reserves the
right to assess a charge, guaranteed never to exceed $25,
to reimburse the Company for the costs of processing the
transfer.
ANNUAL CONTRACT FEE: $30
The fee is deducted annually and upon surrender prior to
the Annuity Date when Accumulated Value is less than
$50,000. The fee is waived for Contracts issued to and
maintained by the trustee of a 401(k) plan.
OPTIONAL RIDER CHARGES:
Under the following riders, 1/12th of the annual charge is
deducted pro-rata on a monthly basis at the end of each
month and, if applicable, at termination of the rider. The
charge on an annual basis as a percentage of the
Accumulated Value is:
Optional Minimum Guaranteed Annuity Payout (M-GAP) Rider 0.25%
with a ten-year waiting period:
Optional Minimum Guaranteed Annuity Payout (M-GAP) Rider 0.15%
with a fifteen-year waiting period:
(2) ANNUAL SUB-ACCOUNT EXPENSES:
(on an annual basis as percentage of average daily net
assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.15%
------
Total Annual Expenses: 1.40%
</TABLE>
*From time to time the Company may allow a reduction of the surrender charge,
the period during which the charges apply, or both, and/or credit additional
amounts on Contracts when (1) Contracts are sold to individuals or groups of
individuals in a manner which reduces sales expenses, or (2) where the Owner or
the Annuitant on the date of issue is within certain classes of eligible
persons. For more information, see
6
<PAGE>
"Reduction or Elimination of Surrender Charge and Additional Amounts Credited"
under "E. Surrender Charge" in the CHARGES AND DEDUCTIONS section.
(3) ANNUAL UNDERLYING FUND EXPENSES: Total expenses of the Underling Funds are
not fixed or specified under the terms of the Contract and will vary from year
to year. The levels of fees and expenses also vary among the Underlying Funds.
The following table shows the expenses of the Underlying Funds as a percentage
of average net assets for the year ended December 31, 1999, as adjusted for any
material changes.
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT FEE OTHER EXPENSES EXPENSES (AFTER
(AFTER ANY (AFTER ANY ANY WAIVERS/
UNDERLYING FUND VOLUNTARY WAIVERS) REIMBURSEMENTS) REIMBURSEMENTS)
- --------------- ------------------ --------------- ------------------
<S> <C> <C> <C>
Select Emerging Markets Fund............ 1.35% 0.57% 1.92%(1)(2)
Select International Equity Fund........ 0.89% 0.13% 1.02%(1)(2)
T. Rowe Price International Stock
Portfolio.............................. 1.05% 0.00% 1.05%
Select Aggressive Growth Fund........... 0.81%* 0.06% 0.87%(1)(2)*
Select Capital Appreciation Fund........ 0.90%* 0.07% 0.97%(1)*
Select Value Opportunity Fund........... 0.90% 0.07% 0.97%(1)(2)
Select Growth Fund...................... 0.78% 0.05% 0.83%(1)(2)
Select Strategic Growth Fund............ 0.85% 0.35% 1.20%(1)(2)
Fidelity VIP Growth Portfolio........... 0.58% 0.08% 0.66%(3)
Select Growth and Income Fund........... 0.67% 0.07% 0.74%(1)(2)
Fidelity VIP Equity-Income Portfolio.... 0.48% 0.09% 0.57%(3)
Fidelity VIP High Income Portfolio...... 0.58% 0.11% 0.69%
Select Income Fund...................... 0.52% 0.09% 0.61%(1)
Money Market Fund....................... 0.24% 0.05% 0.29%(1)
</TABLE>
*Effective September 1, 1999, the management fee rates for the Select Aggressive
Growth Fund and Select Capital Appreciation Fund were 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, 1999.
(1)Until further notice, Allmerica Financial Investment Management
Services, Inc. ("AFIMS") has declared a voluntary expense limitation of 1.50% of
average net assets for Select International Equity Fund, 1.35% for Select
Aggressive Growth Fund and Select Capital Appreciation Fund, 1.25% for Select
Value Opportunity Fund, 1.20% for Select 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 1999.
Until further notice, 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
AFIMS to a sub-advisor.
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 management fee or expense limitation in any year
does not bind AFIMS 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 the brokers
rebate a portion of commissions. These amounts have been treated as reductions
of expenses. Including these reductions to the operating
7
<PAGE>
expenses, total annual fund operating expenses were 1.88% for Select Emerging
Markets Fund, 1.01% for Select International Equity Fund, 0.84% for Select
Aggressive Growth Fund, 0.88% for Select Value Opportunity Fund, 0.81% for
Select Growth Fund, 1.17% for Select Strategic Growth Fund, and 0.73% for Select
Growth and Income Fund.
(3)A portion of the brokerage commissions that certain funds paid was used to
reduce fund expenses. In addition, through arrangements with certain funds', or
Fidelity Management & Research Company on behalf of certain funds', custodian
credits realized as a result of uninvested cash balances were used to reduce a
portion of the fund's expenses. Including these reductions, total operating
expenses presented in the table would have been 0.65% for the Fidelity VIP
Growth Portfolio and 0.56% for the Fidelity VIP Equity-Income 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 and assumes that the Underlying Fund expenses
listed above remain the same in each of the 1, 3, 5, and 10-year intervals. 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 Underlying
Funds differ, separate examples are used to illustrate the expenses incurred by
an Owner on an investment in the various Sub-Accounts.
See Appendix F for the expense examples for Select Resource I Contracts.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(1)(a) If, at the end of the applicable time period, you surrender your Contract
or annuitize* under any commutable period certain option or a noncommutable
fixed period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets, and no
Rider:**
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund............................... $93 $151 $204 $365
Select International Equity Fund........................... $85 $125 $161 $280
T. Rowe Price International Stock Portfolio................ $85 $126 $163 $283
Select Aggressive Growth Fund.............................. $83 $121 $154 $265
Select Capital Appreciation Fund........................... $84 $124 $159 $275
Select Value Opportunity Fund.............................. $84 $124 $159 $275
Select Growth Fund......................................... $83 $120 $152 $261
Select Strategic Growth Fund............................... $87 $130 $170 $297
Fidelity VIP Growth Portfolio.............................. $82 $115 $143 $243
Select Growth and Income Fund.............................. $82 $117 $147 $251
Fidelity VIP Equity-Income Portfolio....................... $81 $112 $138 $234
Fidelity VIP High Income Portfolio......................... $82 $116 $144 $246
Select Income Fund......................................... $80 $110 $134 $225
Money Market Fund.......................................... $78 $104 $124 $204
</TABLE>
8
<PAGE>
(1)(b) If, at the end of the applicable time period, you surrender your Contract
or annuitize* under any commutable period certain option or a noncommutable
fixed period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and
election of a Minimum Guaranteed Annuity Payout (M-GAP) Rider** with a ten-year
waiting period:
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund............................... $96 $157 $216 $387
Select International Equity Fund........................... $87 $132 $173 $304
T. Rowe Price International Stock Portfolio................ $88 $133 $175 $307
Select Aggressive Growth Fund.............................. $86 $128 $166 $290
Select Capital Appreciation Fund........................... $87 $131 $171 $299
Select Value Opportunity Fund.............................. $87 $131 $171 $299
Select Growth Fund......................................... $85 $127 $164 $286
Select Strategic Growth Fund............................... $89 $137 $182 $321
Fidelity VIP Growth Portfolio.............................. $84 $122 $156 $269
Select Growth and Income Fund.............................. $85 $124 $160 $277
Fidelity VIP Equity-Income Portfolio....................... $83 $119 $151 $260
Fidelity VIP High Income Portfolio......................... $84 $123 $157 $272
Select Income Fund......................................... $82 $117 $147 $251
Money Market Fund.......................................... $80 $111 $137 $231
</TABLE>
(2)(a) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable fixed period certain option of ten years or longer, or
if you do not surrender or annuitize your Contract, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and no
Rider:**
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund............................... $34 $103 $175 $365
Select International Equity Fund........................... $25 $ 77 $131 $280
T. Rowe Price International Stock Portfolio................ $25 $ 78 $133 $283
Select Aggressive Growth Fund.............................. $23 $ 72 $124 $265
Select Capital Appreciation Fund........................... $24 $ 75 $129 $275
Select Value Opportunity Fund.............................. $24 $ 75 $129 $275
Select Growth Fund......................................... $23 $ 71 $122 $261
Select Strategic Growth Fund............................... $27 $ 82 $140 $297
Fidelity VIP Growth Portfolio.............................. $21 $ 66 $113 $243
Select Growth and Income Fund.............................. $22 $ 68 $117 $251
Fidelity VIP Equity-Income Portfolio....................... $20 $ 63 $108 $234
Fidelity VIP High Income Portfolio......................... $22 $ 67 $114 $246
Select Income Fund......................................... $20 $ 61 $104 $225
Money Market Fund.......................................... $18 $ 54 $ 94 $204
</TABLE>
9
<PAGE>
(2)(b) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable fixed period certain option of ten years or longer, or
if you do not surrender or annuitize your Contract, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and
election of a Minimum Guaranteed Annuity Payout (M-GAP) Rider** with a ten-year
waiting period:
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund............................... $36 $111 $187 $387
Select International Equity Fund........................... $27 $ 84 $143 $304
T. Rowe Price International Stock Portfolio................ $28 $ 85 $145 $307
Select Aggressive Growth Fund.............................. $26 $ 80 $136 $290
Select Capital Appreciation Fund........................... $27 $ 83 $141 $299
Select Value Opportunity Fund.............................. $27 $ 83 $141 $299
Select Growth Fund......................................... $26 $ 78 $134 $286
Select Strategic Growth Fund............................... $29 $ 89 $152 $321
Fidelity VIP Growth Portfolio.............................. $24 $ 73 $126 $269
Select Growth and Income Fund.............................. $25 $ 76 $130 $277
Fidelity VIP Equity-Income Portfolio....................... $23 $ 71 $121 $260
Fidelity VIP High Income Portfolio......................... $24 $ 74 $127 $272
Select Income Fund......................................... $22 $ 68 $117 $251
Money Market Fund.......................................... $20 $ 62 $107 $231
</TABLE>
*The Contract fee is not deducted after annuitization. A surrender charge is
assessed at the time of annuitization if you elect a noncommutable fixed period
certain option of less than ten years or any commutable period certain option.
No charge is assessed if you elect any life contingency option or a
noncommutable period certain option of ten years or longer.
**If the Minimum Guaranteed Annuity Payout (M-GAP) Rider is exercised, you may
only annuitize under a fixed annuity payout option involving a life contingency
at the Company's guaranteed fixed annuity option rates listed under the Annuity
Option Tables in your Contract.
10
<PAGE>
SUMMARY OF CONTRACT FEATURES
WHAT IS THE ALLMERICA SELECT RESOURCE II VARIABLE ANNUITY?
The Allmerica Select Resource II variable annuity contract ("Contract") is an
insurance contract designed to help you, the Owner, accumulate assets for your
retirement or other important financial goals on a tax-deferred basis. The
Contract combines the concept of professional money management with the
attributes of an annuity contract. Features available through the Contract
include:
- a customized investment portfolio;
- experienced professional investment advisers;
- tax deferral on earnings;
- guarantees that can protect your family during the accumulation phase;
- income payments that you can receive for life;
- issue age up to your 90th birthday (as long as the Annuitant is under age
90.)
The Contract has two phases, an accumulation phase and, if you choose to
annuitize, an annuity payout phase. During the accumulation phase, you may
allocate your initial payment and any additional payments you choose to make
among the combination of portfolios of securities ("Underlying Funds") under
your Contract, the Guarantee Period Accounts, and the Fixed Account
(collectively "the investment options.") 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 the Annuitant's death. See discussion below WHAT HAPPENS UPON DEATH
DURING THE ACCUMULATION PHASE?
I HAVE THE ALLMERICA SELECT RESOURCE I CONTRACT -- ARE THERE ANY DIFFERENCES?
Yes. If your Contract is issued on Form No. A3020-92 ("Allmerica Select Resource
I"), it is basically similar to the Contract described in this Prospectus
("Allmerica Select Resource II") except as specifically indicated in APPENDIX
F -- DIFFERENCES UNDER THE ALLMERICA SELECT RESOURCE I CONTRACT. The form number
is located in the bottom left-hand corner of your Contract pages and may include
some numbers or letters in addition to A3020-92 in order to identify state
variations.
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, the Annuitant can receive income based on
several annuity payout options. You choose the annuity payout option and the
date for annuity benefit payments to begin. You also decide whether you want
variable annuity benefit payments based on the investment performance of certain
Underlying Funds, fixed-amount annuity benefit payments with payment amounts
guaranteed by the Company, or a combination of fixed-amount and variable annuity
benefit payments. Among the payout options available during the annuity payout
phase are:
- periodic payments for the Annuitant's lifetime;
- periodic payments for the Annuitant's life and the life of another person
selected by you;
11
<PAGE>
- periodic payments for the Annuitant's lifetime with any remaining
guaranteed payments continuing to your beneficiary for 10 years in the
event that the Annuitant dies before the end of ten years;
- periodic payments over a specified number of years (1 to 30) - under the
fixed version of this option you may reserve the right to convert
remaining payments to a lump-sum payout by electing a commutable option.
Variable period certain options are automatically commutable.
An optional Minimum Guaranteed Annuity Payout (M-GAP) Rider is currently
available during the accumulation phase in most jurisdictions for a separate
monthly charge. If elected, the Rider provides the Annuitant a guaranteed
minimum amount of income after the specified waiting period under a life
contingent fixed annuity payout option, subject to certain conditions. On each
Contract anniversary a Minimum Guaranteed Annuity Payout Benefit Base is
determined. The Minimum Guaranteed Annuity Payout Benefit Base (less any
applicable premium taxes) is the value that will be annuitized should you
exercise the Rider. In order to exercise the Rider, a fixed annuitization option
involving a life contingency must be selected. Annuitization under this Rider
will occur at the Company's guaranteed fixed annuity option rates listed under
the Annuity Option Tables in your Contract. The Minimum Guaranteed Annuity
Payout Benefit Base is equal to the greatest of:
(a) the Accumulated Value, increased by any positive Market Value Adjustment
if applicable, on the Contract anniversary that the M-GAP Benefit Base is
being determined;
(b) the Accumulated Value on the effective date of the Rider compounded
daily at an effective annual yield of 5% plus gross payments made
thereafter compounded daily at an effective annual yield of 5%, starting
on the date each payment is applied, proportionately reduced to reflect
withdrawals; or
(c) the highest Accumulated Value on any Contract anniversary since the
Rider effective date, as determined after being increased for subsequent
payments and any positive Market Value Adjustment, if applicable, and
proportionately reduced for subsequent withdrawals.
For more details see "M. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider" under DESCRIPTION OF THE CONTRACT.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner"), and us, Allmerica Financial Life
Insurance and Annuity Company (for contracts issued in all jurisdictions except
Hawaii and New York) or First Allmerica Financial Life Insurance Company (for
contracts issued in Hawaii and New York). Each Contract has an Owner (or an
Owner and a Joint Owner, in which case one of the two must be the Annuitant), an
Annuitant and one or more beneficiaries. As Owner, you make payments, choose
investment allocations and select the Annuitant and beneficiary. The Annuitant
is the individual who receives annuity benefit payments under the Contract. The
beneficiary is the person who receives any payment on the death of the Owner or
Annuitant.
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, subject only to a $1,000
minimum for your initial payment and a $50 minimum for any additional payments.
(A lower initial payment amount is permitted for certain qualified plans and
where monthly payments are being forwarded directly from a financial
institution.) In addition, a minimum of $1,000 is always required to establish a
Guarantee Period Account.
WHAT ARE MY INVESTMENT CHOICES?
You may allocate payments among fourteen Sub-Accounts investing in the
Underlying Funds, the Guarantee Period Accounts, and the Fixed Account.
12
<PAGE>
THE FOURTEEN UNDERLYING FUNDS ARE:
- Select Emerging Markets Fund
Managed by Schroder Investment Management North America 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 TCW Investment Management Company
- 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.
Each Underlying Fund operates pursuant to different investment objectives and
this range of investment options enables you to allocate your money among the
Underlying Funds to meet your particular investment needs. For a more detailed
description of the Underlying Funds, see INVESTMENT OBJECTIVES AND POLICIES.
*On or about July 1, 2000, subject to regulatory approval, shares of the Select
Investment Grade Income Fund will be substituted for shares of the Select Income
Fund. Allmerica Asset Management, Inc will manage the Select Investment Grade
Income Fund.
13
<PAGE>
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
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. For more information about the Guarantee Period Accounts and
the Market Value Adjustment, see GUARANTEE PERIOD ACCOUNTS.
THE GUARANTEE PERIOD ACCOUNTS MAY NOT BE AVAILABLE IN ALL STATES.
FIXED ACCOUNT. The Fixed Account is part of the General Account which consists
of all the Company's assets other than those allocated to the Variable Account
and any other separate account. Allocations to the Fixed Account are guaranteed
as to principal and a minimum rate of interest. Additional excess interest may
be declared periodically at the Company's discretion. Furthermore, the initial
rate in effect on the date an amount is allocated to the Fixed Account is
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 UNDERLYING 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 Underlying 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 decision-making authority
with respect to the Funds, and is not responsible for advice provided 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
Sub-Adviser is selected by using strict objective, quantitative, and qualitative
criteria, with special emphasis on the Sub-Adviser's record in managing similar
portfolios. In consultation with BARRA RogersCasey, a committee monitors and
evaluates the ongoing performance of all of the Funds. The committee may
recommend the replacement of a Sub-Adviser of one of the Funds of the Trust, or
the addition or deletion of any other Funds. The committee includes members who
may be affiliated or unaffiliated with the Company and the Trust. The
Sub-Advisers (other than Allmerica Asset Management, Inc.) are not affiliated
with the Company or the Trust.
Fidelity Management & Research Company ("FMR") is the investment adviser of
Fidelity VIP. FMR is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire Street,
Boston, MA. It is composed of a number of different companies, which provide a
variety of financial services and products. FMR is the original Fidelity
company, founded in 1946. It provides a number of mutual funds and other clients
with investment research and portfolio management services.
Rowe Price-Fleming International, Inc. ("Price-Fleming") is the investment
adviser of T. Rowe Price. Price-Fleming, founded in 1979 as a joint venture
between T. Rowe Price Associates, Inc. and Robert Fleming Holdings, Limited, is
one of the largest no-load international mutual fund asset managers with
approximately
14
<PAGE>
$42.5 billion (as of December 31, 1999) 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 Investment Management North America Inc.
Select International Equity Fund Bank of Ireland Asset Management (U.S.) Limited
T. Rowe Price International Stock Portfolio Rowe Price-Fleming International, Inc.
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 TCW Investment Management Company
Fidelity VIP Growth Portfolio 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>
*On or about July 1, 2000, subject to regulatory approval, shares of the Select
Investment Grade Income Fund will be substituted for shares of the Select Income
Fund. Allmerica Asset Management, Inc will manage the Select Investment Grade
Income Fund.
CAN I MAKE TRANSFERS AMONG THE INVESTMENT OPTIONS?
Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts
investing in the Underlying Funds, the Guarantee Period Accounts, and the Fixed
Account. You will incur no current taxes on transfers while your money remains
in the Contract. The first 12 transfers in a Contract year are guaranteed to be
free of a transfer charge. For each subsequent transfer in a Contract year, the
Company does not currently charge but reserves the right to assess a processing
charge guaranteed never to exceed $25. As of the date of this Prospectus,
transfers may be made to and among all of the available Sub-Accounts. However,
should additional Funds be added to the Contract, the Company reserves the right
to limit the number of Sub-Accounts which may be used during the life of the
Contract. See "D. Transfer Privilege" under DESCRIPTION OF THE CONTRACT.
WHAT IF I NEED MY MONEY BEFORE THE ANNUITY PAYOUT PHASE BEGINS?
You may surrender your Contract or make withdrawals any time before the annuity
payout phase begins. Each calendar year you can take without a surrender charge
the greatest of 100% of cumulative earnings, 10% of the Contract's Accumulated
Value or, if you are both an Owner and the Annuitant, an amount based on your
life expectancy. (Similarly, no surrender charge will apply if an amount is
withdrawn based on the Annuitant's life expectancy and the Owner is a trust or
other nonnatural person.) A 10% federal tax penalty may apply to amounts deemed
to be earnings if you are under age 59 1/2. Additional amounts may be withdrawn
at any time but payments that have not been invested in the Contract for more
than seven years may be subject to a surrender charge. (A Market Value
Adjustment may apply to any withdrawal made from a Guarantee Period Account
prior to the expiration of the Guarantee Period.)
In addition, you may withdraw all or a portion of your money without a surrender
charge if, after the Contract is issued and before age 65, you become disabled.
Also, except in New York and New Jersey where not permitted by state law, you
may withdraw money without a surrender charge if, after the contract is issued,
you are admitted to a medical care facility or diagnosed with a fatal illness.
For details and restrictions, see
15
<PAGE>
"Reduction or Elimination of Surrender Charge and Additional Amounts Credited"
under "E. Surrender Charge" in the CHARGES AND DEDUCTION section.
WHAT HAPPENS UPON DEATH DURING THE ACCUMULATION PHASE?
If the Annuitant, Owner or Joint Owner should die before the Annuity Date, a
death benefit will be paid to the beneficiary. Upon the death of the Annuitant
(or an Owner who is also an Annuitant), the death benefit is equal to the
greatest of:
- The Accumulated Value on the Valuation Date that the Company receives
proof of death, increased by any positive Market Value Adjustment;
- Gross payments, with interest compounding daily at an effective annual
yield of 5%, starting on the date each payment was applied and continuing
throughout that payment's entire accumulation phase, (5% compounding not
available in Hawaii and New York), reduced proportionately to reflect
withdrawals; or
- The death benefit that would have been payable on the most recent Contract
anniversary, increased for subsequent payments and decreased
proportionately for subsequent withdrawals.
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded daily at an effective annual yield
of 5% (except in Hawaii and New York where (b) equals gross payments.) The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded daily at an effective annual yield of
5% (gross payments in Hawaii and New York) or (c) the locked-in value of the
death benefit at the first anniversary. The greatest of (a), (b) or (c) will be
locked in until the next Contract anniversary. This calculation will then be
repeated on each anniversary while the Contract remains in force and prior to
the Annuity Date. As noted above, the values of (b) and (c) will be decreased
proportionately if withdrawals are taken.
At the death of an Owner who is not also the Annuitant during the accumulation
phase, the death benefit will equal the Contract's Accumulated Value on the
Valuation Date that the Company receives proof of death, increased by any
positive Market Value Adjustment.
(If the Annuitant dies after the Annuity Date but before all guaranteed annuity
benefit payments have been made, the remaining payments will be paid to the
beneficiary at least as rapidly as under the annuity option in effect. See "G.
Death Benefit.")
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
If the Accumulated Value on a Contract anniversary or upon surrender is less
than $50,000, the Company will deduct a $30 Contract fee from your Contract. The
Contract fee is currently waived for Contracts issued to and maintained by a
trustee of a 401(k) plan.
Should you decide to surrender your Contract, make withdrawals, or receive
payments under certain annuity options, you may be subject to a surrender
charge. If applicable, this charge will be between 1% and 6.5% of payments
withdrawn, based on when the payments were originally made.
A deduction for state and local premium taxes, if any, may be made as described
under "D. Premium Taxes."
16
<PAGE>
The Company will deduct on a daily basis, an annual Mortality and Expense Risk
Charge and Administrative Expense Charge equal to 1.25% and 0.15%, respectively,
of the average daily net assets invested in each Fund. The Funds will incur
certain management fees and expenses which are described in "Other Charges"
under "A. Variable Account Deductions" and in the prospectuses of the Underlying
Funds, which accompany this Prospectus. These charges vary among the Underlying
Funds and may change from year to year. In addition, management fee waivers
and/or reimbursements may be in effect for certain or all of the Underlying
Funds. For specific information regarding the existence and effect of any
waivers/reimbursements see "Annual Underlying Fund Expenses" under the SUMMARY
OF FEES AND EXPENSES section.
Subject to state availability, the Company currently offers an optional Minimum
Guaranteed Annuity Payout ("M-GAP") Rider for an additional charge. If you elect
the Rider, a separate monthly charge is deducted from the Contract's Accumulated
Value at the end of each month within which the Rider has been in effect. The
charge is assessed by multiplying the Accumulated Value on the last day of each
month and, if applicable, on the date the Rider is terminated by 1/12th of the
following annual percentage rates:
<TABLE>
<S> <C>
Minimum Guaranteed Annuity Payout (M-GAP) Rider with a
ten-year waiting period................................... 0.25%
Minimum Guaranteed Annuity Payout (M-GAP) Rider with a
fifteen-year waiting period............................... 0.15%
</TABLE>
For a description of this Rider, see "C. Optional Minimum Guaranteed Annuity
Payout (M-GAP) Rider Charge" under CHARGES AND DEDUCTIONS, and "M. Optional
Minimum Guaranteed Annuity Payout (M-GAP) Rider" under DESCRIPTION OF THE
CONTRACT.
CAN I EXAMINE THE CONTRACT?
Yes. Your Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
cancelled. (There may be a longer period in certain states; see the "Right to
Examine" provision on the cover of your Contract.) If you cancel the Contract,
you will receive a refund of any amounts allocated to the Fixed and Guarantee
Period Accounts and the Accumulated Value of any amounts allocated to the
Sub-Accounts (plus any fees or charges that may have been deducted.) However, if
state law requires, or if the Contract was issued as an Individual Retirement
Annuity (IRA) you will generally receive a refund of your entire payment. (In
certain states this refund may be the greater of (1) your entire payment or (2)
the amounts allocated to the Fixed and Guarantee Period Accounts plus the
Accumulated Value of amounts in the Sub-Accounts, plus any fees or charges
previously deducted.) See "B. Right to Cancel Individual Retirement Annuity" and
"C. Right to Cancel All Other Contracts" under DESCRIPTION OF THE CONTRACT.
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 a beneficiary
irrevocably.
- You may change your allocation of payments.
- You may make transfers of Accumulated Value among your current investments
without any tax consequences.
- You may cancel your Contract within ten days of delivery (or longer if
required by state law).
17
<PAGE>
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS,
THE TRUST, FIDELITY VIP, AND T. ROWE PRICE
THE COMPANIES. Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial") is a life insurance company organized under the laws of
Delaware in July 1974. Its Principal Office is located at 440 Lincoln Street,
Worcester, MA 01653, telephone 508-855-1000. Allmerica Financial is subject to
the laws of the state of Delaware governing insurance companies and to
regulation by the Commissioner of Insurance of Delaware. In addition, Allmerica
Financial is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1999,
Allmerica Financial had over $17 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 a wholly owned subsidiary of First Allmerica Financial
Life Insurance Company which, in turn, is a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC").
First Allmerica Financial Life Insurance Company ("First Allmerica"), organized
under the laws of Massachusetts in 1844, is among the five oldest life insurance
companies in America. As of December 31, 1999, First Allmerica and its
subsidiaries had over $25 billion in combined assets and over $43 billion of
life insurance in force. Effective October 16, 1995, First Allmerica converted
from a mutual life insurance company known as State Mutual Life Assurance
Company of America to a stock life insurance company and adopted its present
name. First Allmerica is a wholly owned subsidiary of AFC. First Allmerica's
principal office ("Principal Office") is located at 440 Lincoln Street,
Worcester, MA 01653, telephone 508-855-1000.
First Allmerica is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, First Allmerica is subject to the insurance laws
and regulations of other states and jurisdictions in which it is licensed to
operate.
Both companies are charter members of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
ALLMERICA SELECT SEPARATE ACCOUNT. Each Company maintains a separate account
called the Allmerica Select Separate Account (the "Variable Account"). The
Variable Account of Allmerica Financial was authorized by vote of the Board of
Directors of the Company on March 5, 1992 and the Variable Account of First
Allmerica was authorized by vote of the Board of Directors of the Company on
August 20, 1991. Each Variable Account is registered with the SEC as a unit
investment trust under the Investment Company Act of 1940 ("the 1940 Act"). This
registration does not involve the supervision or management of investment
practices or policies of the Variable Accounts by the SEC.
The Variable 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 and
Massachusetts law, the assets of the Variable Account may not be charged with
any liabilities arising out of any other business of the Company.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account and the Sub-Accounts. The Company also
offers other variable annuity contracts investing
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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
insurance companies. Ten investment portfolios of the Trust currently are
available under the Contract, each issuing a series of shares: Select Emerging
Markets Fund, Select International Equity Fund, Select Aggressive Growth Fund,
Select Capital Appreciation Fund, Select Value Opportunity Fund, Select Growth
Fund, Select Strategic Growth Fund, Select Growth and Income Fund, Select Income
Fund and the Money Market Fund. The assets of each Fund are held separate from
the assets of the other Funds. Each Fund operates as a separate investment
vehicle and the income or losses of one Fund have no effect on the investment
performance of another Fund. Shares of the Trust are not offered to the general
public but solely to such variable accounts.
The trustees have overall responsibility for the supervision of the affairs of
the Trust. The Trustees have entered into a management agreement ("Management
Agreement") with Allmerica Financial Investment Management Services, Inc.,
("AFIMS") a wholly owned subsidiary of Allmerica Financial, to handle the day-
to-day affairs of the Trust. AFIMS, subject to Trustee review, is responsible
for the general management of the Funds. 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 who are affiliated with AFIMS.
AFIMS has entered into agreements with investment advisers ("Sub-Advisers")
selected by AFIMS and the Trustees, in consultation with BARRA
RogersCasey, Inc. ("BARRA RogersCasey") a pension consulting firm. The cost of
such consultation 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 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 AFIMS or
the Sub-Advisers. Under each Sub-Adviser agreement, the Sub-Adviser is
authorized to engage in portfolio transactions on behalf of the applicable Fund,
subject to the Trustees'
and/or AFIMS' instructions. AFIMS is solely responsible for the payment of all
fees for investment management services.
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 a Fund. 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.
Other than expenses specifically assumed by AFIMS under the Management
Agreement, the Trust bears all expenses incurred in its operation including fees
and expenses associated with the registration and qualification of the Trust's
shares under the Securities Act of 1933, other fees payable to the SEC,
independent public accountant fees, legal and custodian fees, association
membership dues, taxes, interest, insurance premiums, brokerage commissions,
fees and expenses of the Trustees who are not affiliated with AFIMS, expenses
for proxies, prospectuses, reports to shareholders and other expenses.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND. Fidelity 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
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the SEC under the 1940 Act. Three of its investment portfolios are available
under the Policy: 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, 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. As part of their
operating expenses, the portfolios of Fidelity VIP pay a monthly investment
management fee to FMR for managing investment and business affairs. The
prospectus of Fidelity VIP contains additional information concerning the
portfolios, including information about additional expenses paid by the
portfolios, and should be read in conjunction with this Prospectus.
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. Price-Fleming, founded in 1979 as a joint
venture between T. Rowe Price Associates, Inc. and Robert Fleming Holdings,
Limited, is one the largest no-load international mutual fund asset managers
with approximately $42.5 billion (as of December 31, 1999) under management in
its offices in Baltimore, London, Tokyo, Hong Kong, Singapore and Buenos Aires.
One of its investment portfolios is available under the Contracts: the T. Rowe
Price International Stock Portfolio. 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 Underlying Funds is set forth
below. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS, AND OTHER
RELEVANT INFORMATION REGARDING THE UNDERLYING INVESTMENT COMPANIES, MAY BE FOUND
IN THE RESPECTIVE PROSPECTUSES OF THE TRUST, FIDELITY VIP AND T. ROWE PRICE,
WHICH PROSPECTUSES ACCOMPANY THIS PROSPECTUS, AND SHOULD BE READ CAREFULLY
BEFORE INVESTING. Also, the Statements of Additional Information ("SAI") of the
Underlying Funds are available upon request. There can be no assurance that the
investment objectives of the Underlying Funds can be achieved or that the value
of the Contract will equal or exceed the aggregate amount of the 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 Investment Management North America Inc.
SELECT INTERNATIONAL EQUITY FUND -- seeks maximum long-term total return
(capital appreciation and income). The Fund will invest primarily in common
stocks of established non-U.S. companies. The Sub-Adviser for the Select
International Equity Fund is Bank of Ireland Asset Management (U.S.) Limited.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO -- seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies. The manager of the Portfolio is Rowe Price-Fleming
International, Inc.
SELECT AGGRESSIVE GROWTH FUND -- seeks above-average capital appreciation by
investing primarily in common stocks of companies which are believed to have
significant potential for capital appreciation. The Sub-Adviser for the Select
Aggressive Growth Fund is Nicholas-Applegate Capital Management L.P.
SELECT CAPITAL APPRECIATION FUND -- seeks long-term growth of capital.
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
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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 TCW Investment Management Company
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
Fidelity VIP prospectus.
SELECT INCOME FUND* -- seeks a high level of current income. The Fund invest
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.
*On or about July 1, 2000, subject to regulatory approval, shares of the Select
Investment Grade Income Fund will be substituted for shares of the Select Income
Fund. The Select Investment Grade Income Fund seeks as high a level of total
return, which includes capital appreciation as well as income, as is consistent
with prudent investment management. Allmerica Asset Management, Inc. is the
Sub-Adviser of the Select Investment Grade Income 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
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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.
PERFORMANCE INFORMATION
The Contract was first offered to the public by Allmerica Financial Life
Insurance and Annuity Company in 1996 and by First Allmerica Financial Life
Insurance Company in 1997. The Company, however, 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 are calculated with all charges assumed to be those applicable to the
Contract, the Sub-Accounts and the Underlying Funds 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. 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 $30
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 a
Minimum Guaranteed Annuity Payout (M-GAP) Rider charge. 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 they do not
reflect the Contract fee and assume 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 that 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 the Contract.
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Performance Tables for Contracts issued by Allmerica Financial Life Insurance
and Annuity Company can be found in Appendix B. Performance Tables for Contracts
issued by First Allmerica Financial Life Insurance Company can be found in
Appendix C. For more detailed information about these performance calculations,
including actual formulas, see the SAI.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF THE
UNDERLYING FUND IN WHICH THE SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS
DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION
OF WHAT MAY BE ACHIEVED IN THE FUTURE.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) other groups of variable annuity separate accounts or other investment
products tracked by Lipper, Inc., 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.
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DESCRIPTION OF THE CONTRACT
A. PAYMENTS
The Company issues a Contract when its underwriting requirements, which include
receipt of the initial payment and allocation instructions by the Company at its
Principal Office, are met. These requirements also may include the proper
completion of an application; however, where permitted, the Company may issue a
Contract without completion of an application and/or signature for certain
classes of Contracts.
Payments are to be made payable to the Company. A net payment is equal to the
payment received less the amount of any applicable premium tax. The initial net
payment is credited to the Contract and allocated among the requested investment
options as of the date that all issue requirements are properly met. 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. Subsequent payments will be credited as of the Valuation
Date received at the Principal Office, on the basis of accumulation unit value
next determined after receipt.
Payments may be made to the Contract at any time prior to the Annuity Date, or
prior to payment of the death benefit, 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.
Generally, unless otherwise requested, all payments will be allocated among the
investment options 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 new 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. Such procedures may include, among
other things, requiring some form of personal identification prior to acting
upon instructions received by telephone. All telephone instructions are tape
recorded.
B. RIGHT TO CANCEL INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Contract intended to qualify as an IRA may cancel the
Contract at any time within ten days after receipt of the Contract and receive a
refund. In order to cancel the Contract, the Owner must mail or deliver the
Contract to the agent through whom the Contract was purchased, to the Principal
Office of the Company at 440 Lincoln Street, Worcester, MA 01653, or to an
authorized representative. Mailing or delivery must occur within ten days after
receipt of the Contract for cancellation to be effective.
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Within seven days the Company will provide a refund equal to the gross
payment(s) received. In some states, however, the refund may equal the greater
of (a) gross payments or (b) any amounts allocated to the Fixed Account and the
Guarantee Period Accounts plus the Accumulated Value of amounts allocated to the
Variable Account plus any amounts deducted under the Contract or by the Funds
for taxes, charges or fees. At the time the Contract is issued, the "Right to
Examine" provision on the cover of the Contract will specifically indicate
whether the refund will be equal to gross payments or equal to the greater of
(a) or (b) as set forth above.
The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.
C. RIGHT TO CANCEL ALL OTHER CONTRACTS
An Owner may cancel the Contract at any time within ten days after receipt of
the Contract (or longer if required by state law) and receive a refund. In most
states the Company will pay the Owner an amount equal to the sum of (1) the
difference between the payment received, including fees, and any amount
allocated to the Variable Account, and (2) the Accumulated Value of amounts
allocated to the Variable Account as of the date the request is received. If the
Contract was purchased as an IRA or issued in a state that requires a full
refund of the initial payment(s), the IRA cancellation right described above
will be used. 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.
In order to comply with New York regulations concerning the purchase of a new
annuity contract to replace an existing life or annuity contract (a
"replacement"), an Owner who purchases the Contract in New York as a replacement
may cancel within 60 days after receipt. In order to cancel the Contract, the
Owner must mail or deliver it to the Company's Principal Office or to one of its
authorized representatives. The Company will refund an amount equal to the
Surrender Value plus all fees and charges and the Contract will be void from the
beginning.
D. TRANSFER PRIVILEGE
At any time prior to the Annuity Date, the Owner may transfer amounts among
investment options upon written or telephone request to the Company. As of the
date of this Prospectus, transfers may be made to and among all of the available
Sub-Accounts. However, should additional funds be added to the Contract, the
Company reserves the right to limit the number of Sub-Accounts which may be used
during the life of the Contract. As discussed in "A. Payments" above, 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.
The first 12 transfers in a Contract year are guaranteed to be free of any
transfer charge. The Company does not currently charge for additional transfers
but reserves the right to assess a charge, guaranteed never to exceed $25, to
reimburse it for the expense of processing these additional transfers. If you
authorize periodic transfers under an Automatic Transfer option (Dollar Cost
Averaging), an Automatic Account Rebalancing option or an Asset Allocation Model
Reallocation option, 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 transfer or rebalancing
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.
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Under the proposed substitution, during the period February 9, 2000 until the
date the Select Income Fund is replaced by the Select Investment Grade Income
Fund, an Owner with value in the Sub-Account investing in the Select Income Fund
may make one transfer of all amounts in that Sub-Account to and among any of the
other Sub-Accounts, the Fixed Account and/or the Guarantee Period Account
(subject to the $1,000 minimum for the GPA Account.) This transfer will be free
of any transfer charge and will not count as one of the twelve transfers
guaranteed to be free of the transfer charge in each Contract year. In addition,
on the date the proposed substitution is completed, an Owner that has amounts
invested in the Select Investment Grade Income Fund as a result of the
substitution will have a period of 60 days following the substitution to make
one transfer of all amounts allocated to the Sub-Account investing in the Select
Investment Grade Income Fund to any one or more of the investment options
available under the Contract (subject to the minimum investment requirement of
the Guarantee Period Accounts.) This transfer of all value out of the Select
Investment Grade Income Fund will be free of any transfer charge and will not
count as one of the twelve transfers guaranteed to be free of the transfer
charge in that Contract year. All Owners with value in the affected Sub-Account
on the date the substitution is made will receive written notice.
THE TERMS AND CONDITIONS OF THE PROPOSED SUBSTITUTION MAY BE SUBJECT TO CHANGE.
IN PARTICULAR, THE TERMS AND CONDITIONS OF ANY SEC EXEMPTION ORDER, IF AND WHEN
GRANTED, MAY REQUIRE CHANGES IN THE PROPOSED SUBSTITUTION.
ASSET ALLOCATION MODEL REALLOCATIONS. If an Owner elects to follow an asset
allocation strategy, the Owner may preauthorize transfers in accordance with the
chosen strategy. The Company may provide administrative or other support
services to independent third parties who provide recommendations as to such
allocation strategies. However, the Company does not engage any third parties to
offer investment allocation services of any type under this Contract, does not
endorse or review any investment allocation recommendations made by such third
parties and is not responsible for the investment allocations and transfers
transacted on the Owner's behalf. The Company does not charge for providing
additional asset allocation support services. Additional information concerning
asset allocation programs for which the Company is currently providing support
services may be obtained from a registered representative or the Company.
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS. The Owner may elect automatic transfers of a predetermined dollar
amount, not less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually) from either the Fixed Account, the Sub-Account
investing in the Money Market Fund or the Sub-Account investing in the Select
Income Fund (the "source accounts") to one or more of the Sub-Accounts.
Automatic transfers may not be made into the Fixed Account, the Guarantee Period
Accounts or, if applicable, the Fund being used as the source account. If an
automatic transfer would reduce the balance in the source account to less than
$100, the entire balance will be transferred proportionately to the chosen
Sub-Accounts. Automatic transfers will continue until the amount in the source
account on a transfer date is zero or the Owner's request to terminate the
option is received by the Company. If additional amounts are allocated to the
source account after its balance has fallen to zero, this option will not
restart automatically and the Owner must provide a new request to the Company.
To the extent permitted by law, the Company reserves the right, from time to
time, to credit an enhanced interest rate to certain initial and/or subsequent
payments deposited into the Fixed Account and which use the Fixed Account as the
source account from which to process automatic transfers. For more information
see "Enhanced Automatic Transfer (Dollar Cost Averaging) Program" in the SAI.
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, quarterly, semi-annual or annual basis in accordance with percentage
allocations specified by the Owner. As frequently as specified by the Owner, the
Company will review the percentage allocations in the Funds and, if necessary,
transfer amounts to ensure conformity with the designated percentage allocation
mix. If the amount necessary to re-establish the mix on any scheduled date is
less than $100, no transfer will be made. Automatic Account Rebalancing will
continue until the Owner's request to terminate or change the option is received
by the Company. As such, subsequent payments allocated in a manner different
from the percentage allocation mix
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in effect on the date the payment is received will be reallocated in accordance
with the existing mix on the next scheduled date unless the Owner's timely
request to change the mix or terminate the option is received by the Company.
The Company reserves the right to limit the number of Sub-Accounts that may be
used for automatic transfers and rebalancing, and to discontinue either option
upon advance written notice. Currently, Dollar Cost Averaging and Automatic
Account Rebalancing may not be in effect simultaneously. Either option may be
elected at no additional charge when the Contract is purchased or at a later
date.
E. SURRENDER
At any time prior to the Annuity Date, an Owner may surrender the Contract and
receive its Surrender Value, less any tax withholding. The Owner must return 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 Valuation Date on which the
request and the Contract are received at the Principal Office.
Before the Annuity Date, a surrender charge may be deducted when a Contract is
surrendered if payments have been credited to the Contract during the last seven
full Contract years. See CHARGES AND DEDUCTIONS. The Contract fee will be
deducted upon surrender of the Contract.
After the Annuity Date, only Contracts annuitized under a commutable period
certain option may be surrendered. The amount payable is the commuted value of
any unpaid installments, computed on the basis of the assumed interest rate
incorporated in such annuity benefit payments. No surrender charge is imposed
after the Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and withdrawals of amounts in each Sub-Account in any period
during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of a separate account is not reasonably
practicable.
The Company reserves the right to defer surrenders and withdrawals of amounts
allocated to the Company's Fixed Account and Guarantee Period Accounts for a
period not to exceed six months.
The surrender rights of Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program (Texas ORP) are
restricted; see "Tax Sheltered Annuities" and "Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see FEDERAL TAX
CONSIDERATIONS.
F. WITHDRAWALS
At any time prior to the Annuity Date, an Owner may withdraw a portion of the
Accumulated Value of his or her Contract, subject to the limits stated below.
The Owner must submit to the Principal Office a signed, written request for
withdrawal, satisfactory to the Company. The written request must indicate the
dollar amount the Owner wishes to receive and the investment options from which
such amount is to be withdrawn. The amount withdrawn equals the amount requested
by the Owner plus any applicable surrender charge, as described under CHARGES
AND DEDUCTIONS. In addition, amounts withdrawn from a Guarantee Period Account
prior to the end of the applicable Guarantee Period will be subject to a Market
Value Adjustment, as described under GUARANTEE PERIOD ACCOUNTS.
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Where allocations have been made to more than one investment option, a
percentage of the withdrawal may be allocated to each such option. A withdrawal
from a Sub-Account will result in cancellation of a number of units equivalent
in value to the amount withdrawn, computed as of the Valuation Date that the
request is received at the Principal Office.
Each withdrawal must be in a minimum amount of $100. Except in New York where no
specific balance is required, no withdrawal will be permitted if the Accumulated
Value remaining under the Contract would be reduced to less than $1,000.
Withdrawals will be paid in accordance with the time limitations described under
"E. Surrender."
For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see FEDERAL TAX
CONSIDERATIONS, "Tax Sheltered Annuities" and "Texas Optional Retirement
Program."
For important tax consequences which may result from withdrawals, see FEDERAL
TAX CONSIDERATIONS.
SYSTEMATIC WITHDRAWALS. The Owner may elect an automatic schedule of
withdrawals (systematic withdrawals) from amounts in the Sub-Accounts and/or the
Fixed Account on a monthly, bi-monthly, quarterly, semi-annual or annual basis.
Systematic withdrawals from Guarantee Period Accounts are not available. The
minimum amount of each automatic withdrawal is $100, and will be subject to any
applicable withdrawal charges. The Owner may elect, by written request, a
specific dollar amount and the percentage of this amount to be taken from each
designated Sub-Account and/or the Fixed Account, or the Owner may elect to
withdraw a specific percentage of the Accumulated Value calculated as of the
withdrawal dates, and may designate the percentage of this amount which should
be taken from each account. The first withdrawal will take place on the date the
written request is received at the Principal Office or, if later, on a date
specified by the Owner.
If a withdrawal would cause the remaining Accumulated Value to be less than
$1,000, systematic withdrawals 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.
LIFE EXPECTANCY DISTRIBUTIONS. Prior to the Annuity Date, an Owner who also is
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to the Company's life expectancy distribution ("LED") option
by returning a properly signed LED request form to the Principal Office.
The Owner may elect monthly, bi-monthly, quarterly, semi-annual, or annual LED
distributions, and may terminate the LED option at any time. Under contracts
issued in Hawaii and New York, the LED option will terminate automatically on
the maximum Annuity Date permitted under the Contract, at which time an Annuity
Option must be selected.
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 then life expectancy (or the joint life expectancy of the Owner and a
beneficiary.) The numerator of the fraction is 1 (one) and the denominator of
the fraction is the remaining life expectancy of the Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value at the beginning of the year to determine the
amount to be distributed during the year. Under the Company's LED option, the
amount withdrawn from the Contract changes each year, because life expectancy
changes each year that a person lives. For example, actuarial tables indicate
that a person age 70 has a life expectancy of 16 years, but a person who attains
age 86 has a life expectancy of another 6.5 years. Where the Owner is a trust or
other nonnatural person, the Owner may elect the LED option based on the
Annuitant's life expectancy.
(Note: this option may not produce annual distributions that meet the definition
of "substantially equal periodic payments" as defined under Code Section 72(t).
As such, the withdrawals may be treated by the
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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, "C. Taxation of the Contracts 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.)
The Company may discontinue or change the LED option at any time, but not with
respect to an election of the option made prior to the date of any change in the
LED option.
G. DEATH BENEFIT
In the event that the Annuitant, Owner or Joint Owner, if applicable, dies while
the Contract is in force, the Company will pay the beneficiary a death benefit,
except where the Contract is continued as provided below in "H. The Spouse of
the Owner as Beneficiary." The amount of the death benefit and the time
requirements for receipt of payment may vary depending upon whether the
Annuitant or an Owner dies first, and whether death occurs prior to or after the
Annuity Date.
DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE. At the death of the Annuitant
(including an Owner who is also the Annuitant), the death benefit is equal to
the greatest of (a) the Accumulated Value on the Valuation Date that the Company
receives proof of death, increased by any positive Market Value Adjustment;
(b) gross payments compounded daily at an effective annual yield of 5% starting
on the date each payment is applied and continuing throughout that payment's
entire accumulation phase, decreased proportionately to reflect withdrawals
(except in Hawaii and New York where (b) equals gross payments decreased
proportionately by withdrawals); or (c) the death benefit that would have been
payable on the most recent contract anniversary, increased for subsequent
payments and decreased proportionately for subsequent withdrawals. For each
withdrawal under (b) or (c), the proportionate reduction is calculated as the
death benefit under this option immediately prior to the withdrawal multiplied
by the withdrawal amount and divided by the Accumulated Value immediately prior
to the withdrawal.
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value on the Valuation Date that the Company
receives proof of death (increased by any positive Market Value Adjustment) or
(b) gross payments compounded daily at an effective annual yield of 5% (except
in Hawaii and New York where (b) equals gross payments). The higher of (a) or
(b) will then be locked in until the second anniversary, at which time the death
benefit will be equal to the greatest of (a) the Contract's then current
Accumulated Value increased by any positive Market Value Adjustment; (b) gross
payments compounded daily at an effective annual yield of 5% (gross payments in
Hawaii and New York) or (c) the locked-in value of the death benefit at the
first anniversary. The greatest of (a), (b) or (c) will be locked in until the
next Contract anniversary. This calculation will then be repeated on each
anniversary while the Contract remains in force and prior to the Annuity Date.
As noted above, the values of (b) and (c) will be decreased proportionately if
withdrawals are taken. See APPENDIX E -- THE DEATH BENEFIT for specific examples
of death benefit calculations.
DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY DATE. If
an Owner who is not also the Annuitant dies before the Annuity Date, the death
benefit will be the Accumulated Value increased by any positive Market Value
Adjustment. The death benefit never will be reduced by a negative Market Value
Adjustment.
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum within seven business days
of the receipt of due proof of death at the Principal Office unless the Owner
has specified a death benefit annuity option. Instead of payment in one sum, the
beneficiary may, by written request, elect to:
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(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
payments beginning one year from the date of death.
If distribution of the death benefit is deferred under (1) or (2), any value in
the Guarantee Period Accounts will be transferred to the Sub-Account investing
in the Money Market Fund. The excess, if any, of the death benefit over the
Accumulated Value also will be added to the Money Market Fund. The beneficiary
may, by written request, effect transfers and withdrawals during the deferral
period and prior to annuitization under (2), but may not make additional
payments. The death benefit will reflect any earnings or losses experienced
during the deferral period. If there are multiple beneficiaries, the consent of
all is required.
With respect to the death benefit, the Accumulated Value under the Contract will
be based on the unit values next computed after due proof of the death has been
received.
DEATH OF THE ANNUITANT ON OR AFTER THE ANNUITY DATE. If the Annuitant's
deathoccurs on or after the Annuity Date but before completion of all guaranteed
annuity benefit payments, any unpaid amounts or installments will be paid to the
beneficiary. The Company must pay out the remaining payments at least as rapidly
as under the payment option in effect on the date of the Annuitant's death.
H. THE SPOUSE OF THE OWNER AS BENEFICIARY
The Owner's spouse, if named as the sole beneficiary, may by written request
continue the Contract rather than receiving payment of the death benefit. Upon
such election, the spouse will become the Owner and Annuitant subject to the
following: (1) any value in the Guarantee Period Accounts will be transferred to
the Money Market Fund; (2) the excess, if any, of the death benefit over the
Contract's Accumulated Value also will be added to the Money Market Fund. The
resulting value will never be subject to a surrender charge when withdrawn. The
new Owner may also make additional payments; however, a surrender charge will
apply to these amounts if they are withdrawn before they have been invested in
the Contract for at least seven years. All other rights and benefits provided in
the Contract will continue, except that any subsequent spouse of such new Owner
will not be entitled to continue the Contract when the new Owner's dies.
I. ASSIGNMENT
The Contract, other than one sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and while the
Annuitant is alive (see FEDERAL TAX CONSIDERATIONS). The Company will not be
deemed to have knowledge of an assignment unless it is made in writing and filed
at the Principal Office. The Company will not assume responsibility for
determining the validity of any assignment. If an assignment of the Contract is
in effect on the Annuity Date, the Company reserves the right to pay to the
assignee, in one sum, that portion of the Surrender Value of the Contract to
which the assignee appears to be entitled. The Company will pay the balance, if
any, in one sum to the Owner in full settlement of all liability under the
Contract. The interest of the Owner and of any beneficiary will be subject to
any assignment.
J. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE
The Owner selects the Annuity Date. To the extent permitted by law, the Annuity
Date may be the first day of any month (1) before the Annuitant's 85th birthday,
if the Annuitant's age on the issue date of the Contract is 75 or under; or
(2) within ten years from the issue date of the Contract and before the
Annuitant's 90th birthday, if the Annuitant's age on the issue date is between
76 and 90. The Owner may elect to change the Annuity Date by sending a request
to the Principal Office at least one month before the Annuity Date. The new
Annuity Date must be the first day of any month occurring before the Annuitant's
90th birthday, and must be within the life expectancy of the Annuitant. The
Company shall determine such life expectancy at the time
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a change in Annuity Date is requested. In no event will the latest possible
annuitization age exceed 90. The Internal Revenue Code ("the Code") and the
terms of qualified plans impose limitations on the age at which annuity benefit
payments may commence and the type of annuity option selected. See FEDERAL TAX
CONSIDERATIONS for further information.
Subject to certain restrictions described below, the Owner has the right (1) to
select the annuity payout option under which annuity benefit payments are to be
made, and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Certain annuity
options may be commutable or noncommutable. A commutable option provides the
Owner with the right to request a lump sum payment of any remaining balance
after annuity payments have commenced. Under a noncommutable option, the Owner
may not request a lump sum payment. Annuity benefit payments are determined
according to the annuity tables in the Contract, by the annuity option selected,
and by the investment performance of the account(s) selected. See "Annuity
Benefit Payments" in the SAI.
To the extent a fixed annuity payout is selected, Accumulated Value will be
transferred to the Fixed Account of the Company, and the annuity benefit
payments will be fixed in amount. See APPENDIX A -- MORE INFORMATION ABOUT THE
FIXED ACCOUNT.
Under a variable annuity payout option, a payment equal to the value of the
fixed number of Annuity Units in the Sub-Account(s) is made monthly, quarterly,
semi-annually or annually. Since the value of an Annuity Unit in a Sub-Account
will reflect the investment performance of the Sub-Account, the amount of each
annuity benefit payment will vary.
The annuity option selected must produce an initial payment of at least $50 (a
lower amount may be required in some states). The Company reserves the right to
increase this minimum amount. If the annuity option(s) selected do(es) not
produce an initial payment which meet this minimum, a single payment may be
made.
Once the Company begins making annuity benefit payments, the Annuitant cannot
make withdrawals or surrender the annuity benefit, except where a commutable
period certain option has been elected. Beneficiaries entitled to receive
remaining payments under either a commutable or noncommutable period certain
option may elect instead to receive a lump sum settlement. See "K. Description
of Variable Annuity Payout Options."
If the Owner does not elect an option, a variable life annuity with periodic
payments guaranteed for ten years will be purchased. Changes in either the
Annuity Date or annuity option can be made up to one month prior to the Annuity
Date.
If the Owner exercises the Minimum Guaranteed Annuity Payout (M-GAP) Rider,
annuity benefit payments must be made under a fixed annuity payout option
involving a life contingency and will occur at the Company's guaranteed annuity
option rates listed under the Annuity Option Tables in the Contract.
K. DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS
The Company provides the variable annuity payout options described below.
Currently, variable annuity payout options may be funded through the
Sub-Accounts investing in the Select Growth and Income Fund, the Select Income
Fund, the Select Growth Fund and the Money Market Fund.
The Company also provides these same options funded through the Fixed Account
(fixed annuity payout option). Regardless of how payments were allocated during
the accumulation period, any of the variable annuity payout options or the fixed
annuity payout options may be selected, or any of the variable annuity payout
options may be selected in combination with any of the fixed annuity payout
options. Other annuity options may be offered by the Company. IRS regulations
may not permit certain of the available annuity options when used in connection
with certain qualified Contracts.
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VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR TEN YEARS. This variable
annuity is payable periodically during the lifetime of the Annuitant with the
guarantee that if the Annuitant should die before all payments have been made,
the remaining annuity benefit payments will continue to the beneficiary.
VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING LIFETIME OF THE ANNUITANT
ONLY. This variable annuity is payable during the Annuitant's life. It would be
possible under this option for the Annuitant to receive only one annuity benefit
payment if he/she dies prior to the due date of the second annuity benefit
payment, two annuity benefit payments if he/she dies before the due date of the
third annuity benefit payment, and so on. Payments will continue, however,
during the Annuitant's lifetime, no matter how long he or she lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is an annuity payable periodically
during the lifetime of the Annuitant with the guarantee that if (1) exceeds (2),
then periodic variable annuity benefit payments will continue to the beneficiary
until the number of such payments equals the number determined in (1).
Where: (1) is the dollar amount of the Accumulated Value at
annuitization divided by the dollar amount of the first
payment, and
(2) is the number of payments paid prior to the death of the
Annuitant.
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to the Annuitant and another individual during their joint lifetime, and
then continues thereafter during the lifetime of the survivor. The amount of
each payment to the survivor is based on the same number of Annuity Units which
applied during the joint lifetime of the two payees. One of the payees must be
either the person designated as the Annuitant in the Contract or the
beneficiary. There is no minimum number of payments under this option.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is
payable jointly to the Annuitant and another individual during their joint
lifetime, and then continues thereafter during the lifetime of the survivor. The
amount of each periodic payment to the survivor, however, is based upon
two-thirds of the number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be the person designated as
the Annuitant in the Contract or the beneficiary. There is no minimum number of
payments under this option.
PERIOD CERTAIN VARIABLE ANNUITY. This variable annuity has periodic payments
for a stipulated number of years ranging from one to thirty. If the Annuitant
dies before the end of the period, remaining payments will continue to be paid.
A fixed period certain annuity may be either commutable or noncommutable. A
variable period certain annuity is automatically commutable.
It should be noted that the period certain option does not involve a life
contingency. In computing payments under this option, the Company deducts a
charge for annuity rate guarantees, which includes a factor for mortality risks.
Although not contractually required to do so, the Company currently follows a
practice of permitting persons receiving payments under a period certain option
to elect to convert to a variable annuity involving a life contingency. The
Company may discontinue or change this practice at any time, but not with
respect to election of the option made prior to the date of any change in this
practice.
L. ANNUITY BENEFIT PAYMENTS
DETERMINATION OF THE FIRST VARIABLE ANNUITY BENEFIT PAYMENT. The amount of the
first monthly payment depends upon the selected variable annuity option, the sex
(however, see "N. NORRIS Decision" below) and age of the Annuitant, and the
value of the amount applied under the annuity option ("annuity value"). The
Contract provides annuity rates that determine the dollar amount of the first
periodic payment under each variable annuity option for each $1,000 of applied
value. From time to time, the Company may offer its Owners both fixed and
variable annuity rates more favorable than those contained in the Contract. Any
such rates will be applied uniformly to all Owners of the same class.
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The dollar amount of the first periodic annuity benefit payment is calculated
based upon the type of annuity option chosen, as follows:
- For life annuity options and noncommutable fixed period certain options of
ten years or more (six or more years under New York Contracts), the dollar
amount is determined by multiplying (1) the Accumulated Value applied
under that option (after application of any Market Value Adjustment and
less premium tax, if any) divided by $1,000, by (2) the applicable amount
of the first monthly payment per $1,000 of value.
- For all commutable fixed period certain options, any noncommutable fixed
period certain option of less than ten years (less than six years under
New York Contracts) and all variable period certain options the dollar
amount is determined by multiplying (1) the Surrender Value less premium
taxes, if any, applied under that option (after application of any Market
Value Adjustment and less premium tax, if any) divided by $1,000, by
(2) the applicable amount of the first monthly payment per $1,000 of
value.
- For a death benefit annuity, the annuity value will be the amount of the
death benefit.
The first periodic annuity benefit payment is based upon the Accumulated Value
as of a date not more than four weeks preceding the date that the first annuity
benefit payment is due. The Company transmits variable annuity benefit payments
for receipt by the payee by the first of a month. Variable annuity benefit
payments are currently based on unit values as of the 15th day of the preceding
month.
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 initially was set at
$1.00. The value of an Annuity Unit under a Sub-Account on any Valuation Date
thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the net investment factor of the Sub-Account for
the current Valuation Period and divided by the assumed interest rate for the
current Valuation Period The assumed interest rate, discussed below, is
incorporated in the variable annuity options offered in the Contract.
DETERMINATION OF THE NUMBER OF ANNUITY UNITS. The dollar amount of the first
variable annuity benefit payment is divided by the value of an Annuity Unit of
the selected Sub-Account(s) to determine the number of Annuity Units represented
by the first payment. This number of Annuity Units remains fixed under all
annuity options except the joint and two-thirds survivor annuity option.
DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY BENEFIT PAYMENTS. The dollar
amount of each periodic variable annuity benefit payment after the first will
vary with the value of the Annuity Units of the selected Sub-Account(s). The
dollar amount of each subsequent variable annuity benefit payment is determined
by multiplying the fixed number of Annuity Units (derived from the dollar amount
of the first payment, as described above) with respect to a Sub-Account by the
value of an Annuity Unit of that Sub-Account on the applicable Valuation Date.
The variable annuity options offered by the Company are based on a 3.5% assumed
interest rate, which affects the amounts of the variable annuity benefit
payments. Variable annuity benefit payments with respect to a Sub-Account will
increase over periods when the actual net investment result of the Sub-Account
exceeds the equivalent of the assumed interest rate. Variable annuity benefit
payments will decrease over periods when the actual net investment results are
less than the equivalent of the assumed interest rate.
For an illustration of a calculation of a variable annuity benefit payment using
a hypothetical example, see "Annuity Benefit Payments" in the SAI.
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If the Owner elects the Minimum Guaranteed Annuity Payout (M-GAP) Rider, at
annuitization the annuity benefit payments provided under the Rider ( calculated
by applying the guaranteed annuity factors to the Minimum Guaranteed Annuity
Payout Benefit Base) are compared to the payments that would otherwise be
available with the Rider. If annuity benefit payments under the Rider are
higher, the Owner may exercise the Rider, provided that the conditions of the
Rider are met. If annuity benefit payments under the Rider are lower, the Owner
may choose not to exercise the Rider and instead annuitize under current annuity
factors. See "M. Optional Minimum Guaranteed Annuity Payout (M-GAP) Rider,"
below.
M. OPTIONAL MINIMUM GUARANTEED ANNUITY PAYOUT (M-GAP) RIDER
An optional Minimum Guaranteed Annuity Payout (M-GAP) Rider is currently
available in most jurisdictions for a separate monthly charge. The Minimum
Guaranteed Annuity Payout Rider provides a guaranteed minimum amount of fixed
lifetime income during the annuity payout phase, after a ten-yeare or
fifteen-year waiting period, subject to the conditions described below. On each
Contract anniversary a Minimum Guaranteed Annuity Payout Benefit Base is
determined. The Minimum Guaranteed Annuity Payout Benefit Base (less any
applicable premium taxes) is the value that will be annuitized if the Rider is
exercised. In order to exercise the Rider, a fixed annuitization option
involving a life contingency must be selected. Annuitization under this Rider
will occur at the Company's guaranteed fixed annuity option rates listed under
the Annuity Option Tables in the Contract. The Minimum Guaranteed Annuity Payout
Benefit Base is equal to the greatest of:
(a) the Accumulated Value increased by any positive Market Value Adjustment,
if applicable, on the Contract anniversary that the M-GAP Benefit Base is
being determined;
(b) the Accumulated Value on the effective date of the Rider compounded
daily at an effective annual yield of 5% plus gross payments made
thereafter compounded daily at an effective annual yield of 5%, starting
on the date each payment is applied, proportionately reduced to reflect
withdrawals; or
(c) the highest Accumulated Value on any prior Contract anniversary since
the Rider effective date as determined after being increased for
subsequent payments and any positive Market Value Adjustment, if
applicable, and proportionately reduced for subsequent withdrawals.
For each withdrawal described in (b) and (c) 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 ELECTING 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 Annuitant has reached his/her 78th birthday. The
Owner may not elect a Rider with a fifteen-year waiting period if at the
time of election the Annuitant has reached his/her 73rd birthday.
EXERCISING 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 from the effective date of the Rider.
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- The Owner may only annuitize under a fixed annuity payout option involving
a life contingency as provided under "K. Description of Variable Annuity
Payout Options."
- The Owner may only annuitize at the Company's guaranteed fixed annuity
option rates listed under the Annuity Option Tables in the Contract.
TERMINATING 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
(1) occurs on or within thirty days after any contract anniversary and
(2) in conjunction with the repurchase of an M-GAP Rider with a waiting
period of equal or greater length at its then current price, if available.
- The Owner may terminate the Rider at any time after the seventh Contract
anniversary following the effective date of the Rider.
- The Owner may repurchase a Rider with a waiting period equal to or greater
than the Rider then in force at the new Rider's then current price, if
available, however, repurchase may only occur on or within thirty days of
a Contract anniversary.
- Other than in the event of a repurchase, once terminated the Rider may not
be purchased again.
- The Rider will terminate upon surrender of the Contract or the date that a
death benefit is payable if the Contract is not 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
an Owner age 60 (at issue) and exercise of an 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% 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. Minimum guaranteed annual income values are based on a fixed
annuity payout.
<TABLE>
<CAPTION>
MINIMUM
CONTRACT MINIMUM GUARANTEED
ANNIVERSARY GUARANTEED ANNUAL
AT EXERCISE BENEFIT BASE INCOME(1)
- ----------- ------------ ----------
<S> <C> <C>
10 $162,889 $12,153
15 $207,892 $17,695
</TABLE>
(1)Other fixed annuity options involving a life contingency other than Life
Annuity With Payments Guaranteed for 10 Years are available. See "K. Description
of Variable Annuity Payout Options."
The M-GAP Rider does not create Accumulated Value or guarantee performance of
any investment option. 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. As described above, withdrawals will reduce the
benefit base. The Company reserves the right to terminate the availability
35
<PAGE>
of the M-GAP Rider at any time. Such a termination would not effect M-GAP Riders
issued prior to the termination date, but as noted above, Owners would not be
able to repurchase a new Rider under the repurchase feature (see above,
"TERMINATING THE M-GAP RIDER.")
N. NORRIS DECISION.
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a Contract issued in connection with an employer-sponsored benefit plan
affected by the NORRIS decision will be based on the greater of (1) the
Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed unisex rates described in such Contract, regardless of whether the
Annuitant is male or female.
O. COMPUTATION OF VALUES
THE ACCUMULATION UNIT. Each net payment is allocated to the investment options
selected by the Owner. Allocations to the Sub-Accounts are credited to the
Contract in the form of Accumulation Units. Accumulation Units are credited
separately for each Sub-Account. The number of Accumulation Units of each Sub-
Account credited to the Contract is equal to the portion of the net payment
allocated to the Sub-Account, divided by the dollar value of the applicable
Accumulation Unit as of the Valuation Date the payment is received at the
Principal Office. The number of Accumulation Units resulting from each payment
will remain fixed unless changed by a subsequent split of Accumulation Unit
value, a transfer, a withdrawal, or surrender. The dollar value of an
Accumulation Unit of each Sub-Account varies from Valuation Date to Valuation
Date based on the investment experience of that Sub-Account, and will reflect
the investment performance, expenses and charges of its Underlying Funds. The
value of an Accumulation Unit was set at $1.00 on the first Valuation Date for
each Sub-Account.
Allocations to the Guarantee Period Accounts and the Fixed Account are not
converted into Accumulation Units, but are credited interest at a rate
periodically set by the Company. See APPENDIX A -- MORE INFORMATION ABOUT THE
FIXED ACCOUNT and GUARANTEE PERIOD ACCOUNTS.
The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the value of an Accumulation
Unit of that Sub-Account on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the Fixed Account and Guarantee Period
Accounts, if any.
NET INVESTMENT FACTOR. The Net Investment Factor is an index that measures the
investment performance of a Sub-Account from one Valuation Period to the next.
This factor is equal to 1.000000 plus the result from dividing (1) by (2) and
subtracting (3) and (4) where:
(1) is the investment income of a Sub-Account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(2) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(3) is a charge for mortality and expense risks equal to 1.25% on an annual
basis of the daily value of the Sub-Account's assets; and
(4) is an administrative charge equal to 0.15% on an annual basis of the
daily value of the Sub-Account's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of an Accumulation Unit calculation using a hypothetical
example see the SAI.
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<PAGE>
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 (or other payee) lives and no matter how long all
Annuitants as a class live. Therefore, 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. The Company estimates
that a reasonable allocation might be 0.80% for mortality risk and 0.45% for
expense risk.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily charge at an annual rate of 0.15% of the average daily net assets of the
Sub-Account. This charge may not be increased. The charge is imposed during both
the accumulation phase and the annuity payout phase. The daily Administrative
Expense Charge is assessed to help defray administrative expenses actually
incurred in the administration of the Sub-Account, without profits. There is no
direct relationship, however, between the amount of administrative expenses
imposed on a given Contract and the amount of expenses actually attributable to
that Contract.
Deductions for the Contract fee (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.
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<PAGE>
B. CONTRACT FEE
A $30 Contract fee is deducted on the Contract anniversary date and upon full
surrender of the Contract if the Accumulated Value on any of these dates is less
than $50,000. The Contract fee is currently waived for Contracts issued to and
maintained by the trustee of a 401(k) plan. The Company reserves the right to
impose a Contract Fee up to $30 on Contracts issued to 401(k) plans but only
with respect to Contracts issued after the date the waiver is no longer
available. Where Contract value has been allocated to more than one account, a
percentage of the total Contract fee will be deducted from the value in each
account. The portion of the charge deducted from each account will be equal to
the percentage which the value in that account bears to the Accumulated Value
under the Contract. The deduction of the Contract fee from a Sub-Account will
result in cancellation of a number of Accumulation Units equal in value to the
percentage of the charge deducted from that account.
Where permitted by law, the Contract fee also may be waived for Contracts where,
on the issue date, either the Owner or the Annuitant is within the following
class of individuals: employees and registered representatives of any
broker-dealer which has entered into a sales agreement with the Company to sell
the Contract; employees of the Company, its affiliates and subsidiaries
officers, directors, trustees and employees of any of the Funds; investment
managers or sub-advisers; and the spouses of and immediate family members
residing in the same household with such eligible persons. "Immediate family
members" means children, siblings, parents and grandparents.
C. OPTIONAL MINIMUM GUARANTEED ANNUITY PAYOUT (M-GAP) RIDER CHARGE
Subject to state availability, the Company currently offers an optional Minimum
Guaranteed Annuity Payout (M-GAP) Rider that may be elected by the Owner. A
separate monthly charge is made for the Rider. The charge is made through a
pro-rata reduction of the Accumulated Value of the Sub-Accounts, the Fixed
Account and the Guarantee Period Accounts (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).
The applicable charge is assessed on the Accumulated Value on the last day of
each month within which the Rider has been in effect 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 (M-GAP) Rider with
ten-year waiting period................................... 0.25%
Minimum Guaranteed Annuity Payout (M-GAP) Rider with
fifteen-year waiting period............................... 0.15%
</TABLE>
For a description of the Rider, see "M. Optional Minimum Guaranteed Annuity
Payout (M-GAP) 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
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<PAGE>
2. the premium tax charge is deducted in total 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 and/or a withdrawal or at the time annuity benefit
payments begin, within certain time limits described below.
For purposes of determining the surrender charge, the Accumulated Value is
divided into three categories: (1) New Payments - payments received by the
Company during the seven years preceding the date of the surrender; (2) Old
Payments - accumulated payments invested in the Contract for more than seven
years; and (3) the amount available under the Withdrawal Without Surrender
Charge provision. See "Withdrawal Without Surrender Charge" below. For purposes
of determining the amount of any surrender charge, surrenders will be deemed to
be taken first from amounts available as a Withdrawal Without Surrender Charge,
if any; then from any Old Payments, and then from New Payments. 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. If a withdrawal is attributable all or in part to New
Payments, a surrender charge may apply.
CHARGE FOR SURRENDER AND WITHDRAWAL. If a Contract is surrendered, or if New
Payments are withdrawn while the Contract is in force and before the Annuity
Date, a 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>
CHARGE AS PERCENTAGE OF
YEARS FROM NEW PAYMENTS
DATE OF PAYMENT WITHDRAWN
- --------------- -----------------------
<S> <C>
0-1 6.5%
2 6.0%
3 5.0%
4 4.0%
5 3.0%
6 2.0%
7 1.0%
More than 7 0.0%
</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 6.5% of total gross New Payments. Such total charge equals the
aggregate of all applicable surrender charges for surrender, withdrawals, and
annuitization.
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<PAGE>
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 and
before attaining age 65. Under New York Contracts, the disability also must
exist for a continuous period of at least four months. The Company may require
proof of such disability and continuing disability, including written
confirmation of receipt and approval of any claim for Social Security Disability
Benefits and reserves the right to obtain an examination by a licensed physician
of its choice and at its expense. In addition, except in New York and New Jersey
where not permitted by state law, 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 the issue date 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.
For purposes of the above provision, "medical care facility" means any
state-licensed facility or, in a state that does not require licensing, a
facility that is operating pursuant to state law, providing medically necessary
inpatient care which is prescribed by a licensed "physician" in writing and
based on physical limitations which prohibit daily living in a non-institutional
setting; "fatal illness" means a condition diagnosed by a licensed "physician"
which is expected to result in death within two years of the diagnosis; and
"physician" means a person other than the Owner, Annuitant or a member of one of
their families who is state licensed to give medical care or treatment and is
acting within the scope of that license.
Where 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: (1) the size and type
of group or class, and the persistency expected from that group or class;
(2) the total amount of payments to be received, and the manner in which
payments are remitted; (3) the purpose for which the Contracts are being
purchased, and whether that purpose makes it likely that costs and expenses will
be reduced; (4) other transactions where sales expenses are likely to be
reduced; or (5) the level of commissions paid to selling broker-dealers or
certain financial institutions with respect to Contracts within the same group
or class (for example, broker-dealers who offer this Contract in connection with
financial planning services offered on a fee-for-service basis). The Company
also may reduce or waive the 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 of the Underlying
Funds; and the spouses of and immediate family members residing in the same
household with such eligible persons. "Immediate family members" means children,
siblings, parents and grandparents. Finally, 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.
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.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the surrender
charge is modified to effect certain exchanges of existing annuity contracts
issued by the Company for the Contract. See "Exchange Offer" in the SAI.
40
<PAGE>
WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, the Company will
waive the surrender charge, if any, on an amount ("Withdrawal Without Surrender
Charge") equal to the greatest of (1), (2) or (3):
Where (1) is: 100% of Cumulative Earnings (calculated as the
Accumulated Value as of the Valuation Date the Company
receives the withdrawal request, or the following day,
reduced by total gross payments not previously
withdrawn);
Where (2) is: 10% of the Accumulated Value as of the Valuation Date
the Company receives the withdrawal request, or the
following day, reduced by the total amount of any prior
withdrawals made in the same calendar year to which no
surrender charge was applied; and
Where (3) is: The amount calculated under the Company's life
expectancy distribution option (see "Life Expectancy
Distributions" above) whether or not the withdrawal was
part of such distribution (applies only if Annuitant is
also an Owner).
For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge first will be deducted from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from payments not
previously withdrawn on a LIFO (last-in/first-out) basis. This means that the
last payments credited to the Contract will be withdrawn first. 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.
SURRENDERS. In the case of a complete surrender, the amount received by the
Owner is equal to the entire Accumulated Value under the Contract, net of the
applicable surrender charge on New Payments, the Contract fee and any applicable
tax withholding, and adjusted for any applicable Market Value Adjustment.
Subject to the same rules applicable to withdrawals, the Company will not assess
a surrender charge on an amount equal to the Withdrawal Without Surrender Charge
Amount, described above.
Where an Owner who is trustee under a pension plan surrenders, in whole or in
part, a Contract on a terminating employee, the trustee will be permitted to
reallocate all or a part of the Accumulated Value under the Contract to other
Contracts issued by the Company and owned by the trustee, with no deduction for
any otherwise applicable 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.
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 "E. Surrender" and "F.
Withdrawals" under DESCRIPTION OF THE CONTRACT and see FEDERAL TAX
CONSIDERATIONS.
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If the Owner chooses any
commutable period certain option or a noncommutable fixed period certain option
for less than ten years (less than six years under New York Contracts), a
surrender charge will be deducted from the Accumulated Value of the Contract if
the
41
<PAGE>
Annuity Date occurs at any time when a surrender charge would still apply had
the Contract been surrendered on the Annuity Date.
No surrender charge is imposed at the time of annuitization in any Contract year
under an option involving a life contingency or any noncommutable fixed period
certain option for ten years or more (six years or more under New York
Contracts). A Market Value Adjustment, however, may apply. See GUARANTEE PERIOD
ACCOUNTS. If the Owner of a fixed annuity contract issued by the Company wishes
to elect a variable annuity option, the Company may permit such Owner to
exchange, at the time of annuitization, the fixed contract for a Contract
offered in this Prospectus. The proceeds of the fixed contract, minus any
surrender charge applicable under the fixed contract if a period certain option
is chosen, will be applied towards the variable annuity option desired by the
Owner. The number of Annuity Units under the option will be calculated using the
Annuity Unit values as of the 15th of the month preceding the Annuity Date.
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 "D. Transfer
Privilege" under DESCRIPTION OF THE CONTRACT.
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<PAGE>
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 three
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%.
To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Owners may allocate net payments or make transfers from any of the Sub-Accounts,
the Fixed Account or an existing Guarantee Period Account to establish a new
Guarantee Period Account at any time prior to the Annuity Date. Transfers from a
Guarantee Period Account on any date other than on the day following the
expiration of that Guarantee Period will be subject to a Market Value
Adjustment. The Company establishes a separate investment account each time the
Owner allocates or transfers amounts to a Guarantee Period except that amounts
allocated to the same Guarantee Period on the same day will be treated as one
Guarantee Period Account. The minimum that may be allocated to establish a
Guarantee Period Account is $1,000. If less than $1,000 is allocated, the
Company reserves the right to apply that amount to the Money Market Fund. The
Owner may allocate amounts to any of the Guarantee Periods available.
At least 45 days, but not more than 75 days, prior to the end of a Guarantee
Period, the Company will notify the Owner in writing of the expiration of that
Guarantee Period. At the end of a Guarantee Period the Owner may transfer
amounts to the Sub-Accounts, the Fixed Account or establish a new Guarantee
Period Account of any duration then offered by the Company without a Market
Value Adjustment. If reallocation instructions are not received at the Principal
Office before the end of a Guarantee Period, the account value automatically
will be applied to a new Guarantee Period Account with the same duration unless
(1) less than $1,000 would remain in the Guarantee Period Account on the
expiration date, or (2) unless the Guarantee Period would extend beyond the
Annuity Date or is no longer available. In such cases, the Guarantee Period
Account value will be transferred to the Sub-Account investing in the Money
Market Fund. Where amounts have been renewed automatically in a new Guarantee
Period, the Company currently gives the Owner an additional 30 days to transfer
out of the Guarantee Period Account without application of a Market Value
Adjustment. This practice may be discontinued or changed with notice at the
Company's discretion. However, under Contracts issued in New York, the Company
guarantees that it will transfer monies out of the Guarantee Period Account
without application of a Market Value Adjustment if the Owner's request is
received within ten days of the renewal date.
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit 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
43
<PAGE>
Value. See "G. Death Benefit." All other transfers, withdrawals, or a surrender
prior to the end of a Guarantee Period will be subject to a Market Value
Adjustment, which may increase or decrease the account value. Amounts applied
under an annuity option are treated as withdrawals when calculating the Market
Value Adjustment. The Market Value Adjustment will be determined by multiplying
the amount taken from each Guarantee Period Account 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)]to the power of 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.
WITHDRAWALS. Prior to the Annuity Date, the Owner may make withdrawals of
amounts held in the Guarantee Period Accounts. Withdrawals from these accounts
will be made in the same manner and be subject to the same rules as set forth
under "F. Withdrawals" and "E. Surrender." In addition, the following provisions
also apply to withdrawals from a Guarantee Period Account: (1) a Market Value
Adjustment will apply to all withdrawals, 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 "E. Surrender Charge"
after application of the Market Value Adjustment.
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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.
A. GENERAL
THE COMPANY. The Company intends to make a charge for any effect which the
income, assets, or existence of the Contract, the Variable Account or the
Sub-Accounts may have upon its tax. The Variable Account presently is not
subject to tax, but the Company reserves the right to assess a charge for taxes
should the Variable Account at any time become subject to tax. Any charge for
taxes will be assessed on a fair and equitable basis in order to preserve equity
among classes of Owners and with respect to each separate account as though that
separate account were a separate taxable entity.
The Variable Account is considered a part of and taxed with the operations of
the Company. The Company is taxed as a life insurance company under Subchapter L
of the Code. The Company files a consolidated tax return with its affiliates.
DIVERSIFICATION REQUIREMENTS. The IRS has issued regulations under Section
817(h) of the Code relating to the diversification requirements for variable
annuity and variable life insurance contracts. The regulations prescribed by the
Treasury Department 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. Under this section of the Code, if
the investments are not adequately diversified, the Contract will not be treated
as an annuity contract and therefore, the income on the Contract, for any
taxable year of the Owner, would be treated as ordinary income received or
accrued by the Owner. It is anticipated that the Underlying Funds will comply
with the current diversification requirements. In the event that future IRS
regulations and/or rulings would require Contract modifications in order to
remain in compliance with the diversification standards, the Company will make
reasonable efforts to comply, and it reserves the right to make such changes as
it deems appropriate for that purpose.
INVESTOR CONTROL. In order for a variable annuity contract to qualify for tax
deferral, the Company, and not the variable contract owner, must be considered
to be the owner for tax purposes of the assets in the segregated asset account
underlying the variable annuity contract. In certain circumstances, however,
variable annuity contract owners may now 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
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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.
B. 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.
C. TAXATION OF THE CONTRACTS IN GENERAL
The Company believes that the Contracts described in this Prospectus will, with
certain exceptions (see "Nonnatural Owners" below), be considered annuity
contracts under Section 72 of the Code. Please note, however if the Owner
chooses an Annuity Date beyond the Annuitant's 85th birthday, it is possible
that the Contract may not be considered an annuity for tax purposes and
therefore the Owner may be taxed on the annual increase in Accumulated Value.
The Owner should consult tax and financial advisors for more information. This
section governs the taxation of annuities. The following discussion concerns
annuities subject to Section 72.
WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in
the Contract's Accumulated Value is not taxable to the Owner until it is
withdrawn from the Contract. 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.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments are
commenced under the Contract, generally a portion of each payment may be
excluded from gross income. The excludable portion generally is determined by a
formula that establishes the ratio that the investment in the Contract bears to
the expected return under the Contract. The portion of the payment in excess of
this excludable amount is taxable as ordinary income. Once all the investment in
the Contract is recovered, the entire payment is taxable. If the annuitant dies
before cost basis is recovered, a deduction for the difference is allowed on the
annuitant's final tax return.
PENALTY ON DISTRIBUTION. A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2. The penalty tax
will not be imposed on withdrawals taken on or after age 59 1/2, or if the
withdrawal follows the death of the Owner (or, if the Owner is not an
individual, the death of the primary Annuitant, as defined in the Code) or, in
the case of the Owner's "total disability" (as defined in the Code).
Furthermore, under Section 72 of the Code, this penalty tax will not be imposed,
irrespective of age, if the amount received is one of a series of "substantially
equal" periodic payments made at least annually for the life or life expectancy
of the payee. This requirement is met when the Owner elects to have
distributions made over the Owner's life expectancy, or over the joint life
expectancy of the Owner and beneficiary. The requirement that the amount be paid
out as one of a series of "substantially equal" periodic payments is met
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when the number of units withdrawn to make each distribution is substantially
the same. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the Owner's age 59 1/2 or five years, will subject
the Owner to the 10% penalty tax on the prior distributions. In addition to the
exceptions above, the penalty tax will not apply to withdrawals from a qualified
Contract made to an employee who has terminated employment after reaching age
55.
In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy, 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.
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.
D. TAX WITHHOLDING
The Code requires withholding with respect to payments or distributions from
non-qualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.
The tax treatment of certain withdrawals or surrenders of the non-qualified
Contracts offered by this Prospectus will vary according to whether the amount
withdrawn or surrendered is allocable to an investment in the Contract made
before or after certain dates.
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E. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS
Federal income taxation of assets held inside a qualified retirement plan and of
earnings on those assets is deferred until distribution of plan benefits begins.
As such, it is not necessary to purchase a variable annuity contract solely to
obtain its tax deferral feature. However, other features offered under this
Contract and described in this Prospectus -- such as the minimum guaranteed
death benefit, the guaranteed fixed annuity rates and the wide variety of
investment options -- may make this Contract a suitable investment for your
qualified retirement plan.
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.
SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS. Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Contracts
in connection with such plans should seek competent advice as to the suitability
of the Contract to their specific needs and as to applicable Code limitations
and tax consequences.
The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). Note: This term covers all IRAs permitted
under Section 408 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.
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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
frequent 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 such as Dollar Cost Averaging 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.
LOANS (QUALIFIED CONTRACTS ONLY)
Loans are available to Owners of TSA Contracts (i.e., contracts issued under
Section 403(b) of the Code) and to Contracts issued to plans qualified under
Sections 401(a) and 401(k) of the Code. Loans are subject to provisions of the
Code and to applicable qualified retirement plan rules. Tax advisors and plan
fiduciaries should be consulted prior to exercising loan privileges.
Loaned amounts will be withdrawn first from Sub-Account and Fixed Account values
on a pro-rata basis until exhausted. Thereafter, any additional amounts will be
withdrawn from the Guarantee Period Accounts (pro-rata by duration and LIFO
within each duration), subject to any applicable Market Value Adjustments. The
maximum loan amount will be determined under the Company's maximum loan formula.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Contract and the amount borrowed will be transferred to a loan asset
account within the Company's General Account, where it will accrue interest at a
specified rate below the then-current loan rate. Generally, loans must be repaid
within five years or less, and repayments must be made quarterly and in
substantially equal amounts. Repayments will be allocated pro-rata in accordance
with the most recent payment allocation, except that any allocations to a
Guarantee Period Account will instead be allocated to the Money Market Fund.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Fund no longer are available for investment or if, in the Company's
judgment, further investment in any Underlying Fund should become inappropriate
in view of the purposes of the Variable Account or the affected Sub-Account, the
Company may withdraw the shares of that Underlying Fund and substitute shares of
another registered open-end management company. The Company will not substitute
any shares attributable to a Contract interest in a Sub-Account without notice
to the Owner and prior approval of
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the SEC and state insurance authorities, to the extent required by the 1940 Act
or other applicable law. The Variable Account may, to the extent permitted by
law, purchase other securities for other contracts or permit a conversion
between contracts upon request by an Owner.
The Company also reserves the right to establish additional Sub-Accounts of the
Variable Account, each of which would invest in shares corresponding to a new
Underlying Fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required SEC approval,
the Company may, in its sole discretion, establish new Sub-Accounts or eliminate
one or more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new Sub-Accounts may be made available to existing
Owners on a basis to be determined by the Company.
Shares of the Underlying Funds also are issued to variable accounts of the
Company and its affiliates which issue variable life contracts ("mixed
funding"). Shares of the 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.
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,
(6) to change the names of the Variable Account or of the Sub-Accounts, and
(7) to combine with other Sub-Accounts or other Separate Accounts of the
Company.
If any of these substitutions or changes are made, the Company may endorse the
Contract to reflect the substitution or change, and will notify Owners of all
such changes. In no event will the changes described above be made without
notice to Owners in accordance with the 1940 Act.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend sales
of the Contract as presently offered, and to make any change to provisions of
the Contract to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation, including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation. Any such changes will apply uniformly to all
Contracts that are affected. You will be given written notice of such changes.
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VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Sub-Account in
accordance with instructions received from Owners and, after the Annuity Date,
from the Annuitants. Each person having a voting interest in a Sub-Account will
be provided with proxy materials of the Underlying Fund, together with a form
with which to give voting instructions to the Company. Shares for which no
timely instructions are received will be voted in proportion to the instructions
which are received. The Company also will vote shares in a Sub-Account that it
owns and which are not attributable to Contracts in the same proportion. If the
1940 Act or any rules thereunder should be amended or if the present
interpretation of the 1940 Act or such rules should change, and as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Contract, the Company reserves the
right to do so.
The number of votes which an Owner or Annuitant may cast will be determined by
the Company as of the record date established by the Underlying Fund. During the
accumulation period, the number of Underlying Fund shares attributable to each
Owner will be determined by dividing the dollar value of the Accumulation Units
of the Sub-Account credited to the Contract by the net asset value of one
Underlying Fund share. During the annuity period, the number of Underlying Fund
shares attributable to each Annuitant will be determined by dividing the reserve
held in each Sub-Account for the Annuitant's Variable Annuity by the net asset
value of one Underlying Fund share. Ordinarily, the Annuitant's voting interest
in the Underlying Fund will decrease as the reserve for the Variable Annuity is
depleted.
DISTRIBUTION
The Contract offered by this Prospectus may be purchased from certain
independent broker-dealers which are registered under the Securities and
Exchange Act of 1934 Act and members of the National Association of Securities
Dealers, Inc. ("NASD"). The Contract also is offered through Allmerica
Investments, Inc., which is the principal underwriter and distributor of the
Contracts. Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653,
is a registered broker-dealer, a member of the NASD and an indirectly wholly
owned subsidiary of First Allmerica.
The Company pays commissions not to exceed 7.0% of payments to broker-dealers
that 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, overrides and promotional incentives or payments also may be provided to
General Agents, independent marketing organizations and 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 expense
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. Any surrender charges assessed on a Contract will be retained by the
Company.
Owners may direct any inquiries to their financial representative or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-366-1492.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party,
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 their total assets or that relates to the Variable
Account.
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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.
If a Contract is surrendered, or if an excess amount is withdrawn while the
Contract is in force and before the Annuity Date, a surrender charge is imposed
if such event occurs before the payments attributable to the surrender or
withdrawal have been credited to the Contract for seven full Contract years.
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
Fund.
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APPENDIX B
PERFORMANCE TABLES
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
SUB-ACCOUNT FOR YEAR SINCE
INCEPTION ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND DATE 12/31/99 5 YEARS SUB-ACCOUNT
- ---------------------------------------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund.......... 2/20/98 56.89% N/A 10.66%
Select International Equity Fund...... 5/3/94 23.04% 16.30% 13.38%
T. Rowe Price International Stock
Portfolio............................ 5/1/95 24.79% N/A 13.38%
Select Aggressive Growth Fund......... 9/8/92 29.83% 21.05% 18.89%
Select Capital Appreciation Fund...... 4/30/95 16.90% N/A 19.23%
Select Value Opportunity Fund......... 2/20/98 -11.56% N/A -6.74%
Select Growth Fund.................... 9/8/92 21.09% 26.78% 18.71%
Select Strategic Growth Fund.......... 2/20/98 7.91% N/A 2.27%
Fidelity VIP Growth Portfolio......... 5/1/95 28.78% N/A 27.62%
Select Growth and Income Fund......... 9/8/92 9.90% 19.45% 14.09%
Fidelity VIP Equity-Income Portfolio... 5/1/95 -1.53% N/A 14.91%
Fidelity VIP High Income Portfolio.... 5/1/95 0.21% N/A 7.46%
Select Income Fund.................... 9/8/92 -8.17% 4.72% 3.84%
Money Market Fund..................... 10/8/92 -2.46% 3.35% 3.24%
</TABLE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
SUB-ACCOUNT FOR YEAR SINCE
INCEPTION ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND DATE 12/31/99 5 YEARS SUB-ACCOUNT
- ---------------------------------------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund.......... 2/20/98 63.41% N/A 13.62%
Select International Equity Fund...... 5/3/94 29.87% 16.91% 13.89%
T. Rowe Price International Stock
Portfolio............................ 5/1/95 31.46% N/A 13.92%
Select Aggressive Growth Fund......... 9/8/92 36.72% 21.63% 19.17%
Select Capital Appreciation Fund...... 4/30/95 23.61% N/A 19.73%
Select Value Opportunity Fund......... 2/20/98 -6.03% N/A -3.88%
Select Growth Fund.................... 9/8/92 27.99% 27.29% 19.03%
Select Strategic Growth Fund.......... 2/20/98 14.44% N/A 5.40%
Fidelity VIP Growth Portfolio......... 5/1/95 35.52% N/A 28.04%
Select Growth and Income Fund......... 9/8/92 16.77% 20.02% 14.41%
Fidelity VIP Equity-Income Portfolio... 5/1/95 4.84% N/A 15.47%
Fidelity VIP High Income Portfolio.... 5/1/95 6.64% N/A 8.11%
Select Income Fund.................... 9/8/92 -2.24% 5.44% 4.08%
Money Market Fund..................... 10/8/92 3.71% 4.00% 3.38%
</TABLE>
B-1
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS OR
SINCE
FOR YEAR INCEPTION OF
UNDERLYING FUND ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS FUND (IF LESS)
- ---------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund........ 2/20/98 56.89% N/A 10.66%
Select International Equity Fund.... 5/2/94 23.04% 16.30% 13.38%
T. Rowe Price International Stock
Portfolio.......................... 3/31/94 24.79% 13.11% 11.52%
Select Aggressive Growth Fund....... 8/21/92 29.83% 21.05% 18.75%
Select Capital Appreciation Fund.... 4/28/95 16.90% N/A 19.23%
Select Value Opportunity Fund....... 4/30/93 -11.56% 11.57% 9.93%
Select Growth Fund.................. 8/21/92 21.09% 26.78% 18.57%
Select Strategic Growth Fund........ 2/20/98 7.91% N/A 2.27%
Fidelity VIP Growth Portfolio....... 10/9/86 28.78% 27.58% 18.14%
Select Growth and Income Fund....... 8/21/92 9.90% 19.45% 13.99%
Fidelity VIP Equity-Income Portfolio.. 10/9/86 -1.53% 16.49% 12.85%
Fidelity VIP High Income Portfolio... 9/19/85 0.21% 8.77% 10.76%
Select Income Fund.................. 8/21/92 -8.17% 4.72% 3.81%
Money Market Fund................... 4/29/85 -2.46% 3.35% 3.65%
</TABLE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
10 YEARS OR
SINCE
FOR YEAR INCEPTION OF
UNDERLYING FUND ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS FUND (IF LESS)
- ---------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund........ 2/20/98 63.41% N/A 13.62%
Select International Equity Fund.... 5/2/94 29.87% 16.91% 13.88%
T. Rowe Price International Stock
Portfolio.......................... 3/31/94 31.46% 13.61% 11.87%
Select Aggressive Growth Fund....... 8/21/92 36.72% 21.63% 19.03%
Select Capital Appreciation Fund.... 4/28/95 23.61% N/A 19.73%
Select Value Opportunity Fund....... 4/30/93 -6.03% 11.96% 10.03%
Select Growth Fund.................. 8/21/92 27.99% 27.29% 18.89%
Select Strategic Growth Fund........ 2/20/98 14.44% N/A 5.40%
Fidelity VIP Growth Portfolio....... 10/9/86 35.52% 27.94% 18.28%
Select Growth and Income Fund....... 8/21/92 16.77% 20.02% 14.31%
Fidelity VIP Equity-Income Portfolio.. 10/9/86 4.84% 16.97% 13.00%
Fidelity VIP High Income Portfolio... 9/19/85 6.64% 9.34% 10.88%
Select Income Fund.................. 8/21/92 -2.24% 5.44% 4.05%
Money Market Fund................... 4/29/85 3.71% 4.00% 3.78%
</TABLE>
B-2
<PAGE>
APPENDIX C
PERFORMANCE TABLES
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR SINCE
SUB-ACCOUNT ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS SUB-ACCOUNT
- ---------------------------------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund......... 2/20/98 56.87% N/A 10.65%
Select International Equity Fund..... 5/3/94 23.04% 16.30% 13.38%
T. Rowe Price International Stock
Portfolio........................... 5/1/95 24.80% N/A 13.38%
Select Aggressive Growth Fund........ 4/21/94 29.87% 21.08% 18.30%
Select Capital Appreciation Fund..... 4/30/95 16.93% N/A 19.25%
Select Value Opportunity Fund........ 2/20/98 -11.57% N/A -6.75%
Select Growth Fund................... 4/21/94 21.11% 26.80% 23.88%
Select Strategic Growth.............. 2/20/98 7.90% N/A 2.26%
Fidelity VIP Growth Portfolio........ 5/1/95 28.81% N/A 27.64%
Select Growth and Income Fund........ 4/21/94 9.89% 19.44% 17.52%
Fidelity VIP Equity-Income Portfolio... 5/1/95 -1.52% N/A 14.92%
Fidelity VIP High Income Portfolio... 5/1/95 0.18% N/A 7.42%
Select Income Fund................... 4/20/94 -8.22% 4.69% 4.08%
Money Market Fund.................... 4/7/94 -2.48% 3.32% 3.39%
</TABLE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
FOR YEAR SINCE
SUB-ACCOUNT ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS SUB-ACCOUNT
- ---------------------------------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund......... 2/20/98 63.41% N/A 13.62%
Select International Equity Fund..... 5/3/94 29.87% 16.91% 13.89%
T. Rowe Price International Stock
Portfolio........................... 5/1/95 31.46% N/A 13.91%
Select Aggressive Growth Fund........ 4/21/94 36.72% 21.63% 18.76%
Select Capital Appreciation Fund..... 4/30/95 23.61% N/A 19.73%
Select Value Opportunity Fund........ 2/20/98 -6.03% N/A -3.87%
Select Growth Fund................... 4/21/94 27.99% 27.29% 24.29%
Select Strategic Growth Fund......... 2/20/98 14.44% N/A 5.40%
Fidelity VIP Growth Portfolio........ 5/1/95 35.51% N/A 28.04%
Select Growth and Income Fund........ 4/21/94 16.77% 20.02% 17.98%
Fidelity VIP Equity-Income Portfolio... 5/1/95 4.84% N/A 15.47%
Fidelity VIP High Income Portfolio... 5/1/95 6.64% N/A 8.11%
Select Income Fund................... 4/20/94 -2.24% 5.44% 4.64%
Money Market Fund.................... 4/7/94 3.71% 4.00% 3.85%
</TABLE>
C-1
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS OR
SINCE
FOR YEAR INCEPTION OF
UNDERLYING FUND ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS FUND (IF LESS)
- ---------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund........ 2/20/98 56.87% N/A 10.65%
Select International Equity Fund.... 5/2/94 23.04% 16.30% 13.37%
T. Rowe Price International Stock
Portfolio.......................... 3/31/94 24.80% 13.12% 11.53%
Select Aggressive Growth Fund....... 8/21/92 29.87% 21.08% 18.77%
Select Capital Appreciation Fund.... 4/28/95 16.93% N/A 19.25%
Select Value Opportunity Fund....... 4/30/93 -11.57% 11.56% 9.93%
Select Growth Fund.................. 8/21/92 21.11% 26.80% 18.59%
Select Strategic Growth Fund........ 2/20/98 7.90% N/A 2.26%
Fidelity VIP Growth Portfolio....... 10/9/86 28.81% 27.59% 18.16%
Select Growth and Income Fund....... 8/21/92 9.89% 19.44% 13.98%
Fidelity VIP Equity-Income Portfolio.. 10/9/86 -1.52% 16.51% 12.86%
Fidelity VIP High Income Portfolio... 9/19/85 0.18% 8.74% 10.74%
Select Income Fund.................. 8/21/92 -8.22% 4.69% 3.77%
Money Market Fund................... 4/29/85 -2.48% 3.32% 3.61%
</TABLE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
10 YEARS OR
SINCE
FOR YEAR INCEPTION OF
UNDERLYING FUND ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS FUND (IF LESS)
- ---------------------------------------- --------------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund........ 2/20/98 63.41% N/A 13.62%
Select International Equity Fund.... 5/2/94 29.87% 16.91% 13.88%
T. Rowe Price International Stock
Portfolio.......................... 3/31/94 31.46% 13.60% 11.86%
Select Aggressive Growth Fund....... 8/21/92 36.72% 21.63% 19.03%
Select Capital Appreciation Fund.... 4/28/95 23.61% N/A 19.73%
Select Value Opportunity Fund....... 4/30/93 -6.03% 11.95% 10.02%
Select Growth Fund.................. 8/21/92 27.99% 27.29% 18.89%
Select Strategic Growth Fund........ 2/20/98 14.44% N/A 5.40%
Fidelity VIP Growth Portfolio....... 10/9/86 35.51% 27.94% 18.28%
Select Growth and Income Fund....... 8/21/92 16.77% 20.02% 14.31%
Fidelity VIP Equity-Income Portfolio.. 10/9/86 4.84% 16.97% 13.00%
Fidelity VIP High Income Portfolio... 9/19/85 6.64% 9.34% 10.88%
Select Income Fund.................. 8/21/92 -2.24% 5.44% 4.05%
Money Market Fund................... 4/29/85 3.71% 4.00% 3.78%
</TABLE>
C-2
<PAGE>
APPENDIX D
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 $54,000.00 $ 5,400.00 6.5% $3,159.00
2 58,320.00 8,320.00 6.0% 3,000.00
3 62,985.60 12,985.60 5.0% 2,500.00
4 68,024.45 18,024.45 4.0% 2,000.00
5 73,466.40 23,466.40 3.0% 1,500.00
6 79,343.72 29,343.72 2.0% 1,000.00
7 85,691.21 35,691.21 1.0% 500.00
8 92,546.51 42,546.51 0.0% 0.00
</TABLE>
WITHDRAWALS -- Assume a payment of $50,000 is made on the issue date and no
additional payments are made. Assume that the Withdrawal Without Surrender
Charge Amount is equal to the greater of 10% of the current Accumulated Value or
the accumulated earnings in the Contract and there are withdrawals as detailed
below. The table below presents examples of the surrender charge resulting from
withdrawals, based on Hypothetical Accumulated Values:
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWALS CHARGE AMOUNT PERCENTAGE CHARGE
- -------- ------------ ----------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1 $54,000.00 $0.00 $ 5,400.00 6.5% $0.00
2 58,320.00 0.00 8,320.00 6.0% 0.00
3 62,985.60 0.00 12,985.60 5.0% 0.00
4 68,024.45 30,000.00 18,024.45 4.0% 479.02
5 41,066.40 10,000.00 4,106.64 3.0% 176.80
6 33,551.72 5,000.00 3,355.17 2.0% 32.90
7 30,835.85 10,000.00 3,083.59 1.0% 69.16
8 22,502.72 15,000.00 2,250.27 0.0% 0.00
</TABLE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)] 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 $62,985.60 at the
end of three years.
4. No transfers or withdrawals affecting this Guarantee Period Account have
been made.
5. Surrender charges, if any, are calculated in the same manner as shown in
the examples in Part 1.
D-1
<PAGE>
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 adjustment = the market value factor multiplied by the withdrawal
= -.12054 X $62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)*
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] 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
= .06694
The market value adjustment = the market value factor multiplied by the withdrawal
= .06694 X $62,985.60
= $4,216.26
</TABLE>
*Uncapped is a straight application of the Market Value Adjustment formula when
the value produced is less than the cap.
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 adjustment = Minimum of the market value factor multiplied by the
withdrawal or the negative of the excess interest earned
over 3%
= Minimum (-.17454 X $62,985.60 or -$8,349.25)
= Minimum (-$10,992.38 or -$8,349.25)
= -$8,349.25
</TABLE>
D-2
<PAGE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)*
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.05)] to the power of 2555/365 - 1
= (1.01887) to the power of 7 - 1
= .13981
The market value adjustment = Minimum of the market value factor multiplied by the
withdrawal or the excess interest earned over 3%
The market value factor = Minimum of (.13981 X $62,985.60 or $8,349.25)
= Minimum of ($8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
*Capped takes into account the excess interest part of the Market Value
Adjustment formula when the value produced is greater than the cap.
D-3
<PAGE>
APPENDIX E
THE DEATH BENEFIT
PART 1: DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals and that the Death Benefit Effective
Annual Yield is equal to 5%. The table below presents examples of the Death
Benefit based on the Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH DEATH DEATH HYPOTHETICAL
YEAR VALUE ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) DEATH BENEFIT
- -------- ------------ ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 $53,000.00 $0.00 $53,000.00 $52,500.00 $50,000.00 $53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (b) is the gross payments accumulated daily at
an effective annual yield of 5% reduced proportionately to reflect withdrawals.
Death Benefit (c) is the death benefit that would have been payable on the most
recent Contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c)
DEATH BENEFIT ASSUMING WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are withdrawals as detailed in the table below and that
the Death Benefit Effective Annual Yield is equal to 5%. The table below
presents examples of the Death Benefit based on the Hypothetical Accumulated
Value.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH DEATH DEATH HYPOTHETICAL
YEAR VALUE WITHDRAWALS ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) DEATH BENEFIT
- --------------------- ------------ ----------- ------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $53,000.00 $0.00 $0.00 $53,000.00 $52,500.00 $50,000.00 $53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 4,171.13 3,972.50 4,171.13
4 3,494.70 0.00 500.00 3,994.70 4,379.68 4,171.13 4,379.68
5 3,844.17 0.00 0.00 3,844.17 4,598.67 4,379.68 4,598.67
6 4,228.59 0.00 500.00 4,728.59 4,828.60 4,598.67 4,828.60
7 4,651.45 0.00 0.00 4,651.45 5,070.03 4,828.60 5,070.03
8 5,116.59 0.00 500.00 5,616.59 5,323.53 5,070.03 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,589.71 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 712.70 683.44 712.70
</TABLE>
E-1
<PAGE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (b) is the gross payments accumulated daily at
an effective annual yield of 5% reduced proportionately to reflect withdrawals.
Death Benefit (c) is the death benefit that would have been payable on the most
recent Contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c)
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no partial withdrawals. The table below presents
examples of the Death Benefit based on the Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE HYPOTHETICAL
YEAR VALUE ADJUSTMENT DEATH BENEFIT
- -------- ------------ ------------ -------------
<S> <C> <C> <C>
1 $53,000.00 $0.00 $53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>
The Hypothetical Death Benefit is the Accumulated Value increased by any
positive Market Value Adjustment
E-2
<PAGE>
APPENDIX F
DIFFERENCES UNDER THE ALLMERICA SELECT RESOURCE I CONTRACT
1. The Guarantee Period Accounts are not available under Allmerica Select
Resource I.
2. The waiver of surrender charge offered in Allmerica Select Resource II if
you become disabled prior to age 65, are diagnosed with a terminal illness
or remain confined in a nursing home for the later of one year after issue
or 90 days (see Elimination or Reduction of Surrender Charges) is not
available under Allmerica Select Resource I. "NOTE: THE WAIVERS FOR TERMINAL
ILLNESS AND FOR CONFINEMENT IN A NURSING HOME ARE NOT AVAILABLE IN NEW YORK
OR NEW JERSEY UNDER EITHER ALLMERICA SELECT RESOURCE I OR ALLMERICA SELECT
RESOURCE II."
3. The Withdrawal Without Surrender Charge privilege under Allmerica Select
Resource I does not provide access to cumulative earnings without charge. In
addition, the 10% free amount is based on the prior December 31 Accumulated
Value rather than 10% of the Accumulated Value as of the date the withdrawal
request is received.
4. The death benefit under Allmerica Select Resource I is the greatest of: 1)
total payments less any withdrawals; 2) the Contract's Accumulated Value on
the Valuation Date that the Company receives proof of death; or 3) the
amount that would have been payable as a death benefit on the most recent
fifth Contract anniversary, increased to reflect additional payments and
reduced to reflect withdrawals since that date.
5. Any payment to the Fixed Account offered under Allmerica Select Resource I
must be at least $500 and is locked in for one year from the date of
deposit. At the end of one year, a payment may be transferred or renewed in
the Fixed Account for another full year at the guaranteed rate in effect on
that date. The minimum guaranteed rate is 3 1/2%. The Fixed Account is not
available to Owners who purchased Allmerica Select Resource I in Oregon. The
Fixed Account offered under Allmerica Select Resource I in Massachusetts
does not contain any age restrictions. (See APPENDIX A for discussion of
Fixed Account under Allmerica Select Resource II)
6. The $30 Contract fee under Allmerica Select Resource I is not waived under
any circumstances.
7. If you select a variable period certain annuity option, the dollar amount of
the first periodic annuity benefit payment is determined by multiplying
(1) the Accumulated Value applied under that option (less premium taxes, if
any) divided by $1,000, by (2) the applicable amount of the first monthly
payment per $1,000 of value.
F-1
<PAGE>
8. Because of the differences between the free withdrawal provisions and the
application of the Contract fee, the following examples apply to the
Allmerica Select Resource I contract rather than the examples on pages 8, 9
and 10 of this prospectus:
<TABLE>
<CAPTION>
1(A) WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund............................... $93 $149 $203 $367
Select International Equity Fund........................... $84 $122 $159 $282
T. Rowe Price International Stock Portfolio................ $84 $123 $160 $285
Select Aggressive Growth Fund.............................. $82 $117 $151 $267
Select Capital Appreciation Fund........................... $83 $120 $156 $277
Select Value Opportunity Fund.............................. $83 $120 $156 $277
Select Growth Fund......................................... $82 $116 $149 $263
Select Strategic Growth Fund............................... $85 $127 $168 $299
Fidelity VIP Growth Portfolio.............................. $80 $111 $141 $245
Select Growth and Income Fund.............................. $81 $114 $145 $253
Fidelity VIP Equity-Income Portfolio....................... $79 $108 $136 $236
Fidelity VIP High Income Portfolio......................... $80 $112 $142 $248
Select Income Fund......................................... $78 $106 $132 $227
Money Market Fund.......................................... $76 $100 $121 $206
<CAPTION>
1(B) WITH SURRENDER CHARGE AND WITH ELECTION OF A MINIMUM GUARANTEED ANNUITY
PAYOUT RIDER(1) WITH A TEN-YEAR WAITING PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund........................................ $95 $156 $215 $389
Select International Equity Fund.................................... $86 $129 $171 $306
T. Rowe Price International Stock Portfolio......................... $86 $130 $173 $309
Select Aggressive Growth Fund....................................... $85 $125 $164 $291
Select Capital Appreciation Fund.................................... $86 $128 $169 $301
Select Value Opportunity Fund....................................... $86 $128 $169 $301
Select Growth Fund.................................................. $84 $124 $162 $288
Select Strategic Growth Fund........................................ $88 $135 $180 $323
Fidelity VIP Growth Portfolio....................................... $83 $119 $153 $271
Select Growth and Income Fund....................................... $83 $121 $157 $279
Fidelity VIP Equity-Income Portfolio................................ $82 $116 $149 $262
Fidelity VIP High Income Portfolio.................................. $83 $120 $155 $274
Select Income Fund.................................................. $81 $114 $145 $253
Money Market Fund................................................... $79 $107 $134 $233
<CAPTION>
2(A) WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund........................................ $34 $104 $176 $367
Select International Equity Fund.................................... $25 $77 $132 $282
T. Rowe Price International Stock Portfolio......................... $25 $78 $134 $285
Select Aggressive Growth Fund....................................... $24 $73 $125 $267
Select Capital Appreciation Fund.................................... $25 $76 $130 $277
Select Value Opportunity Fund....................................... $25 $76 $130 $277
Select Growth Fund.................................................. $23 $72 $123 $263
Select Strategic Growth Fund........................................ $27 $83 $141 $299
Fidelity VIP Growth Portfolio....................................... $22 $66 $114 $245
Select Growth and Income Fund....................................... $22 $69 $118 $253
Fidelity VIP Equity-Income Portfolio................................ $21 $64 $109 $236
Fidelity VIP High Income Portfolio.................................. $22 $67 $115 $248
Select Income Fund.................................................. $20 $61 $105 $227
Money Market Fund................................................... $18 $55 $95 $206
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
2(B) WITHOUT SURRENDER CHARGE AND WITH ELECTION OF A MINIMUM GUARANTEED ANNUITY
PAYOUT RIDER(1) WITH A TEN-YEAR WAITING PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund......................................... $37 $111 $188 $389
Select International Equity Fund..................................... $28 $85 $144 $306
T. Rowe Price International Stock Portfolio.......................... $28 $86 $146 $309
Select Aggressive Growth Fund........................................ $26 $80 $137 $291
Select Capital Appreciation Fund..................................... $27 $83 $142 $301
Select Value Opportunity Fund........................................ $27 $83 $142 $301
Select Growth Fund................................................... $26 $79 $135 $288
Select Strategic Growth Fund......................................... $29 $90 $153 $323
Fidelity VIP Growth Portfolio........................................ $24 $74 $127 $271
Select Growth and Income Fund........................................ $25 $76 $131 $279
Fidelity VIP Equity-Income Portfolio................................. $23 $71 $122 $262
Fidelity VIP High Income Portfolio................................... $24 $75 $128 $274
Select Income Fund................................................... $22 $69 $118 $253
Money Market Fund.................................................... $20 $63 $108 $233
</TABLE>
(1) If the Minimum Guaranteed Annuity Payout (M-GAP) Rider is exercised, you may
only annuitize under a fixed annuity payout option involving a life contingency
at the Company's guaranteed annuity option rates listed under the Annuity Option
Tables in your Contract.
The total contract fees collected under the Contracts by the Company are divided
by the total average net assets attributable to the Contracts. The resulting
percentage is 0.060%, and the amount of the contract fee is assumed to be $0.60
in the Examples.
F-3
<PAGE>
APPENDIX G
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECT EMERGING
MARKETS
Unit Value:
Beginning of
Period............ 0.776 1.000 N/A N/A N/A N/A N/A N/A
End of Period....... 1.268 0.776 N/A N/A N/A N/A N/A N/A
Units Outstanding at
End of Period (in
thousands)........... 14,502 5,209 N/A N/A N/A N/A N/A N/A
SELECT INTERNATIONAL
EQUITY
Unit Value:
Beginning of
Period............ 1.608 1.400 1.357 1.128 0.956 1.000 N/A N/A
End of Period....... 2.089 1.608 1.400 1.357 1.128 0.956 N/A N/A
Units Outstanding at
End of Period (in
thousands)........... 109,511 103,028 93,170 60,304 35,558 22,183 N/A N/A
T. ROWE PRICE
INTERNATIONAL STOCK
Unit Value:
Beginning of
Period............ 1.398 1.223 1.203 1.065 1.000 N/A N/A N/A
End of Period....... 1.837 1.398 1.223 1.203 1.065 N/A N/A N/A
Units Outstanding at
End of Period (in
thousands)........... 49,814 41,458 33,977 16,510 4,066 N/A N/A N/A
SELECT AGGRESSIVE
GROWTH
Unit Value:
Beginning of
Period............ 2.637 2.419 2.066 1.768 1.354 1.405 1.192 1.192
End of Period....... 3.606 2.637 2.419 2.066 1.768 1.354 1.405 1.192
Units Outstanding at
End of Period (in
thousands)........... 85,192 86,699 81,233 64,262 51,006 36,330 17,538 5,123
SELECT CAPITAL
APPRECIATION
Unit Value:
Beginning of
Period............ 1.878 1.672 1.484 1.383 1.000 N/A N/A N/A
End of Period....... 2.321 1.878 1.672 1.484 1.383 N/A N/A N/A
Units Outstanding at
End of Period (in
thousands)........... 62,949 54,789 43,733 24,257 5,424 N/A N/A N/A
SELECT VALUE
OPPORTUNITY
Unit Value:
Beginning of
Period............ 0.989 1.000 N/A N/A N/A N/A N/A N/A
End of Period....... 0.929 0.989 N/A N/A N/A N/A N/A N/A
Units Outstanding at
End of Period (in
thousands)........... 43,839 18,240 N/A N/A N/A N/A N/A N/A
SELECT GROWTH
Unit Value:
Beginning of
Period............ 2.793 2.091 1.582 1.315 1.069 1.101 1.104 1.000
End of Period....... 3.575 2.793 2.091 1.582 1.315 1.069 1.101 1.104
Units Outstanding at
End of Period (in
thousands)........... 134,059 120,538 98,533 68,193 53,073 38,752 20,366 5,246
</TABLE>
G-1
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECT STRATEGIC
GROWTH
Unit Value:
Beginning of
Period............ 0.964 1.000 N/A N/A N/A N/A N/A N/A
End of Period....... 1.103 0.964 N/A N/A N/A N/A N/A N/A
Units Outstanding at
End of Period (in
thousands)........... 17,712 8,709 N/A N/A N/A N/A N/A N/A
FIDELITY VIP GROWTH
Unit Value:
Beginning of
Period............ 2.340 1.701 1.397 1.235 1.000 N/A N/A N/A
End of Period....... 3.171 2.340 1.701 1.397 1.235 N/A N/A N/A
Units Outstanding at
End of Period (in
thousands)........... 90,071 63,055 45,772 24,745 6,677 N/A N/A N/A
SELECT GROWTH AND
INCOME
Unit Value:
Beginning of
Period............ 2.292 1.996 1.652 1.382 1.074 1.082 0.994 1.000
End of Period....... 2.676 2.292 1.996 1.652 1.382 1.074 1.082 0.994
Units Outstanding at
End of Period (in
thousands)........... 140,727 129,119 106,800 77,919 61,942 43,292 20,983 22,339
FIDELITY VIP
EQUITY-INCOME
Unit Value:
Beginning of
Period............ 1.867 1.696 1.342 1.191 1.000 N/A N/A N/A
End of Period....... 1.957 1.867 1.696 1.342 1.191 N/A N/A N/A
Units Outstanding at
End of Period (in
thousands)........... 114,059 95,537 65,130 31,681 9,213 N/A N/A N/A
FIDELITY VIP HIGH
INCOME
Unit Value:
Beginning of
Period............ 1.350 1.430 1.233 1.096 1.000 N/A N/A N/A
End of Period....... 1.439 1.350 1.430 1.233 1.096 N/A N/A N/A
Units Outstanding at
End of Period (in
thousands)........... 87,413 74,986 50,470 23,051 6,714 N/A N/A N/A
SELECT INCOME
Unit Value:
Beginning of
Period............ 1.371 1.301 1.208 1.186 1.028 1.095 1.001 1.000
End of Period....... 1.340 1.371 1.301 1.208 1.186 1.028 1.095 1.001
Units Outstanding at
End of Period (in
thousands)........... 110,437 102,171 72,394 58,751 46,845 32,823 18,320 5,372
MONEY MARKET
Unit Value:
Beginning of
Period............ 1.227 1.179 1.133 1.091 1.045 1.019 1.003 1.000
End of Period....... 1.272 1.227 1.179 1.133 1.091 1.045 1.019 1.003
Units Outstanding at
End of Period (in
thousands)........... 127,048 92,796 65,441 60,691 45,589 31,836 19,802 1,447
</TABLE>
G-2
<PAGE>
CONDENSED FINANCIAL INFORMATION
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SELECT EMERGING MARKETS
Unit Value:
Beginning of Period........................ 0.776 1.000 N/A N/A N/A N/A
End of Period.............................. 1.268 0.776 N/A N/A N/A N/A
Units Outstanding at End of Period (in
thousands).................................. 1,090 582 N/A N/A N/A N/A
SELECT INTERNATIONAL EQUITY
Unit Value:
Beginning of Period........................ 1.608 1.400 1.356 1.128 0.956 1.000
End of Period.............................. 2.088 1.608 1.400 1.356 1.128 0.956
Units Outstanding at End of Period (in
thousands).................................. 7,072 6,291 5,132 3,481 1900 695
T. ROWE PRICE INTERNATIONAL STOCK
Unit Value:
Beginning of Period........................ 1.397 1.223 1.203 1.065 1.000 N/A
End of Period.............................. 1.837 1.397 1.223 1.203 1.065 N/A
Units Outstanding at End of Period (in
thousands).................................. 3,324 2,591 1,693 1,170 265 N/A
SELECT AGGRESSIVE GROWTH
Unit Value:
Beginning of Period........................ 1.948 1.786 1.526 1.305 1.044 1.000
End of Period.............................. 2.663 1.948 1.786 1.526 1.305 1.044
Units Outstanding at End of Period (in
thousands).................................. 6,606 6,449 5,305 4,013 2,393 756
SELECT CAPITAL APPRECIATION
Unit Value:
Beginning of Period........................ 1.878 1.672 1.484 1.383 1.000 N/A
End of Period.............................. 2.321 1.878 1.672 1.484 1.383 N/A
Units Outstanding at End of Period (in
thousands).................................. 3,247 2,662 1,914 1,366 391 N/A
SELECT VALUE OPPORTUNITY
Unit Value:
Beginning of Period........................ 0.989 0.000 N/A N/A N/A N/A
End of Period.............................. 0.929 0.989 N/A N/A N/A N/A
Units Outstanding at End of Period (in
thousands).................................. 2,790 1,367 N/A N/A N/A N/A
SELECT GROWTH
Unit Value:
Beginning of Period........................ 2.697 2.019 1.527 1.269 1.032 1.000
End of Period.............................. 3.451 2.697 2.019 1.527 1.269 1.032
Units Outstanding at End of Period (in
thousands).................................. 8,012 6,841 5,168 3,534 2,177 756
SELECT STRATEGIC GROWTH
Unit Value:
Beginning of Period........................ 0.964 1.000 N/A N/A N/A N/A
End of Period.............................. 1.103 0.964 N/A N/A N/A N/A
Units Outstanding at End of Period (in
thousands).................................. 1,655 694 N/A N/A N/A N/A
FIDELITY VIP GROWTH
Unit Value:
Beginning of Period........................ 2.340 1.701 1.397 1.235 1.000 N/A
End of Period.............................. 3.171 2.340 1.701 1.397 1.235 N/A
Units Outstanding at End of Period (in
thousands).................................. 5,957 3,567 2,198 1,326 262 N/A
SELECT GROWTH AND INCOME
Unit Value:
Beginning of Period........................ 2.197 1.913 1.584 1.324 1.030 1.000
End of Period.............................. 2.565 2.197 1.913 1.584 1.324 1.030
Units Outstanding at End of Period (in
thousands).................................. 11,775 9,924 7,897 5,670 3,673 1,724
FIDELITY VIP EQUITY-INCOME
Unit Value:
Beginning of Period........................ 1.867 1.696 1.342 1.191 1.000 N/A
End of Period.............................. 1.957 1.867 1.696 1.342 1.191 N/A
Units Outstanding at End of Period (in
thousands).................................. 8,173 5,779 3,421 1,802 429 N/A
FIDELITY VIP HIGH INCOME
Unit Value:
Beginning of Period........................ 1.350 1.430 1.233 1.096 1.000 N/A
End of Period.............................. 1.439 1.350 1.430 1.233 1.096 N/A
Units Outstanding at End of Period (in
thousands).................................. 6,325 5,261 2,753 1,298 273 N/A
</TABLE>
G-3
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SELECT INCOME
Unit Value:
Beginning of Period........................ 1.325 1.257 1.168 1.146 0.993 1.000
End of Period.............................. 1.295 1.325 1.257 1.168 1.146 0.993
Units Outstanding at End of Period (in
thousands).................................. 10,936 11,009 6,061 4,956 4,114 1,916
MONEY MARKET
Unit Value:
Beginning of Period........................ 1.197 1.151 1.106 1.065 1.020 1.000
End of Period.............................. 1.242 1.197 1.151 1.106 1.065 1.020
Units Outstanding at End of Period (in
thousands).................................. 11,367 8,761 6,157 6,060 4,027 2,085
</TABLE>
G-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED 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 RESOURCE I AND II PROSPECTUS OF
ALLMERICA SELECT SEPARATE ACCOUNT DATED MAY 1, 2000 ("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 MAY 1, 2000
AFLIAC Select Resource I & II
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY..........................................2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT
AND THE COMPANY.....................................................3
SERVICES.................................................................3
UNDERWRITERS.............................................................3
ANNUITY BENEFIT PAYMENTS.................................................4
EXCHANGE OFFER...........................................................6
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM..............8
PERFORMANCE INFORMATION..................................................8
FINANCIAL STATEMENTS.....................................................F-1
</TABLE>
GENERAL INFORMATION AND HISTORY
Allmerica Select Separate Account (the "Variable Account") is a separate
investment account of Allmerica Financial Life Insurance and Annuity Company
(the "Company") authorized by vote of its Board of Directors on March 2, 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,
1999, the Company had over $17 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 a 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, 1999, First Allmerica and its subsidiaries (including the Company)
had over $25 billion in combined assets and over $43 billion in life insurance
in force.
Currently, 14 Sub-Accounts of the Variable Account are available under the
Allmerica Select Resource II contract and the Allmerica Select Resource I
contract, a predecessor contract no longer being sold (the "Contract".) Each
Sub-Account invests in a corresponding investment portfolio of Allmerica
Investment Trust (the "Trust"), Fidelity 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.
2
<PAGE>
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 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 Investment Grade Income Fund, and the 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 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, 1999 and
1998 and for each of the three years in the period ended December 31, 1999, and
the financial statements of the Allmerica Select Separate Account of the Company
as of December 31, 1999 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
3
<PAGE>
Allmerica. The Contract offered by this Prospectus is offered continuously,
and may be purchased from certain independent broker-dealers which are NASD
members and whose representatives are authorized by applicable law to sell
variable annuity contracts.
All persons selling the Contract are required to be licensed by their respective
state insurance authorities for the sale of variable annuity contracts. The
Company pays commissions, not to exceed 7.0% 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 paid to Allmerica Investments for sales of
all contracts funded by Allmerica Select Separate Account (including contracts
not described in the Prospectus) for the years 1997, 1998 and 1999 were
$25,862,219, $31,179,269 and $29,686,895.
No commissions were retained by Allmerica Investments for sales of all contracts
funded by Allmerica Select Separate Account (including contracts not described
in the Prospectus) for the years 1997, 1998 and 1999.
ANNUITY BENEFIT PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "Computation of Values" in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Sub-Account at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit Value at the end of the current Valuation Period would be
calculated as follows:
<TABLE>
<S> <C>
(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
4
<PAGE>
(7) Net Investment Factor 1.000000 + (6)...........................................................1.000296
(8) Accumulation Unit Value -- Current Period (1) x (7)..........................................$1.135336
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains of $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.134576.
The method for determining the amount of annuity benefit payments is described
in detail under "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
Accumulated Value of the Contract is $44,800 (40,000 x $1.120000). Assume also
that the Owner elects an option for which the first monthly payment is $6.57 per
$1,000 of Accumulated Value applied. Assuming no premium tax or surrender
charge, the first monthly payment would be $44.80 ($44,800 divided by $1,000)
multiplied by $6.57, or $294.34.
Next, assume that the Annuity Unit Value for the assumed interest rate of 3.5%
per annum for the Valuation Date as of which the first payment was calculated
was $1.100000. Annuity Unit Values will not be the same as Accumulation Unit
Values because the former reflect the 3.5% assumed interest rate used in the
annuity rate calculations. When the Annuity Unit Value of $1.100000 is divided
into the first monthly payment, the number of Annuity Units represented by that
payment is determined to be 267.5818. The value of this same number of Annuity
Units will be paid in each subsequent month under most options. Assume further
that the net investment factor for the Valuation Period applicable to the next
annuity benefit payment is 1.000190. Multiplying this factor by .999906 (the
one-day adjustment factor for the assumed interest rate of 3.5% per annum)
produces a factor of 1.000096. This then is multiplied by the Annuity Unit Value
on the immediately preceding Valuation Date (assumed here to be $1.105000). The
result is an Annuity Unit Value of $1.105106 for the current monthly payment.
The current monthly payment then is determined by multiplying the number of
Annuity Units by the current Annuity Unit Value, or 267.5818 times $1.105106,
which produces a current monthly payment of $295.71.
METHOD FOR DETERMINING COMMUTED VALUE ON VARIABLE ANNUITY PERIOD CERTAIN
OPTIONS AND ILLUSTRATION USING HYPOTHETICAL EXAMPLE. The Contract offers both
commutable and non-commutable fixed period certain annuity options and
commutable variable period certain annuity options. A commutable option gives
the Annuitant the right to exchange any remaining payments for a lump sum
payment based on the commuted value. The Commuted Value is the present value
of remaining payments calculated at 3.5% interest. The determination of the
Commuted Value may be illustrated by the following hypothetical example.
Assume a commutable period certain option is elected. The number of Annuity
Units on which each payment is based would be calculated using the Surrender
Value less any premium tax rather than the Accumulated Value. Assume this
results in 250.0000 Annuity Units. Assume the Commuted Value is requested with
60 monthly payments remaining and a current Annuity Unit Value of $1.200000.
Based on these assumptions, the dollar amount of remaining payments would be
$300 a month for 60 months. The present value at 3.5% of all remaining payments
would be $16,560.72.
5
<PAGE>
EXCHANGE OFFER
A. VARIABLE ANNUITY CONTRACT EXCHANGE OFFER
The Company will permit Owners of certain variable annuity contracts, described
below, to exchange their contracts at net asset value for the variable annuity
contract described in the Prospectus, which is issued on Form No. A3025-96 or a
state variation thereof ("new Contract"). The Company reserves the right to
suspend this exchange offer at any time.
This offer applies to the exchange of the Company's Elective Payment Variable
Annuity contracts issued on Forms A3012-79 and A3013-79 ("Elective Payment
Exchanged Contract," all such contracts having numbers with a "JQ" or "JN"
prefix), and Single Payment Variable Annuity contracts issued on Forms A3014-79
and A3015-79 ("Single Payment Exchanged Contract," all such contracts having
numbers with a "KQ" or "KN" prefix). These contracts are referred to
collectively as the "Exchanged Contract." To effect an exchange, the Company
should receive (1) a completed application for the new Contract, (2) the
contract being exchanged, and (3) a signed Letter of Awareness.
SURRENDER CHARGE COMPUTATION. No surrender charge otherwise applicable to the
Exchanged Contract will be assessed as a result of the exchange. Instead, the
surrender charge under the new Contract will be computed as if the payments that
had been made to the Exchanged Contract were made to the new Contract, as of the
date of issue of the Exchanged Contract. Any additional payments to the new
Contract after the exchange will be subject to the surrender charge computation
outlined in the new Contract and the Prospectus; i.e., the charge will be
computed based on the number of years that the additional payment (or portion of
that payment) that is being withdrawn has been credited to the new Contract.
SUMMARY OF DIFFERENCES BETWEEN THE EXCHANGED CONTRACT AND THE NEW CONTRACT. The
new Contract and the Exchanged Contract differ substantially as summarized
below. There may be additional differences important to a person considering an
exchange, and the Prospectuses for the new Contract and the Exchanged Contract
should be reviewed carefully before the exchange request is submitted to the
Company.
SURRENDER CHARGE. The surrender charge under the new Contract, as described in
the Prospectus, imposes higher charge percentages against the excess amount
redeemed than the Exchanged Contract and, in the case of a Single Payment
Exchanged Contract, applies the charge for a greater number of years. In
addition, if an Elective Payment Exchanged Contract was issued more than nine
years before the date of an exchange under this offer, additional payments to
the Exchanged Contract would not be subject to a surrender charge. New payments
to the new Contract may be subject to a charge if withdrawn prior to the
surrender charge period described in the Prospectus.
CONTRACT FEE. Under the new Contract, the Company deducts a $30 fee on each
Contract anniversary and at surrender if the Accumulated Value is less than
$50,000. This fee is waived if the new Contract is part of a 401(k) plan. No
Contract fees are charged on the Single Payment Exchanged Contract. A $9
semi-annual fee is charged on the Elective Payment Variable Exchanged Contract
if the Accumulated Value is $10,000 or less.
VARIABLE ACCOUNT ADMINISTRATIVE EXPENSE CHARGE. Under the new Contract, the
Company assesses each Sub-Account a daily administrative expense charge at an
annual rate of 0.15% of the average daily net assets of the Sub-Account. No
administrative expense charge based on a percentage of Sub-Account assets is
imposed under the Exchanged Contract.
TRANSFER CHARGE. No charge for transfers is imposed under the Exchanged
Contract. Currently, no transfer charge is imposed under the new Contract;
however, the Company reserves the right to assess a charge not to exceed $25 for
each transfer after the twelfth in any Contract year.
ANNUITY TABLES. The Exchanged Contract contains higher guaranteed annuity rates.
6
<PAGE>
INVESTMENTS. Accumulated Values and payments under the new Contract may be
allocated to significantly more investment options than are available under the
Exchanged Contract.
DEATH BENEFIT. The Exchanged Contract offers a death benefit that is guaranteed
to be the greater of a Contract's Accumulated Value or gross payments made (less
withdrawals). At the time an exchange is processed, the Accumulated Value of the
Exchanged Contract becomes the "payment" for the new Contract.
Therefore, prior purchase payments made under the Exchanged Contract (if higher
than the Exchanged Contract's Accumulated Value) no longer are a basis for
determining the death benefit under the new Contract. Consequently, whether the
initial minimum death benefit under the new Contract is greater than, equal to,
or less than, the death benefit of the Exchanged Contract depends on whether the
Accumulated Value transferred to the new Contract is greater than, equal to, or
less than, the gross payments under the Exchanged Contract. In addition, under
the Exchanged Contract, the amount of any prior withdrawals is subtracted from
the value of the death benefit. Under the new Contract, where there is a
reduction in the death benefit amount due to a prior withdrawal, the value of
the death benefit is reduced in the same proportion that the new Contract's
Accumulated Value was reduced on the date of the withdrawal.
B. FIXED ANNUITY EXCHANGE OFFER
This exchange offer also applies to all fixed annuity contracts issued by the
Company's subsidiary, AFLIAC. A fixed annuity contract to which this exchange
offer applies may be exchanged at net asset value for the Contract described in
this Prospectus, subject to the same provisions for effecting the exchange and
for applying the new Contract's surrender charge as described above for variable
annuity contracts. This Prospectus should be read carefully before making such
exchange. Unlike a fixed annuity, the new Contract's value is not guaranteed and
will vary depending on the investment performance of the Underlying Funds to
which it is allocated. The new Contract has a different charge structure than a
fixed annuity contract, which includes not only a surrender charge that may vary
from that of the class of contracts to which the exchanged fixed contract
belongs, but also Contract fees, mortality and expense risk charges (for the
Company's assumption of certain mortality and expense risks), administrative
expense charges, transfer charges (for transfers permitted among Sub-Accounts
and the Fixed Account), and expenses incurred by the Underlying Funds.
Additionally, the interest rates offered under the Fixed Account of the new
Contract and the Annuity Tables for determining minimum annuity benefit payments
may be different from those offered under the exchanged fixed contract.
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE
Persons who, under the terms of this exchange offer, exchange their contract for
the new Contract and subsequently cancel the new Contract within the time
permitted, as described in the sections of this Prospectus captioned "Right to
Cancel Individual Retirement Annuity" and "Right to Cancel All Other Contracts,"
will have their exchanged contract automatically reinstated as of the date of
cancellation. The refunded amount will be applied as the new current Accumulated
Value under the reinstated contract, which may be more or less than it would
have been had no exchange and reinstatement occurred. The refunded amount will
be allocated initially among the Fixed Account and Sub-Accounts of the
reinstated contract in the same proportion that the value in the Fixed Account
and the value in each Sub-Account bore to the transferred Accumulated Value on
the date of the exchange of the contract for the new Contract. For purposes of
calculating any surrender charge under the reinstated contract, the reinstated
contract will be deemed to have been issued and to have received past purchase
payments as if there had been no exchange.
7
<PAGE>
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM
To the extent permitted by law, the Company reserves the right to offer an
Enhanced Automatic Transfer (Dollar Cost Averaging) Program from time to time.
If an Owner elects automatic transfers while the enhanced program is in effect,
the Company will credit an enhanced interest rate to eligible 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 Sub-Accounts over a specified time period and
- will receive the enhanced rate while they remain in the Fixed Account.
Any new eligible payments made to an existing Enhanced Automatic Transfer
program will start a new Enhanced Automatic Transfer program. In this case, the
following rules apply:
- The money remaining in the Fixed Account from the original program
will be combined with the new eligible payment to determine the new
monthly transfer amount.
- The new monthly transfer amount will be transferred out of the Fixed
Account in accordance with the allocation instructions specified for
the new payment. If no allocation instructions are specified with the
new eligible payment, the allocation instructions for the original
eligible payment will be used. The new monthly transfer amount will be
transferred out of the Fixed Account on a LIFO (last-in, first-out
basis) to the selected Sub-Accounts on the date designated for the new
eligible payment.
- A new enhanced interest rate may be applied to the new eligible
payment, while the money remaining in the Fixed Account from the
original program will continue to receive the enhanced rate in effect
at the time the older payment was received.
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/or 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.
8
<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 ("SEC"). The quotations are computed
by finding the average annual compounded rates of return over the specified
periods that would equate the initial amount invested to the ending redeemable
values, according to the following formula:
(n)
P(1 + T) = 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 DATE OF PAYMENT TO DATE CHARGE AS PERCENTAGE OF NEW
OF WITHDRAWAL PURCHASE PAYMENTS WITHDRAWN
---------------------------------- ---------------------------
<S> <C>
0 - 1 6.5%
2 6.0%
3 5.0%
4 4.0%
5 3.0%
6 2.0%
7 1.0%
More than 7 0.0%
</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 $30 annual
Contract fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return Information in this section refers to the total of
the income generated by an investment in a Sub-Account and of the changes of
value of the principal invested (due to realized and unrealized capital gains or
losses) for a specified period reduced by the Sub-Account's asset charges. It is
assumed, however, that the investment is NOT withdrawn at the end of each
period.
9
<PAGE>
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:
(n)
P(1 + T) = 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, 1999:
<TABLE>
<S> <C>
Yield 4.66%
Effective Yield 4.77%
</TABLE>
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, and then multiplying the return for a
seven-day base period by (365/7), with the resulting yield carried to the
nearest hundredth of one percent.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
(365/7)
Effective Yield = [ (base period return + 1) ] - 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.
10
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<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, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States 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 LLP
Boston, Massachusetts
February 1, 2000
<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) 1999 1998 1997
------------- ---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums................................... $ 0.5 $ 0.5 $ 22.8
Universal life and investment product
policy fees.............................. 328.1 267.4 212.2
Net investment income...................... 150.2 151.3 164.2
Net realized investment (losses) gains..... (8.7) 20.0 2.9
Other income............................... 36.9 0.6 1.4
------ ------ ------
Total revenues......................... 507.0 439.8 403.5
------ ------ ------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims and losses......... 173.6 153.9 187.8
Policy acquisition expenses................ 49.8 64.6 2.8
Sales practice litigation.................. -- 21.0 --
Loss from cession of disability income
business................................. -- -- 53.9
Other operating expenses................... 151.3 104.1 101.3
------ ------ ------
Total benefits, losses and expenses.... 374.7 343.6 345.8
------ ------ ------
Income before federal income taxes............. 132.3 96.2 57.7
------ ------ ------
FEDERAL INCOME TAX EXPENSE
Current.................................... 15.5 22.1 13.9
Deferred................................... 30.5 11.8 7.1
------ ------ ------
Total federal income tax expense....... 46.0 33.9 21.0
------ ------ ------
Net income..................................... $ 86.3 $ 62.3 $ 36.7
====== ====== ======
</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, EXCEPT PER SHARE DATA) 1999 1998
------------------------------------ --------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,354.2 and $1,284.6)............................ $ 1,324.6 $ 1,330.4
Equity securities at fair value (cost of $25.2 and
$27.4)............................................ 32.6 31.8
Mortgage loans...................................... 223.7 230.0
Policy loans........................................ 166.8 151.5
Real estate and other long-term investments......... 25.1 23.6
--------- ---------
Total investments............................... 1,772.8 1,767.3
--------- ---------
Cash and cash equivalents............................. 132.9 217.9
Accrued investment income............................. 36.0 33.5
Deferred policy acquisition costs..................... 1,156.4 950.5
Reinsurance receivable on paid and unpaid losses,
benefits and unearned premiums...................... 287.2 308.0
Other assets.......................................... 64.8 46.9
Separate account assets............................... 14,527.9 11,020.4
--------- ---------
Total assets.................................... $17,978.0 $14,344.5
========= =========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,274.7 $ 2,284.8
Outstanding claims and losses....................... 13.7 17.9
Unearned premiums................................... 2.6 2.7
Contractholder deposit funds and other policy
liabilities....................................... 44.3 38.1
--------- ---------
Total policy liabilities and accruals........... 2,335.3 2,343.5
--------- ---------
Expenses and taxes payable............................ 216.8 146.2
Reinsurance premiums payable.......................... 17.9 45.7
Deferred federal income taxes......................... 94.8 78.8
Separate account liabilities.......................... 14,527.9 11,020.4
--------- ---------
Total liabilities............................... 17,192.7 13,634.6
--------- ---------
Contingencies (Note 12)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,526 and 2,524 shares, issued and
outstanding......................................... 2.5 2.5
Additional paid-in capital............................ 423.7 407.9
Accumulated other comprehensive (loss) income......... (2.6) 24.1
Retained earnings..................................... 361.7 275.4
--------- ---------
Total shareholder's equity...................... 785.3 709.9
--------- ---------
Total liabilities and shareholder's equity...... $17,978.0 $14,344.5
========= =========
</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) 1999 1998 1997
------------- ------- ------- -------
<S> <C> <C> <C>
COMMON STOCK................................... $ 2.5 $ 2.5 $ 2.5
------ ------ ------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 407.9 386.9 346.3
Issuance of common stock................... 15.8 21.0 40.6
------ ------ ------
Balance at end of period................... 423.7 407.9 386.9
------ ------ ------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Net unrealized (depreciation) appreciation
on investments:
Balance at beginning of period............. 24.1 38.5 20.5
(Depreciation) appreciation during the
period:
Net (depreciation) appreciation on
available-for-sale securities........ (41.1) (23.4) 27.0
Benefit (provision) for deferred
federal income taxes................. 14.4 9.0 (9.0)
------ ------ ------
(26.7) (14.4) 18.0
------ ------ ------
Balance at end of period................... (2.6) 24.1 38.5
------ ------ ------
RETAINED EARNINGS
Balance at beginning of period............. 275.4 213.1 176.4
Net income................................. 86.3 62.3 36.7
------ ------ ------
Balance at end of period................... 361.7 275.4 213.1
------ ------ ------
Total shareholder's equity............. $785.3 $709.9 $641.0
====== ====== ======
</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) 1999 1998 1997
------------- ------ ------ ------
<S> <C> <C> <C>
Net income.................................. $ 86.3 $ 62.3 $36.7
Other comprehensive (loss) income:
Net (depreciation) appreciation on
available-for-sale securities......... (41.1) (23.4) 27.0
Benefit (provision) for deferred federal
income taxes.......................... 14.4 9.0 (9.0)
------ ------ -----
Other comprehensive (loss) income... (26.7) (14.4) 18.0
------ ------ -----
Comprehensive income.................... $ 59.6 $ 47.9 $54.7
====== ====== =====
</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) 1999 1998 1997
------------- ------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 86.3 $ 62.3 $ 36.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized losses/(gains)......... 8.7 (20.0) (2.9)
Net amortization and depreciation... (2.3) (7.1) --
Sales practice litigation expense... -- 21.0 --
Loss from cession of disability
income business................... -- -- 53.9
Deferred federal income taxes....... 30.5 11.8 7.1
Payment related to cession of
disability income business........ -- -- (207.0)
Change in deferred acquisition
costs............................. (169.7) (177.8) (181.3)
Change in reinsurance premiums
payable........................... (31.5) 40.8 3.9
Change in accrued investment
income............................ (2.5) 0.7 3.5
Change in policy liabilities and
accruals, net..................... (8.4) 193.1 (72.4)
Change in reinsurance receivable.... 20.7 (56.9) 22.1
Change in expenses and taxes
payable........................... 64.1 55.4 0.2
Other, net.......................... (14.8) (28.5) (7.1)
------- ------- -------
Net cash (used in) provided by
operating activities.......... (18.9) 94.8 (343.3)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 330.9 187.0 909.7
Proceeds from disposals of equity
securities............................ 30.9 53.3 2.4
Proceeds from disposals of other
investments........................... 0.8 22.7 23.7
Proceeds from mortgages matured or
collected............................. 30.5 60.1 62.9
Purchase of available-for-sale fixed
maturities............................ (415.5) (136.0) (579.7)
Purchase of equity securities........... (20.2) (30.6) (3.2)
Purchase of other investments........... (44.1) (22.7) (9.0)
Purchase of mortgages................... -- (58.9) (70.4)
Other investing activities, net......... 2.0 (3.9) --
------- ------- -------
Net cash (used in) provided by
investing activities.............. (84.7) 71.0 336.4
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Contribution from subsidiaries.......... 14.6 -- --
Proceeds from issuance of stock and
capital paid in....................... 4.0 21.0 19.2
------- ------- -------
Net cash provided by financing
activities........................ 18.6 21.0 19.2
------- ------- -------
Net change in cash and cash equivalents..... (85.0) 186.8 12.3
Cash and cash equivalents, beginning of
period..................................... 217.9 31.1 18.8
------- ------- -------
Cash and cash equivalents, end of period.... $ 132.9 $ 217.9 $ 31.1
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ -- $ -- $ --
Income taxes paid....................... $ 4.4 $ 36.2 $ 5.4
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
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 First Allmerica Financial Life Insurance Company ("FAFLIC") which
is a wholly-owned subsidiary of Allmerica Financial Corporation ("AFC"). As
noted below, the consolidated accounts of AFLIAC include the accounts of certain
wholly-owned non-insurance subsidiaries (principally brokerage and investment
advisory subsidiaries).
Prior to July 1, 1999, AFLIAC was a wholly-owned subsidiary of SMA Financial
Corporation ("SMAFCO"), which was a wholly-owned subsidiary of FAFLIC. Effective
July 1, 1999 and in connection with AFC's restructuring activities, SMAFCO was
renamed Allmerica Asset Management , Inc. ("AAM") and contributed it's ownership
of AFLIAC to FAFLIC. AAM also contributed Allmerica Investments, Inc., Allmerica
Investment Management Company, Inc., Allmerica Financial Investment Management
Services, Inc., and Allmerica Financial Services Insurance Agency, Inc., to
AFLIAC in exchange for one share of AFLIAC common stock. The equity of these
four companies on July 1, 1999 was $11.8 million. For the six months ended
December 31, 1999, the subsidiaries of AFLIAC had total revenue of $35.5 million
and total benefits, losses and expenses of $24.4 million. All significant
intercompany accounts and transactions have been eliminated.
In addition, effective November 1, 1999, the Company's consolidated financial
statements include five wholly-owned insurance agencies. These agencies are
Allmerica Investments Insurance Agency Inc. of Alabama, Allmerica Investments
Insurance Agency of Florida Inc., Allmerica Investment Insurance Agency Inc. of
Georgia, Allmerica Investment Insurance Agency Inc. of Kentucky, and Allmerica
Investments Insurance Agency Inc. of Mississippi.
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 eleven 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.
F-6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Debt securities and marketable equity 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 a plan to dispose of all real estate assets. As
of December 31, 1999, there was one property remaining in the Company's real
estate portfolio, which is being actively marketed. This asset is carried at the
estimated fair value less costs of disposal. Depreciation is not recorded on
this asset while it is held for disposal.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other than temporary impairment of the value of a specific
investment 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
F-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 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
3.0% to 6.0% 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, variable
universal life and variable annuities 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.
Liabilities for variable annuities include a reserve for benefit claims in
excess of a guaranteed minimum fund value.
Individual disability income benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future morbidity 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 and losses 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.
F-8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 insurance and individual and group 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 include annuity benefit claims in excess of a guaranteed
minimum fund value, and 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 (including certain non-insurance operations)
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 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. OTHER INCOME AND OTHER OPERATING EXPENSES
Other income and other operating expenses for the year ended December 31, 1999
include investment management and brokerage income and sub-advisory expenses
arising from the activities of the non-insurance subsidiaries that were
transferred to AFLIAC during 1999, as more fully described in Note 1A.
F-9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. 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
investments in foreign operations. This statement is effective for fiscal
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY (an indirect wholly-owned
subsidiary of Allmerica Financial Corporation) years beginning after June 15,
2000. 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 of 1998, 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 adoption of this statement had no effect on the results
of operations or financial position of the Company.
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 beginning after December 15, 1997. AFLIAC consists
of one segment, Allmerica Financial Services, which underwrites and distributes
variable annuities and variable universal life insurance via retail channels.
In June 1997, the FASB also issued Statement No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"). Statement No. 130 establishes 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
F-10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
L. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. SIGNIFICANT TRANSACTIONS
During 1999, AFLIAC's parent contributed $11.8 million of additional paid-in
capital to the Company in the form of four subsidiaries as disclosed in Note 1A
above. These subsidiaries consisted of assets of $22.0 million, of which $14.6
million was cash and cash equivalents, and liabilities of $10.2 million. During
1999, 1998 and 1997, SMAFCO contributed $4.0 million, $21.0 million, and $40.6
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.
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 did 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.
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>
1999
-------------------------------------------
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....... $ 5.2 $ 0.2 $-- $ 5.4
States and political subdivisions....... 12.4 0.1 -- 12.5
Foreign governments..................... 38.6 0.9 0.6 38.9
Corporate fixed maturities.............. 1,180.0 10.3 38.9 1,151.4
Mortgage-backed securities.............. 118.0 1.1 2.7 116.4
-------- ----- ----- --------
Total fixed maturities.................. $1,354.2 $12.6 $42.2 $1,324.6
======== ===== ===== ========
Equity securities....................... $ 25.2 $ 7.4 $-- $ 32.6
======== ===== ===== ========
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
F-11
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<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>
(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, 1999, the amortized
cost and market value of these assets on deposit in New York were
$196.4 million and $193.0 million, respectively. At December 31, 1998, the
amortized cost and market value of assets on deposit were $268.5 million and
$284.1 million, respectively. In addition, fixed maturities, excluding those
securities on deposit in New York, with an amortized cost of $4.1 million and
$4.2 million were on deposit with various state and governmental authorities at
December 31, 1999 and 1998, respectively.
There were no contractual fixed maturity investment commitments at December 31,
1999.
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>
1999
-------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------- --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 54.5 $ 54.8
Due after one year through five years....................... 349.1 347.2
Due after five years through ten years...................... 652.9 637.1
Due after ten years......................................... 297.7 285.5
-------- --------
Total....................................................... $1,354.2 $1,324.6
======== ========
</TABLE>
F-12
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
1999
Net appreciation, beginning of year......................... $ 16.2 $ 7.9 $ 24.1
------ ------ ------
Net depreciation on available-for-sale securities........... (75.3) (0.2) (75.5)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 34.4 -- 34.4
Benefit from deferred federal income taxes.................. 14.3 0.1 14.4
------ ------ ------
(26.6) (0.1) (26.7)
------ ------ ------
Net (depreciation) appreciation, end of year................ $(10.4) $ 7.8 $ (2.6)
====== ====== ======
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
====== ====== ======
</TABLE>
(1) Includes net (depreciation) appreciation on other investments of $(3.1)
million, $0.9 million, and $1.3 million in 1999, 1998, and 1997,
respectively.
B. MORTGAGE LOANS AND REAL ESTATE
AFLIAC's mortgage loans are diversified by property type and location. The real
estate investment was obtained by an affiliate 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 the real estate investment net of
applicable reserves were $234.6 million and $244.5 million at December 31, 1999
and 1998, respectively. Reserves for mortgage loans were $2.4 million and
$3.3 million at December 31, 1999 and 1998, respectively.
F-13
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1997, the Company committed to a plan to dispose of all real estate
assets. At December 31, 1999, there was one property remaining in the Company's
real estate portfolio which is being actively marketed. Depreciation is not
recorded on this asset while it is held for disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1999, 1998 and 1997.
There were no material contractual commitments to extend credit under commercial
mortgage loan agreements at December 31, 1999.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------ ------
<S> <C> <C>
Property type:
Office building........................................... $136.1 $129.2
Residential............................................... 18.5 18.9
Retail.................................................... 28.3 37.4
Industrial/warehouse...................................... 51.1 59.2
Other..................................................... 3.0 3.1
Valuation allowances...................................... (2.4) (3.3)
------ ------
Total....................................................... $234.6 $244.5
====== ======
Geographic region:
South Atlantic............................................ $ 60.7 $ 55.5
Pacific................................................... 76.2 80.0
East North Central........................................ 35.9 41.4
Middle Atlantic........................................... 20.1 22.5
New England............................................... 29.9 26.9
West South Central........................................ 1.9 6.7
Other..................................................... 12.3 14.8
Valuation allowances...................................... (2.4) (3.3)
------ ------
Total....................................................... $234.6 $244.5
====== ======
</TABLE>
At December 31, 1999, scheduled mortgage loan maturities were as follows:
2000 -- $40.8 million; 2001 -- $6.3 million; 2002 -- $11.2 million; 2003 --
$0.5 million; 2004 -- $23.7 million; and $141.2 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 1999, the Company did not refinance any mortgage loans
based on terms which differed from those granted to new borrowers.
F-14
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets 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>
1999
Mortgage loans.............................................. $ 3.3 $(0.8) $0.1 $2.4
===== ===== ==== ====
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
===== ===== ==== ====
</TABLE>
Provisions on mortgages during 1999 and 1998 reflect the release of redundant
specific 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 costs to sell pursuant to the aforementioned 1997 plan
of disposal.
The carrying value of impaired loans was $11.4 million and $15.3 million, with
related reserves of $0.7 million and $1.5 million as of December 31, 1999 and
1998, respectively. All impaired loans were reserved for as of December 31, 1999
and 1998.
The average carrying value of impaired loans was $14.3 million, $17.0 million
and $19.8 million, with related interest income while such loans were impaired
of $1.5 million, $2.0 million and $2.2 million as of December 31, 1999, 1998 and
1997, respectively.
D. OTHER
At December 31, 1999 and 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) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $107.2 $107.7 $130.0
Mortgage loans.............................................. 19.0 25.5 20.4
Equity securities........................................... 0.4 0.3 1.3
Policy loans................................................ 12.4 11.7 10.8
Real estate and other long-term investments................. 4.0 4.8 4.9
Short-term investments...................................... 9.5 4.2 1.4
------ ------ ------
Gross investment income................................. 152.5 154.2 168.8
Less investment expenses.................................... (2.3) (2.9) (4.6)
------ ------ ------
Net investment income................................... $150.2 $151.3 $164.2
====== ====== ======
</TABLE>
F-15
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999, the Company had fixed maturities with a carrying value of
$0.8 million on non-accrual status. There were no mortgage loans on non-accrual
status at December 31, 1999. 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 investments, was a reduction in net income of $1.2 million in 1999,
and had no impact in 1998 and 1997.
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 $12.2 million, $12.6 million and $21.1 million at December 31,
1999, 1998 and 1997, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $0.9 million, $1.4 million and $1.9 million in 1999,
1998, and 1997, respectively. Actual interest income on these loans included in
net investment income aggregated $1.1 million, $1.8 million and $2.1 million in
1999, 1998 and 1997, respectively.
There were no fixed maturities or mortgage loans which were non-income producing
for the year ended December 31, 1999.
Included in other long-term investments is income from limited partnerships of
$0.9 million and $0.7 million in 1999 and 1998, respectively. There was no
income from limited partnerships included in other long-term investments in
1997.
B. NET REALIZED INVESTMENT GAINS AND LOSSES
Realized (losses) gains on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ----- -----
<S> <C> <C> <C>
Fixed maturities............................................ $(18.8) $(6.1) $ 3.0
Mortgage loans.............................................. 0.8 8.0 (1.1)
Equity securities........................................... 8.5 15.7 0.5
Real estate and other....................................... 0.8 2.4 0.5
------ ----- -----
Net realized investment (losses) gains...................... $ (8.7) $20.0 $ 2.9
====== ===== =====
</TABLE>
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
PROCEEDS FROM
FOR THE YEARS ENDED DECEMBER 31, VOLUNTARY GROSS GROSS
(IN MILLIONS) SALES GAINS LOSSES
- ------------- ------------- ----- ------
<S> <C> <C> <C>
1999
Fixed maturities............................................ $162.3 $ 2.7 $4.3
Equity securities........................................... $ 30.4 $10.1 $1.6
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 $--
</TABLE>
F-16
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. OTHER COMPREHENSIVE INCOME RECONCILIATION
The following table provides a reconciliation of gross unrealized (losses) gains
to the net balance shown in the consolidated statements of comprehensive income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ -----
<S> <C> <C> <C>
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period (net
of taxes of $(18.0) million, $(5.6) million and
$10.2 million in 1999, 1998 and 1997, respectively)........ $(33.4) $ (8.2) $20.3
Less: reclassification adjustment for (losses) gains
included in net income (net of taxes of $(3.6) million,
$3.4 million and $1.2 million in 1999, 1998 and 1997,
respectively).............................................. (6.7) 6.2 2.3
------ ------ -----
Other comprehensive (loss) income........................... $(26.7) $(14.4) $18.0
====== ====== =====
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about certain financial
instruments (insurance contracts, real estate, goodwill and taxes are excluded)
for which it is practicable to estimate such values, whether or not these
instruments are included in the balance sheet. The fair values presented for
certain financial instruments are estimates which, in many cases, may differ
significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses which utilize current interest
rates for similar financial instruments which have comparable terms and credit
quality.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
F-17
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.
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.
FIXED ANNUITY AND OTHER CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under individual fixed annuity
contracts are estimated based on current surrender values, supplemental
contracts without life contingencies reflect current fund balances, and other
individual contract funds represent the present value of future policy benefits.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 132.9 $ 132.9 $ 217.9 $ 217.9
Fixed maturities.......................................... 1,324.6 1,324.6 1,330.4 1,330.4
Equity securities......................................... 32.6 32.6 31.8 31.8
Mortgage loans............................................ 223.7 222.8 230.0 241.9
Policy loans.............................................. 166.8 166.8 151.5 151.5
-------- -------- -------- --------
$1,880.6 $1,879.7 $1,961.6 $1,973.5
======== ======== ======== ========
FINANCIAL LIABILITIES
Individual fixed annuity contracts........................ $1,048.0 $1,014.9 $1,069.4 $1,034.6
Supplemental contracts without life contingencies......... 25.0 25.0 21.0 21.0
Other individual contract deposit funds................... 19.3 19.3 17.0 17.0
-------- -------- -------- --------
$1,092.3 $1,059.2 $1,107.4 $1,072.6
======== ======== ======== ========
</TABLE>
F-18
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 in
the consolidated statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ----- ----- -----
<S> <C> <C> <C>
Federal income tax expense
Current................................................... $15.5 $22.1 $13.9
Deferred.................................................. 30.5 11.8 7.1
----- ----- -----
Total....................................................... $46.0 $33.9 $21.0
===== ===== =====
</TABLE>
The provision for federal income taxes does not materially differ from the
amount of federal income tax determined by applying the appropriate U.S.
statutory income tax rate to income before federal income taxes.
The deferred income tax (asset) liability represents the tax effects of
temporary differences:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------- -------
<S> <C> <C>
Deferred tax (assets) liabilities
Policy reserves........................................... $(233.7) $(205.1)
Deferred acquisition costs................................ 339.7 278.8
Investments, net.......................................... (4.0) 12.5
Litigation reserves....................................... (4.3) (7.4)
Bad debt reserve.......................................... -- (0.4)
Other, net................................................ (2.9) 0.4
------- -------
Deferred tax liability, net................................. $ 94.8 $ 78.8
======= =======
</TABLE>
Gross deferred income tax liabilities totaled $360.4 million and $291.7 million
at December 31, 1999 and 1998, respectively. Gross deferred income tax assets
totaled $265.6 million and $212.9 million at December 31, 1999 and 1998,
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 Internal
Revenue Service ("IRS"), and provisions are routinely made in the financial
statements in anticipation of the results of these audits. The IRS has examined
the FAFLIC/AFLIAC consolidated group's federal income tax returns through 1994.
The Company has appealed certain adjustments proposed by the IRS with respect
federal income tax returns for 1992, 1993, and 1994 for the FAFLIC/AFLIAC
consolidated group. 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
F-19
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $173.9 million, $145.4 million and $124.1 million in
1999, 1998 and 1997 respectively. The net amounts payable to FAFLIC and
affiliates for accrued expenses and various other liabilities and receivables
were $48.6 million and $16.4 million at December 31, 1999 and 1998,
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 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 1999, 1998 or 1997. During
2000, AFLIAC could pay dividends of $34.3 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
F-20
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1999 and 1998 for the
disability income business were $241.5 million and $230.8 million, respectively,
traditional life were $9.7 million and $11.4 million, respectively, and
universal and variable universal life were $36.0 million and $65.8 million,
respectively.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Insurance premiums:
Direct.................................................... $ 41.3 $ 45.5 $ 48.8
Assumed................................................... -- -- 2.6
Ceded..................................................... (40.8) (45.0) (28.6)
------ ------ ------
Net premiums................................................ $ 0.5 $ 0.5 $ 22.8
====== ====== ======
Insurance and other individual policy benefits, claims and
losses:
Direct.................................................... $210.6 $204.0 $226.0
Assumed................................................... -- -- 4.2
Ceded..................................................... (37.0) (50.1) (42.4)
------ ------ ------
Net policy benefits, claims and losses...................... $173.6 $153.9 $187.8
====== ====== ======
</TABLE>
10. DEFERRED POLICY ACQUISITION COSTS
The following reflects the changes to the deferred policy acquisition cost
asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- -------- ------ ------
<S> <C> <C> <C>
Balance at beginning of year................................ $ 950.5 $765.3 $632.7
Acquisition expenses deferred............................. 219.5 242.4 184.2
Amortized to expense during the year...................... (49.8) (64.6) (53.1)
Adjustment to equity during the year...................... 36.2 7.4 (10.2)
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...................................... $1,156.4 $950.5 $765.3
======== ====== ======
</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 and losses as new information becomes available
and further events occur which may impact the resolution of
F-21
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 and losses
related to the Company's disability income business was $240.7 million and
$233.3 million at December 31, 1999 and 1998. 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 used in determining the
liability 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 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. The court granted preliminary approval of the settlement
on December 4, 1998. On May 19, 1999, the Court issued an order certifying the
class for settlement purposes and granting final approval of the settlement
agreement. 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, 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, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's consolidated 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 resulted from computer programs being written using two
digits rather than four to define the applicable year. 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.
F-22
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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. In 1999, 49 out of 50 states have adopted the
National Association of Insurance Commissioners proposed Codification, which
provides for uniform statutory accounting principles. These principles are
effective January 1, 2001. The Company is currently assessing the impact that
the adoption of Codification will have on its statutory results of operations
and financial position. Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Statutory net income........................................ $ 5.0 $ (8.2) $ 31.5
Statutory shareholder's surplus............................. $342.7 $312.2 $309.7
</TABLE>
F-23
<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 of 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, 1999, 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 accounting principles generally accepted in the
United States. These financial statements are the responsibility of Allmerica
Financial Life Insurance and Annuity Company; 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 auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the Funds, provide a reasonable basis for the
opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 3, 2000
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<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 .................... $307,191,165 $479,255,899 $376,756,029 $147,985,588
Investments in shares of Fidelity Variable Insurance Products Fund (VIP) -- -- -- --
Investment in shares of T. Rowe Price International Series, Inc. ....... -- -- -- --
Investment in shares of Alliance Capital Management Series
Receivable from Allmerica Financial Life Insurance and
Annuity Company (Sponsor) ............................................ -- -- -- --
------------ ------------ ------------- ------------
Total assets ...................................................... 307,191,165 479,255,899 376,756,029 147,985,588
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) ............................................ 15,697 46,813 128,479 11,317
------------ ------------ ------------- ------------
Net assets ......................................................... $307,175,468 $479,209,086 $376,627,550 $147,974,271
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Net asset distribution by category:
Variable annuity contracts ........................................... $307,175,468 $479,209,086 $376,627,550 $147,974,271
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Units outstanding, December 31, 1999 ................................... 85,192,294 134,059,012 140,727,270 110,437,461
Net asset value per unit, December 31, 1999 ............................ $ 3.605672 $ 3.574613 $ 2.676294 $ 1.339892
<CAPTION>
Select Select Select
Money International Capital Emerging
Market Equity Appreciation Markets
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust .................... $161,507,693 $228,765,678 $146,114,971 $ 18,406,508
Investments in shares of Fidelity Variable Insurance Products Fund (VIP) -- -- -- --
Investment in shares of T. Rowe Price International Series, Inc. ....... -- -- -- --
Investment in shares of Alliance Capital Management Series
Receivable from Allmerica Financial Life Insurance and
Annuity Company (Sponsor) ............................................ 101,580 -- -- --
------------ ------------- ------------ ------------
Total assets ...................................................... 161,609,273 228,765,678 146,114,971 18,406,508
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) ............................................ -- 20,984 15,887 16,407
------------ ------------- ------------ ------------
Net assets ......................................................... $161,609,273 $228,744,694 $146,099,084 $ 18,390,101
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Net asset distribution by category:
Variable annuity contracts ........................................... $161,609,273 $228,744,694 $146,099,084 $ 18,390,101
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Units outstanding, December 31, 1999 ................................... 127,048,118 109,511,148 62,949,269 14,502,193
Net asset value per unit, December 31, 1999 ............................ $ 1.272032 $ 2.088780 $ 2.320902 $ 1.268091
</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, 1999
<TABLE>
<CAPTION>
Select Select Alliance
Value Strategic Premier
Opportunity Growth Growth
------------ ------------ --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust .................... $ 40,752,641 $ 19,538,593 $ --
Investments in shares of Fidelity Variable Insurance Products Fund (VIP) -- -- --
Investment in shares of T. Rowe Price International Series, Inc. ....... -- -- --
Investment in shares of Alliance Capital Management Series ............. 6,581,982
Receivable from Allmerica Financial Life Insurance and
Annuity Company (Sponsor) ............................................ -- -- --
------------ ------------ --------------
Total assets ...................................................... 40,752,641 19,538,593 6,581,982
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) ............................................ 21,088 5,317 15,796
------------ ------------ --------------
Net assets ......................................................... $ 40,731,553 $ 19,533,276 $ 6,566,186
------------ ------------ --------------
------------ ------------ --------------
Net asset distribution by category:
Variable annuity contracts ........................................... $ 40,731,553 $ 19,533,276 $ 6,566,186
------------ ------------ --------------
------------ ------------ --------------
Units outstanding, December 31, 1999 ................................... 43,839,370 17,712,212 5,309,373
Net asset value per unit, December 31, 1999 ............................ $ 0.929109 $ 1.102814 $ 1.236716
<CAPTION>
Fidelity VIP Fidelity VIP Fidelity VIP
High Income Equity-Income Growth
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust .................... $ -- $ -- $ --
Investments in shares of Fidelity Variable Insurance Products Fund (VIP) 125,837,554 223,253,201 285,601,304
Investment in shares of T. Rowe Price International Series, Inc. ....... -- -- --
Investment in shares of Alliance Capital Management Series .............
Receivable from Allmerica Financial Life Insurance and
Annuity Company (Sponsor) ............................................ -- -- --
Total assets ...................................................... 125,837,554 223,253,201 285,601,304
------------- ------------- -------------
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) ............................................ 26,136 40,403 15,929
------------- ------------- -------------
Net assets ......................................................... $125,811,418 $223,212,798 $285,585,375
------------- ------------- -------------
------------- ------------- -------------
Net asset distribution by category:
Variable annuity contracts ........................................... $125,811,418 $223,212,798 $285,585,375
------------- ------------- -------------
Units outstanding, December 31, 1999 ................................... 87,413,354 114,059,184 90,071,043
Net asset value per unit, December 31, 1999 ............................ $ 1.439270 $ 1.956991 $ 3.170668
<CAPTION>
T. Rowe Price
International
Stock
-------------
<S> <C>
Investments in shares of Allmerica Investment Trust .................... $ --
Investments in shares of Fidelity Variable Insurance Products Fund (VIP) --
Investment in shares of T. Rowe Price International Series, Inc. ....... 91,538,064
Investment in shares of Alliance Capital Management Series ............. --
Receivable from Allmerica Financial Life Insurance and
Annuity Company (Sponsor) ............................................ --
-------------
Total assets ...................................................... 91,538,064
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor) ............................................ 13,201
-------------
Net assets ......................................................... $ 91,524,863
-------------
-------------
Net asset distribution by category:
Variable annuity contracts ........................................... $ 91,524,863
-------------
-------------
Units outstanding, December 31, 1999 ................................... 49,814,384
Net asset value per unit, December 31, 1999 ............................ $ 1.837318
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Select
Aggressive Select Select Growth
Growth Growth and Income
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends .............................................................. $ -- $ 203,047 $ 3,728,869
------------- ------------- -------------
EXPENSES:
Mortality and expense risk fees ........................................ 3,018,333 4,843,128 4,156,950
Administrative expense fees ............................................ 373,052 598,589 513,781
------------- ------------- -------------
Total expenses ....................................................... 3,391,385 5,441,717 4,670,731
------------- ------------- -------------
Net investment income (loss) ......................................... (3,391,385) (5,238,670) (941,862)
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors .................... -- 12,903,330 24,961,950
Net realized gain (loss) from sales of investments ..................... 39,540,971 14,932,227 4,050,502
------------- ------------- -------------
Net realized gain (loss) ............................................ 39,540,971 27,835,557 29,012,452
Net unrealized gain (loss) ............................................. 45,108,171 80,513,411 23,575,138
------------- ------------- -------------
Net realized and unrealized gain (loss) ............................. 84,649,142 108,348,968 52,587,590
------------- ------------- -------------
Net increase (decrease) in net assets from operations ................ $81,257,757 $ 103,110,298 $ 51,645,728
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
Select
Select Money International
Income Market Equity
------------- ------------- -------------
<C> <C> <C>
INVESTMENT INCOME:
Dividends .............................................................. $ 9,286,533 $ 6,779,962 $ --
------------- ------------- -------------
EXPENSES:
Mortality and expense risk fees ........................................ 1,846,045 1,675,937 2,313,411
Administrative expense fees ............................................ 228,163 207,138 285,927
------------- ------------- -------------
Total expenses ....................................................... 2,074,208 1,883,075 2,599,338
------------- ------------- -------------
Net investment income (loss) ......................................... 7,212,325 4,896,887 (2,599,338)
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors .................... 1,147,781 -- --
Net realized gain (loss) from sales of investments ..................... (405,783) -- 35,216,024
------------- ------------- -------------
Net realized gain (loss) ............................................ 741,998 -- 35,216,024
Net unrealized gain (loss) ............................................. (11,289,090) -- 20,440,939
------------- ------------- -------------
Net realized and unrealized gain (loss) ............................. (10,547,092) -- 55,656,963
------------- ------------- -------------
Net increase (decrease) in net assets from operations ................ $ (3,334,767) $ 4,896,887 $ 53,057,625
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
Select Select
Capital Emerging
Appreciation Markets
------------- -------------
<C> <C>
INVESTMENT INCOME:
Dividends .............................................................. $ -- $ 63,318
------------- -------------
EXPENSES:
Mortality and expense risk fees ........................................ 1,442,088 113,457
Administrative expense fees ............................................ 178,236 14,023
------------- -------------
Total expenses ....................................................... 1,620,324 127,480
------------- -------------
Net investment income (loss) ......................................... (1,620,324) (64,162)
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors .................... 175,189 --
Net realized gain (loss) from sales of investments ..................... 3,879,467 62,828
------------- -------------
Net realized gain (loss) ............................................ 4,054,656 62,828
Net unrealized gain (loss) ............................................. 24,372,518 4,991,227
------------- -------------
Net realized and unrealized gain (loss) ............................. 28,427,174 5,054,055
------------- -------------
Net increase (decrease) in net assets from operations ................ $ 26,806,850 $ 4,989,893
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Select Select Alliance
Value Strategic Premier Fidelity VIP
Opportunity Growth Growth* High Income
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................... $ 169 $ 53,846 $ -- $ 9,709,230
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk fees ............................. 369,054 160,660 4,767 1,480,008
Administrative expense fees ................................. 45,613 19,856 589 182,922
------------ ------------ ------------ ------------
Total expenses ............................................ 414,667 180,516 5,356 1,662,930
------------ ------------ ------------ ------------
Net investment income (loss) .............................. (414,498) (126,670) (5,356) 8,046,300
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ......... 1,692,360 -- -- 362,962
Net realized gain (loss) from sales of investments .......... (1,502,575) 39,567 367 (813,305)
------------ ------------ ------------ ------------
Net realized gain (loss) .................................. 189,785 39,567 367 (450,343)
Net unrealized gain (loss) .................................. (996,153) 2,085,609 373,402 (335,164)
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) .................. (806,368) 2,125,176 373,769 (785,507)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations ..... $ (1,220,866) $ 1,998,506 $ 368,413 $ 7,260,793
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
T. Rowe Price
Fidelity VIP Fidelity VIP International
Equity-Income Growth Stock
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................... $ 2,715,163 $ 275,171 $ 324,142
------------ ------------ ------------
EXPENSES:
Mortality and expense risk fees ............................. 2,605,002 2,549,237 843,850
Administrative expense fees ................................. 321,967 315,074 104,296
------------ ------------ ------------
Total expenses ............................................ 2,926,969 2,864,311 948,146
------------ ------------ ------------
Net investment income (loss) .............................. (211,806) (2,589,140) (624,004)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ......... 6,001,940 17,301,381 1,018,731
Net realized gain (loss) from sales of investments .......... 1,611,125 1,626,132 12,364,136
------------ ------------ ------------
Net realized gain (loss) .................................. 7,613,065 18,927,513 13,382,867
Net unrealized gain (loss) .................................. 910,958 50,612,325 9,156,450
------------ ------------ ------------
Net realized and unrealized gain (loss) .................. 8,524,023 69,539,838 22,539,317
------------ ------------ ------------
Net increase (decrease) in net assets from operations ..... $ 8,312,217 $ 66,950,698 $ 21,915,313
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
* For the period 10/6/99 to 12/31/99.
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Select
Aggressive Growth Select Growth
Year Ended December 31, Year Ended December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) .................................... $ (3,391,385) $ (2,962,901) $ (5,238,670) $ (3,459,314)
Net realized gain (loss) ........................................ 39,540,971 3,969,770 27,835,557 6,072,884
Net unrealized gain (loss) ...................................... 45,108,171 17,405,709 80,513,411 74,575,052
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations .......... 81,257,757 18,412,578 103,110,298 77,188,622
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ........................................... 24,255,918 36,061,562 56,468,347 70,613,422
Withdrawals ..................................................... (21,732,026) (13,438,781) (28,886,868) (15,891,976)
Contract benefits ............................................... (3,115,459) (2,728,888) (6,001,518) (3,404,074)
Contract charges ................................................ (92,474) (89,767) (116,966) (89,116)
Transfers between sub-accounts (including fixed account), net ... (9,064,037) (7,180,823) (2,504,767) 266,856
Other transfers from (to) the General Account ................... 7,017,452 1,134,404 20,488,160 1,932,745
Net increase (decrease) in investment by Sponsor ................ -- -- -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract transactions. (2,730,626) 13,757,707 39,446,388 53,427,857
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ........................... 78,527,131 32,170,285 142,556,686 130,616,479
NET ASSETS:
Beginning of year ............................................... 228,648,337 196,478,052 336,652,400 206,035,921
------------- ------------- ------------- -------------
End of year ..................................................... $ 307,175,468 $ 228,648,337 $ 479,209,086 $ 336,652,400
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
Select Growth and Income Select Income
Year Ended December 31, Year Ended December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ..................................... $ (941,862) $ (335,924) $ 7,212,325 $ 5,303,429
Net realized gain (loss) ......................................... 29,012,452 1,988,959 741,998 191,685
Net unrealized gain (loss) ....................................... 23,575,138 32,750,667 (11,289,090) 575,603
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations ........... 51,645,728 34,403,702 (3,334,767) 6,070,717
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................ 48,537,477 63,681,715 24,820,260 43,005,439
Withdrawals ...................................................... (24,493,254) (15,115,743) (13,453,696) (8,082,420)
Contract benefits ................................................ (6,377,979) (4,138,997) (2,636,252) (1,772,510)
Contract charges ................................................. (99,080) (85,677) (43,282) (37,909)
Transfers between sub-accounts (including fixed account), net .... (8,982,046) 106,049 (11,621,085) 3,617,459
Other transfers from (to) the General Account .................... 20,470,398 3,902,001 14,208,620 3,052,759
Net increase (decrease) in investment by Sponsor ................. -- -- -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract transactions . 29,055,516 48,349,348 11,274,565 39,782,818
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ............................ 80,701,244 82,753,050 7,939,798 45,853,535
NET ASSETS:
Beginning of year ................................................ 295,926,306 213,173,256 140,034,473 94,180,938
------------- ------------- ------------- -------------
End of year ...................................................... $ 376,627,550 $ 295,926,306 $ 147,974,271 $ 140,034,473
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
Money Market
Year Ended December 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ..................................... $ 4,896,887 $ 3,859,624
Net realized gain (loss) ......................................... -- --
Net unrealized gain (loss) ....................................... -- --
------------- -------------
Net increase (decrease) in net assets from operations ........... 4,896,887 3,859,624
------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................ 58,002,004 65,100,611
Withdrawals ...................................................... (34,935,305) (20,168,912)
Contract benefits ................................................ (8,743,929) (5,486,115)
Contract charges ................................................. (32,442) (24,776)
Transfers between sub-accounts (including fixed account), net .... 23,841,962 (7,256,363)
Other transfers from (to) the General Account .................... 4,765,007 645,196
Net increase (decrease) in investment by Sponsor ................. -- --
------------- -------------
Net increase (decrease) in net assets from contract transactions . 42,897,297 32,809,641
------------- -------------
Net increase (decrease) in net assets ............................ 47,794,184 36,669,265
NET ASSETS:
Beginning of year ................................................ 113,815,089 77,145,824
------------- -------------
End of year ...................................................... $ 161,609,273 $ 113,815,089
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Select Select
International Equity Capital Appreciation
Year Ended December 31, Year Ended December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ..................................... $ (2,599,338) $ 7,654 $ (1,620,324) $ (1,175,589)
Net realized gain (loss) ......................................... 35,216,024 1,650,381 4,054,656 16,587,627
Net unrealized gain (loss) ....................................... 20,440,939 17,773,061 24,372,518 (4,726,710)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations ........... 53,057,625 19,431,096 26,806,850 10,685,328
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................ 22,969,590 29,615,052 20,479,493 25,436,320
Withdrawals ...................................................... (12,716,071) (8,122,159) (7,003,864) (3,623,727)
Contract benefits ................................................ (2,279,246) (1,791,387) (1,657,807) (1,106,068)
Contract charges ................................................. (60,729) (56,589) (37,408) (30,776)
Transfers between sub-accounts (including fixed account), net .... (7,267,716) (5,116,809) (2,237,250) (2,261,255)
Other transfers from (to) the General Account .................... 9,337,645 1,294,775 6,878,405 654,274
Net increase (decrease) in investment by Sponsor ................. -- -- -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract transactions . 9,983,473 15,822,883 16,421,569 19,068,768
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ............................ 63,041,098 35,253,979 43,228,419 29,754,096
NET ASSETS:
Beginning of year ................................................ 165,703,596 130,449,617 102,870,665 73,116,569
------------- ------------- ------------- -------------
End of year ...................................................... $ 228,744,694 $ 165,703,596 $ 146,099,084 $ 102,870,665
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
Select
Emerging Markets
Year Ended Period From
12/31/99 2/20/98* TO 12/31/98
------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ..................................... $ (64,162) $ (15,971)
Net realized gain (loss) ......................................... 62,828 (24,720)
Net unrealized gain (loss) ....................................... 4,991,227 (309,858)
------------- --------------------
Net increase (decrease) in net assets from operations ........... 4,989,893 (350,549)
------------- --------------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................ 4,785,976 3,000,520
Withdrawals ...................................................... (368,856) (61,386)
Contract benefits ................................................ (82,822) (9,898)
Contract charges ................................................. (2,679) (134)
Transfers between sub-accounts (including fixed account), net .... 3,126,568 1,172,968
Other transfers from (to) the General Account .................... 1,899,441 291,059
Net increase (decrease) in investment by Sponsor ................. -- --
------------- --------------------
Net increase (decrease) in net assets from contract transactions . 9,357,628 4,393,129
------------- --------------------
Net increase (decrease) in net assets ............................ 14,347,521 4,042,580
NET ASSETS:
Beginning of year ................................................ 4,042,580 --
------------- --------------------
End of year ...................................................... $ 18,390,101 $ 4,042,580
------------- --------------------
------------- --------------------
<CAPTION>
Select
Value Opportunity
Year Ended Period From
12/31/99 2/20/98* TO 12/31/98
------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ..................................... $ (414,498) $ 49,651
Net realized gain (loss) ......................................... 189,785 (3,663)
Net unrealized gain (loss) ....................................... (996,153) 160,234
------------- --------------------
Net increase (decrease) in net assets from operations ........... (1,220,866) 206,222
------------- --------------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................ 16,094,140 12,809,082
Withdrawals ...................................................... (1,105,798) (356,168)
Contract benefits ................................................ (412,758) (49,956)
Contract charges ................................................. (6,920) (478)
Transfers between sub-accounts (including fixed account), net .... 2,467,165 4,206,999
Other transfers from (to) the General Account .................... 6,882,082 1,218,807
Net increase (decrease) in investment by Sponsor ................. -- --
------------- --------------------
Net increase (decrease) in net assets from contract transactions . 23,917,911 17,828,286
------------- --------------------
Net increase (decrease) in net assets ............................ 22,697,045 18,034,508
NET ASSETS:
Beginning of year ................................................ 18,034,508 --
------------- --------------------
End of year ...................................................... $ 40,731,553 $ 18,034,508
------------- --------------------
------------- --------------------
<CAPTION>
Select
Strategic Growth
Year Ended Period From
12/31/99 2/20/98* TO 12/31/98
------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ..................................... $ (126,670) $ (28,486)
Net realized gain (loss) ......................................... 39,567 (151,091)
Net unrealized gain (loss) ....................................... 2,085,609 219,846
------------- --------------------
Net increase (decrease) in net assets from operations ........... 1,998,506 40,269
------------- --------------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................ 7,433,586 5,671,296
Withdrawals ...................................................... (679,903) (209,854)
Contract benefits ................................................ (83,051) (20,535)
Contract charges ................................................. (3,223) (338)
Transfers between sub-accounts (including fixed account), net .... (49,588) 2,187,617
Other transfers from (to) the General Account .................... 2,524,904 723,590
Net increase (decrease) in investment by Sponsor ................. -- --
------------- --------------------
Net increase (decrease) in net assets from contract transactions . 9,142,725 8,351,776
------------- --------------------
Net increase (decrease) in net assets ............................ 11,141,231 8,392,045
NET ASSETS:
Beginning of year ................................................ 8,392,045 --
------------- --------------------
End of year ...................................................... $ 19,533,276 $ 8,392,045
------------- --------------------
------------- --------------------
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Alliance
Premier Growth
Period from
10/6/99* to 12/31/99
--------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ..................................... $ (5,356)
Net realized gain (loss) ......................................... 367
Net unrealized gain (loss) ....................................... 373,402
--------------------
Net increase (decrease) in net assets from operations ........... 368,413
--------------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................ 6,222,365
Withdrawals ...................................................... (196,510)
Contract benefits ................................................ --
Contract charges ................................................. (670)
Transfers between sub-accounts (including fixed account), net .... --
Other transfers from (to) the General Account .................... 172,591
Net increase (decrease) in investment by Sponsor ................. (3)
--------------------
Net increase (decrease) in net assets from contract transactions . 6,197,773
--------------------
Net increase (decrease) in net assets ............................ 6,566,186
NET ASSETS:
Beginning of year ................................................ --
--------------------
End of year ...................................................... $ 6,566,186
--------------------
--------------------
<CAPTION>
Fidelity VIP High Income Fidelity VIP Equity-Income
Year Ended December 31, Year Ended December 31,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ..................................... $ 8,046,300 $ 4,194,465 $ (211,806) $ (415,937)
Net realized gain (loss) ......................................... (450,343) 3,061,179 7,613,065 6,181,847
Net unrealized gain (loss) ....................................... (335,164) (13,622,064) 910,958 7,180,318
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations ........... 7,260,793 (6,366,420) 8,312,217 12,946,228
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................ 21,260,358 33,755,346 38,502,384 57,177,724
Withdrawals ...................................................... (8,950,671) (4,291,123) (13,886,488) (6,972,862)
Contract benefits ................................................ (2,314,938) (1,095,080) (3,567,803) (1,970,745)
Contract charges ................................................. (32,098) (24,772) (56,448) (41,629)
Transfers between sub-accounts (including fixed account), net .... (1,926,907) 5,384,061 (4,177,665) 3,401,689
Other transfers from (to) the General Account .................... 9,311,665 1,643,387 19,756,379 3,352,791
Net increase (decrease) in investment by Sponsor ................. -- -- -- --
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract transactions . 17,347,409 35,371,819 36,570,359 54,946,968
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ............................ 24,608,202 29,005,399 44,882,576 67,893,196
NET ASSETS:
Beginning of year ................................................ 101,203,216 72,197,817 178,330,222 110,437,026
------------- ------------- ------------- -------------
End of year ...................................................... $ 125,811,418 $ 101,203,216 $ 223,212,798 $ 178,330,222
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
T. Rowe Price
Fidelity VIP Growth International Stock
Year Ended December 31, Year Ended December 31,
1999 1998 1999 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ..................................... $ (2,589,140) $ (1,086,153) $ (624,004) $ (41,275)
Net realized gain (loss) ......................................... 18,927,513 11,869,942 13,382,867 385,253
Net unrealized gain (loss) ....................................... 50,612,325 25,112,290 9,156,450 5,788,775
------------- ------------- ------------ ------------
Net increase (decrease) in net assets from operations ........... 66,950,698 35,896,079 21,915,313 6,132,753
------------- ------------- ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................ 51,086,036 35,768,091 12,519,911 14,149,159
Withdrawals ...................................................... (13,782,325) (5,164,629) (4,048,055) (2,057,947)
Contract benefits ................................................ (3,164,854) (1,505,737) (951,093) (649,684)
Contract charges ................................................. (58,541) (37,556) (21,525) (18,009)
Transfers between sub-accounts (including fixed account), net .... 19,475,643 3,426,882 (894,900) (1,989,024)
Other transfers from (to) the General Account .................... 17,547,185 1,296,933 5,061,257 812,777
Net increase (decrease) in investment by Sponsor ................. -- -- -- --
------------- ------------- ------------ ------------
Net increase (decrease) in net assets from contract transactions . 71,103,144 33,783,984 11,665,595 10,247,272
------------- ------------- ------------ ------------
Net increase (decrease) in net assets ............................ 138,053,842 69,680,063 33,580,908 16,380,025
NET ASSETS:
Beginning of year ................................................ 147,531,533 77,851,470 57,943,955 41,563,930
------------- ------------- ------------ ------------
End of year ...................................................... $ 285,585,375 $ 147,531,533 $ 91,524,863 $ 57,943,955
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-7
<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 fifteen 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), a
wholly-owned subsidiary of the Company; or of the Alliance Variable Products
Series Fund, Inc.(Alliance) managed by Alliance Capital Management L.P.; 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, Alliance, Fidelity VIP, and T. Rowe Price (the Funds) are open-end,
diversified management investment companies registered under the 1940 Act.
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. 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-8
<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, 1999 were as follows:
<TABLE>
<CAPTION>
Portfolio Information
--------------------------------------------------------------
Net Asset
Number of Aggregate Value
Investment Portfolio Shares Cost Per Share
-------------------- ----------- ------------ ---------
<S> <C> <C> <C>
Select Aggressive Growth ........ 90,058,975 $209,913,818 $ 3.411
Select Growth ................... 157,184,618 281,077,108 3.049
Select Growth and Income ........ 194,907,413 288,280,073 1.933
Select Income ................... 155,283,933 156,838,773 0.953
Money Market .................... 161,507,693 161,507,693 1.000
Select International Equity ..... 112,636,966 181,080,480 2.031
Select Capital Appreciation ..... 71,171,442 117,150,392 2.053
Select Emerging Markets ......... 14,246,523 13,725,139 1.292
Select Value Opportunity ........ 26,793,321 41,588,560 1.521
Select Strategic Growth ......... 17,352,214 17,233,138 1.126
Alliance Premier Growth ......... 162,719 6,208,580 40.450
Fidelity VIP High Income ........ 11,126,220 133,018,263 11.310
Fidelity VIP Equity-Income ...... 8,683,516 199,719,712 25.710
Fidelity VIP Growth ............. 5,199,368 199,026,231 54.930
T. Rowe Price International Stock 4,807,671 76,910,552 19.040
</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. For contracts issued on
Form A3027-98 (Allmerica Select Charter) and on Form A3028-99 (Allmerica Select
Reward), a contract fee is deducted on the contract anniversary and upon full
surrender if the accumulated value is less than $75,000. The fee is currently
waived for Allmerica Select Resource II and Select Reward contracts issued to
and maintained by the trustee of a 401(k) plan.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of the Company, 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 and
Allmerica Select Reward contracts have a contingent deferred sales charge and no
deduction is made for sales charges at the time of the sale.
SA-9
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (Continued)
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
--------------------------------- ---------------------------------
UNITS AMOUNT UNITS AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Select Aggressive Growth
Issuance of Units .................................. 75,252,384 $ 215,594,821 28,443,354 $ 71,461,752
Redemption of Units ................................ (76,759,554) (218,325,447) (22,974,119) (57,704,045)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... (1,507,170) $ (2,730,626) 5,469,235 $ 13,757,707
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Select Growth
Issuance of Units .................................. 53,807,629 $ 161,684,575 48,669,777 $ 117,987,024
Redemption of Units ................................ (40,286,966) (122,238,187) (26,664,319) (64,559,167)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 13,520,663 $ 39,446,388 22,005,458 $ 53,427,857
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Select Growth and Income
Issuance of Units .................................. 41,734,130 $ 102,259,914 45,914,205 $ 99,392,688
Redemption of Units ................................ (30,125,418) (73,204,398) (23,587,262) (51,043,340)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 11,608,712 $ 29,055,516 22,326,943 $ 48,349,348
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Select Income
Issuance of Units .................................. 48,275,738 $ 63,597,852 59,979,984 $ 80,651,018
Redemption of Units ................................ (40,009,593) (52,323,287) (30,202,528) (40,868,200)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 8,266,145 $ 11,274,565 29,777,456 $ 39,782,818
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Money Market
Issuance of Units .................................. 628,585,498 $ 835,137,989 160,175,464 $ 193,712,183
Redemption of Units ................................ (594,333,800) (792,240,692) (132,822,470) (160,902,542)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 34,251,698 $ 42,897,297 27,352,994 $ 32,809,641
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Select International Equity
Issuance of Units .................................. 164,673,863 $ 284,544,051 35,836,093 $ 56,782,369
Redemption of Units ................................ (158,190,366) (274,560,578) (25,978,288) (40,959,486)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 6,483,497 $ 9,983,473 9,857,805 $ 15,822,883
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Select Capital Appreciation
Issuance of Units .................................. 39,275,736 $ 78,604,034 25,684,264 $ 44,175,487
Redemption of Units ................................ (31,115,549) (62,182,465) (14,627,907) (25,106,719)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 8,160,187 $ 16,421,569 11,056,357 $ 19,068,768
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Select Emerging Markets
Issuance of Units .................................. 12,741,433 $ 12,693,100 6,117,004 $ 5,235,588
Redemption of Units ................................ (3,448,629) (3,335,472) (907,615) (842,459)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 9,292,804 $ 9,357,628 5,209,389 $ 4,393,129
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Select Value Opportunity
Issuance of Units .................................. 55,225,027 $ 50,439,314 20,566,820 $ 20,586,826
Redemption of Units ................................ (29,625,233) (26,521,403) (2,327,244) (2,758,540)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 25,599,794 $ 23,917,911 18,239,576 $ 17,828,286
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
SA-10
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (Continued)
<CAPTION>
Year Ended December 31,
1999 1998
--------------------------------- ---------------------------------
UNITS AMOUNT UNITS AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Select Strategic Growth
Issuance of Units .................................. 13,362,189 $ 13,598,310 10,583,703 $ 10,307,180
Redemption of Units ................................ (4,358,489) (4,455,585) (1,875,191) (1,955,404)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 9,003,700 $ 9,142,725 8,708,512 $ 8,351,776
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Alliance Premier Growth
Issuance of Units .................................. 5,570,878 $ 6,498,202 - $ -
Redemption of Units ................................ (261,505) (300,429) - -
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 5,309,373 $ 6,197,773 - $ -
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Fidelity VIP High Income
Issuance of Units .................................. 38,346,359 $ 53,501,177 42,299,742 $ 60,272,832
Redemption of Units ................................ (25,918,736) (36,153,768) (17,784,384) (24,901,013)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 12,427,623 $ 17,347,409 24,515,358 $ 35,371,819
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Fidelity VIP Equity-Income
Issuance of Units .................................. 46,507,097 $ 91,172,489 48,319,788 $ 87,225,760
Redemption of Units ................................ (27,985,168) (54,602,130) (17,913,028) (32,278,792)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 18,521,929 $ 36,570,359 30,406,760 $ 54,946,968
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Fidelity VIP Growth
Issuance of Units .................................. 47,634,153 $ 125,046,338 32,964,840 $ 65,335,816
Redemption of Units ................................ (20,618,401) (53,943,194) (15,681,080) (31,551,832)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 27,015,752 $ 71,103,144 17,283,760 $ 33,783,984
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
T. Rowe Price International Stock
Issuance of Units .................................. 115,271,622 $ 173,722,453 17,721,810 $ 23,965,360
Redemption of Units ................................ (106,914,833) (162,056,858) (10,241,106) (13,718,088)
--------------- --------------- --------------- ---------------
Net increase (decrease) .......................... 8,356,789 $ 11,665,595 7,480,704 $ 10,247,272
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</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-11
<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, 1999 were as follows:
<TABLE>
<CAPTION>
Investment Portfolio Purchases Sales
-------------------- -------------- --------------
<S> <C> <C>
Select Aggressive Growth ......................... $157,193,601 $163,300,688
Select Growth .................................... 90,300,034 43,194,032
Select Growth and Income ......................... 71,305,013 18,086,672
Select Income .................................... 35,830,544 16,211,638
Money Market ..................................... 666,899,848 619,252,030
Select International Equity ...................... 244,433,761 237,028,642
Select Capital Appreciation ...................... 52,799,447 37,807,126
Select Emerging Markets .......................... 9,928,319 618,446
Select Value Opportunity ......................... 43,234,342 18,017,481
Select Strategic Growth .......................... 10,240,619 1,219,247
Alliance Premier Growth .......................... 6,225,899 17,686
Fidelity VIP High Income ......................... 37,231,381 11,448,574
Fidelity VIP Equity-Income ....................... 56,271,017 13,870,121
Fidelity VIP Growth .............................. 93,710,387 7,879,073
T. Rowe Price International Stock ................ 155,651,465 143,577,942
-------------- --------------
Totals ......................................... $1,731,255,677 $1,331,529,398
-------------- --------------
-------------- --------------
</TABLE>
NOTE 8 - PLAN OF SUBSTITUTION FOR PORTFOLIO OF THE TRUST
An application has been filed with the Securities and Exchange Commission
(SEC) seeking an order approving the substitution of shares of the Select
Investment Grade Income Fund (SIGIF) for all of the shares of the Select Income
Fund (SIF). To the extent required by law, approvals of such substitution will
also be obtained from the state insurance regulators in certain jurisdictions.
The effect of the substitution will be to replace SIF shares with SIGIF shares.
The substitution is planned to be effective on or about July 1, 2000.
SA-12
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Financial Statements Included in Part A
None
Financial Statements Included in Part B
Financial Statements for Allmerica Financial Life Insurance and Annuity
Company
Financial Statements for Allmerica Select Separate Account of
Allmerica Financial Life Insurance and Annuity Company
Financial Statements Included in Part C
None
(b) EXHIBITS
EXHIBIT 1 Vote of Board of Directors Authorizing Establishment of
Registrant dated March 5, 1992 was previously filed on
April 24, 1998 in Post-Effective Amendment No. 16 (File
Nos. 33-47216, 811-6632), 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 (File Nos. 33-47216, 811-6632), and is
incorporated by reference herein.
(b) Sales Agreements (Select) with Commission Schedule
were previously filed on April 24, 1998 in
Post-Effective Amendment No. 16 (File Nos. 33-47216,
811-6632), and are incorporated by reference herein.
(c) General Agent's Agreement was previously filed on
April 24, 1998 in Post-Effective Amendment No. 16
(File Nos. 33-47216, 811-6632), and is incorporated
by reference herein.
(d) Career Agent Agreement was previously filed on April
24, 1998 in Post-Effective Amendment No. 16 (File
Nos. 33-47216, 811-6632), and is incorporated by
reference herein.
(e) Registered Representative's Agreement was previously
filed on April 24, 1998 in Post-Effective
Amendment No. 16 (File Nos. 33-47216, 811-6632),
and is incorporated by reference herein.
EXHIBIT 4 Minimum Guaranteed Annuity Payout Rider was previously
filed on December 29, 1998 in Post-Effective Amendment No.
17 (File Nos. 33-47216, 811-6632), and is incorporated by
reference herein. Specimen Policy Form A and Certificate
and Generic Policy Form
<PAGE>
were previously filed on April 24, 1998 in Post-Effective
Amendment No. 16 (File Nos. 33-47216, 811-6632), and are
incorporated by reference herein. Policy Form B was
previously filed on May 8, 1996 in Post-Effective Amendment
No. 9 (File Nos. 33-47216, 811-6632), and is incorporated
by reference herein.
EXHIBIT 5 Specimen Generic Application Form A was previously filed
on April 24, 1998 in Post-Effective Amendment No. 16 (File
Nos. 33-47216, 811-6632), and is incorporated by reference
herein. Specimen Application Form B was previously filed
on May 8, 1996 in Post-Effective Amendment No. 9 (File Nos.
33-47216, 811-6632), and is incorporated by reference
herein.
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
(File Nos. 33-47216, 811-6632), 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 (File Nos.
33-47216, 811-6632), 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
(File Nos. 33-47216, 811-6632), 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 (File Nos. 33-47216,
811-6632), 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
(File Nos. 33-47216, 811-6632), 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 (File Nos. 33-47216, 811-6632), 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 Schedule for Computation of Performance Quotations is
filed herewith.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 (a) Participation Agreement between the Company and
Allmerica Investment Trust
<PAGE>
dated March 22, 2000 was previously filed in April
2000 in Post-Effective Amendment No. 17 of
Registration Statement No. 33-39702/811-6293, and is
incorporated by reference herein.
(b) Amendment dated March 29, 2000 and Amendment dated
November 13, 1998 were previously filed in April 2000
in Post-Effective Amendment No. 17 of Registration
Statement No. 33-39702/811-6293, and are incorporated
by reference herein. Participation Agreement between
the Company and Fidelity VIP, as amended, was
previously filed on April 24, 1998 in Post-Effective
Amendment No. 16 (File Nos. 33-47216, 811-6632), 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 (File Nos. 33-47216, 811-6632), and
is incorporated by reference herein.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The principal business address of all the following Directors and Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
<S> <C>
Bruce C. Anderson Director (since 1996), Vice President (since 1984) and Assistant
Director Secretary (since 1992) of First Allmerica
Warren E. Barnes Vice President (since 1996) and Corporate Controller (since 1998) of
Vice President and First Allmerica
Corporate Controller
Mark R. Colborn Director (since 2000) and Vice President (since 1992) of First Allmerica
Director and Vice President
Mary Eldridge Secretary (since 1999) of First Allmerica; Secretary (since 1999) of
Secretary Allmerica Investments, Inc.; and Secretary (since 1999) of Allmerica
Financial Investment Management Services, Inc.
J. Kendall Huber Director, Vice President and General Counsel of First Allmerica (since
Director, Vice President and 2000); Vice President (1999) of Promos Hotel Corporation; Vice
General Counsel Vice President and President & Deputy General Counsel (1995-1998) of USF&G
Corporation
John P. Kavanaugh Director and Chief Investment Officer (since 1996) and Vice President
Director, Vice President and (since 1991) of First Allmerica; Vice President (since 1998) of Allmerica
Chief Investment Officer Financial Investment Management Services, Inc.; and President (since 1995)
and Director (since 1996) of Allmerica Asset Management, Inc.
<PAGE>
J. Barry May Director (since 1996) of First Allmerica; Director and President (since
Director 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), President
Director (since 1994) and Chief Executive Officer (since 1996) of Citizens
Insurance Company of America
Mark C. McGivney Vice President (since 1997) and Treasurer (since 2000) of First
Vice President and Treasurer Allmerica; Associate, Investment Banking (1996-1997) of Merrill
Lynch & Co.; Associate, Investment Banking (1995) of Salomon
Brothers, Inc.; Treasurer (since 2000) of Allmerica Investments, Inc.,
Allmerica Asset Management, Inc. and Allmerica Financial Investment
Management Services, Inc.
John F. O'Brien Director, President and Chief Executive Officer (since 1989) of First
Director and Chairman Allmerica.
of the Board
Edward J. Parry, III Director and Chief Financial Officer (since 1996), Vice President (since
Director, Vice President 1993), and Treasurer (1993-2000) of First Allmerica
Chief Financial Officer
Richard M. Reilly Director (since 1996) and Vice President (since 1990) of First Allmerica;
Director, President and President (since 1995) of Allmerica Financial Life Insurance and
Chief Executive Officer Annuity Company; Director (since 1990) of Allmerica Investments, Inc.;
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
Director (since 1998) of The Hanover Insurance Company; 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 Allmerica;
Director and Vice President Director (since 1991) of Allmerica Investments, Inc.; and Director (since
1991) of Allmerica Financial Investment Management Services, Inc.
</TABLE>
<PAGE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
<TABLE>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | | |
________________________________________________________________________________________________________________________________
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Financial Allmerica, Allmerica First Allmerica AFC Capital Allmerica First Sterling
Asset Profiles, Inc. Inc. Funding Financial Life Trust I Services Limited
Management, Inc. Corp. Insurance Corporation
Company
Massachusetts California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| | |
| ___________________________________________________________ ________________
| | | | |
| 100% 99.2% 100% 100%
| Advantage Allmerica Allmerica First Sterling
| Insurance Trust Financial Life Reinsurance
| Network, Inc. Company, N.A. Insurance and Company
| Annuity Company Limited
|
| Delaware Federally Chartered Delaware Bermuda
| |
|_________________________________________________________________________________________________________________________
| | | | | | | | | |
| 100% 100% 100% 100% 100% 100% 100% 100% 100%
| Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica
| Investments, Investment Financial Financial Investments Investments Investments Investments Investments
| Inc. Management Investment Services Insurance Insurance Insurance Insurance Insurance
| Company, Inc. Management Insurance Agency Inc. Agency of Agency Inc. Agency Inc. Agency Inc.
| Services, Inc. Agency, Inc. of Alabama Florida Inc. of Georgia of Kentucky of Mississippi
|
|Massachusetts Massachusetts Massachusetts Massachusetts Alabama Florida Georgia Kentucky Mississippi
|
________________________________________________________________
| | | |
100% 100% 100% 100%
Allmerica Sterling Risk Allmerica Allmerica
Property Management Benefits, Inc. Asset
& Casualty Services, Inc. Management,
Companies, Inc. Limited
Delaware Delaware Florida Bermuda
|
________________________________________________
| | |
100% 100% 100%
The Hanover Allmerica Citizens
Insurance Financial Insurance
Company Insurance Company
Brokers, Inc. of Illinois
New Hampshire Massachusetts Illinois
|
________________________________________________________________________________________________________________________________
| | | | | | | |
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Allmerica The Hanover Hanover Texas Citizens Massachusetts Allmerica AMGRO
Financial Plus American Insurance Corporation Bay Insurance Financial Inc.
Benefit Insurance Insurance Management Company Alliance
Insurance Agency, Inc. Company Company, Inc. Insurance
Company Company
Pennsylvania Massachusetts New Hampshire Texas Delaware New Hampshire New Hampshire Massachusetts
| |
________________________________________________ ________________
| | | |
100% 100% 100% 100%
Citizens Citizens Citizens Lloyds Credit
Insurance Insurance Insurance Corporation
Company Company Company
of Ohio of America of the
Midwest
Ohio Michigan Indiana Massachusetts
|
_________________
|
100%
Citizens
Management
Inc.
Michigan
- ----------------- ----------------- -----------------
Allmerica Greendale AAM
Equity Special Equity Fund
Index Pool Placements
Fund
Massachusetts Massachusetts Massachusetts
- -------- Grantor Trusts established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
--------------- ----------------
Allmerica Allmerica
Investment Trust Securities
Trust
Massachusetts Massachusetts
- -------- Affiliated Management Investment Companies
...............
Hanover Lloyd's
Insurance
Company
Texas
- -------- Affiliated Lloyd's plan company, controlled by Underwriters
for the benefit of The Hanover Insurance Company
----------------- -----------------
AAM Growth AAM High Yield
& Income Fund, L.L.C.
Fund L.P.
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
<PAGE>
Advantage Insurance Network Inc. 440 Lincoln Street Insurance Agency
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 440 Lincoln Street Insurance Broker
Brokers, Inc. Worcester MA 01653
Allmerica Financial Life Insurance 440 Lincoln Street Life insurance, accident and health
and Annuity Company (formerly known Worcester MA 01653 insurance, annuities, variable
as SMA Life Assurance Company 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 for
Worcester MA 01653 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. (formerly Worcester MA 01653
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
<PAGE>
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
Allmerica Investments Insurance Agency 200 Southbridge Parkway Insurance Agency
Inc. of Alabama Suite 400
Birmingham, AL 35209
Allmerica Investments Insurance Agency of 14211 Commerce Way Insurance Agency
Florida, Inc. Miami Lakes, FL 33016
Allmerica Investment Insurance Agency Inc. of 1455 Lincoln Parkway Insurance Agency
Georgia Suite 300
Atlanta, GA 30346
Allmerica Investment Insurance Agency Inc. of Barkley Bldg-Suite 105 Insurance Agency
Kentucky 12700 Shelbyville Road
Louisiana, KY 40423
Allmerica Investments Insurance Agency Inc. of 631 Lakeland East Drive Insurance Agency
Mississippi Flowood, MS 39208
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Plus Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. 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
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
<PAGE>
Itasca IL 60143 insurance
Citizens Insurance Company of the 3950 Priority Way Multi-line property and casualty
Midwest South Drive, Suite 200 insurance
Indianapolis IN 46280
Citizens Insurance Company 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 Lloyd's
Company, Inc. Richardson TX 75081 Insurance Company
Hanover Lloyd's Insurance Company Hanover Lloyd's Insurance Multi-line property and casualty
Company 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
Sterling Risk Management Services, Inc. 440 Lincoln Street Risk management services
Worcester MA 01653
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
<PAGE>
As of February 29, 2000, there were 14,472 Contact holders of qualified
Contracts and 22,029 Contract holders of non-qualified Contracts.
ITEM 28. INDEMNIFICATION
Article VIII of the Bylaws of Allmerica Financial Life Insurance and
Annuity Company (the Depositor) state: Each Director and each Officer of
the Corporation, whether or not in office, (and his executors or
administrators), shall be indemnified or reimbursed by the Corporation
against all expenses actually and necessarily incurred by him in the
defense or reasonable settlement of any action, suit, or proceeding in
which he is made a party by reason of his being or having been a Director
or Officer of the Corporation, including any sums paid in settlement or to
discharge 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, Separate Account
SPL-D, Separate Account IMO, 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
NAME POSITION OR OFFICE WITH UNDERWRITER
Margaret L. Abbott Vice President
Emil J. Aberizk, Jr Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Michael J. Brodeur Vice President Operations
Mark R. Colborn Vice President
Claudia J. Eckels Vice President
<PAGE>
Mary M. Eldridge Secretary/Clerk
Philip L. Heffernan Vice President
J. Kendall Huber Director
Mark C. McGivney Treasurer
William F. Monroe, Jr. President, Director and Chief Executive Officer
David J. Mueller Vice President, Chief Financial Officer,
Financial Operations Principal and Controller
Stephen Parker Vice President and Director
Richard M. Reilly Director and Chairman of the Board
Eric A. Simonsen Director
Mark G. Steinberg Senior Vice President
(c) As indicated in Part B (Statement of Additional Information) in
response to Item 20(c), the aggregate amount of commissions retained by
Allmerica Investments, Inc., the principal underwriter of the Contracts, for
sales of variable contracts funded by the Registrant was $29,686,895 in 1999. No
other commissions or other compensation was received by the principal
underwriter, directly or indirectly, from the Registrant during the Registrant's
last fiscal year.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Each account, book or other document required to be maintained by Section
31(a) of the 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained
by the Company at 440 Lincoln Street, Worcester, Massachusetts.
ITEM 31. MANAGEMENT SERVICES
The Company provides daily unit value calculations and related services
for the Company's separate accounts.
ITEM 32. UNDERTAKINGS
(a) The Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement
are never more than 16 months old for so long as payments under the
variable annuity contracts may be accepted.
(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 and any financial statements promptly upon written or oral
request, according to the requirements of Form N-4.
<PAGE>
(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 certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Worcester, and Commonwealth of Massachusetts, on the 3rd day of April,
2000.
ALLMERICA SELECT SEPARATE ACCOUNT OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Mary Eldridge
------------------------
Mary Eldridge, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the 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 Controller April 3, 2000
- ------------------------------------
Warren E. Barnes
Edward J. Parry III* Director, Vice President and Chief Financial
- ------------------------------------ Officer
Richard M. Reilly* Director, President and Chief Executive Officer
- ------------------------------------
John F. O'Brien* Director and Chairman of the Board
- ------------------------------------
Bruce C. Anderson* Director
- ------------------------------------
Mark R. Colborn* Director and Vice President
- ------------------------------------
John P. Kavanaugh* Director, Vice President and Chief Investment
- ------------------------------------ Officer
J. Kendall Huber* Director, Vice President and General Counsel
- ------------------------------------
J. Barry May* Director
- ------------------------------------
James R. McAuliffe* Director
- ------------------------------------
Robert P. Restrepo, Jr.* Director
- ------------------------------------
Eric A. Simonsen* Director and Vice President
- ------------------------------------
</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 2, 2000 duly executed
by such persons.
/s/ Sheila B. St. Hilaire
- ---------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
(33-47216)
<PAGE>
EXHIBIT TABLE
Exhibit 8(f) Directors' Power of Attorney
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
Exhibit 13 Schedule for Computation of Performance Quotations
<PAGE>
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint Richard M. Reilly,
J. Kendall Huber, 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 Registration Statements and all amendments thereto, including post-effective
amendments, with respect to the Separate Accounts supporting variable life and
variable annuity contracts issued by 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,
and with any other regulatory agency or state authority that may so require,
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ John F. O'Brien Director and Chairman of the Board 4/2/2000
- --------------------------- --------
John F. O'Brien
/s/ Bruce C. Anderson Director 4/2/2000
- --------------------------- --------
Bruce C. Anderson
/s/ Mark R. Colborn Director and Vice President 4/2/2000
- --------------------------- --------
Mark R.Colborn
/s/ John P. Kavanaugh Director, Vice President and 4/2/2000
- --------------------------- Chief Investment Officer --------
John P. Kavanaugh
/s/ J. Kendall Huber Director, Vice President and 4/2/2000
- --------------------------- General Counsel --------
J. Kendall Huber
/s/ J. Barry May Director 4/2/2000
- --------------------------- --------
J. Barry May
/s/ James R. McAuliffe Director 4/2/2000
- --------------------------- --------
James R. McAuliffe
/s/ Edward J. Parry, III Director, Vice President, and Chief Financial 4/2/2000
- --------------------------- Officer --------
Edward J. Parry, III
/s/ Richard M. Reilly Director, President and 4/2/2000
- --------------------------- Chief Executive Officer --------
Richard M. Reilly
/s/ Robert P. Restrepo, Jr. Director 4/2/2000
- --------------------------- --------
Robert P. Restrepo, Jr.
/s/ Eric A. Simonsen Director and Vice President 4/2/2000
- --------------------------- --------
Eric A. Simonsen
</TABLE>
<PAGE>
April 14, 2000
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
RE: ALLMERICA SELECT SEPARATE ACCOUNT OF ALLMERICA
FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FILE NO.'S: 33-47216 AND 811-6632
Gentlemen:
In my capacity as Assistant Vice President and Counsel of Allmerica Financial
Life Insurance Company (the "Company"), I have participated in the preparation
of this Post-Effective Amendment to the Registration Statement for Allmerica
Select Separate Account on Form N-4 under the Securities Act of 1933 and
amendment under the Investment Company Act of 1940, with respect to the
Company's qualified and non-qualified variable annuity contracts.
I am of the following opinion:
1. Allmerica Select Separate Account is a separate account of the Company
validly existing pursuant to the Delaware Insurance Code and the
regulations issued thereunder.
2. The assets held in Allmerica Select Separate Account are not chargeable
with liabilities arising out of any other business the Company may
conduct.
3. The variable annuity contracts, when issued in accordance with the
Prospectus contained in the 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
Post-Effective Amendment to the Registration Statement of Allmerica Select
Separate Account on Form N-4 filed under the Securities Act of 1933 and
amendment under the Investment Company Act of 1940.
Very truly yours,
/s/ John C. Donlon, Jr.
John C. Donlon, Jr.
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 Post-Effective Amendment No. 21 to the Registration
Statement of Allmerica Select Separate Account of Allmerica Financial Life
Insurance and Annuity Company on Form N-4 of our report dated February 1, 2000,
relating to the financial statements of Allmerica Financial Life Insurance and
Annuity Company, and our report dated April 3, 2000, 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
April 18, 2000
<PAGE>
<TABLE>
<CAPTION>
SELECT RESOURCE I & II - AFLIAC Since Inception of Underlying Sub-Account
1 Year Without Surrender
<S> <C> <C>
Select Emerging Markets Fund (1.268091-0.776018)/0.776018 = 63.41%
Select International Equity Fund (2.088780-1.608341)/1.608341 = 29.87%
T. Rowe Price International Stock Portfolio (1.837318-1.397668)/1.397668 = 31.46%
Select Aggressive Growth Fund (3.605672-2.637252)/2.637252 = 36.72%
Select Capital Appreciation Fund (2.320902-1.877576)/1.877576 = 23.61%
Select Value Opportunity Fund (0.929109-0.988757)/0.988757 = -6.03%
Select Growth Fund (3.574613-2.792907)/2.792907 = 27.99%
Select Strategic Growth Fund (1.102814-0.963660)/0.963660 = 14.44%
Fidelity VIP Growth Portfolio (3.170668-2.339717)/2.339717 = 35.52%
Select Growth and Income Fund (2.676294-2.291896)/2.291896 = 16.77%
Fidelity VIP Equity-Income Portfolio (1.956991-1.866604)/1.866604 = 4.84%
Fidelity VIP High Income Portfolio (1.439270-1.349633)/1.349633 = 6.64%
Select Income Fund (1.339892-1.370585)/1.370585 = -2.24%
Money Market Fund (1.272032-1.226503)/1.226503 = 3.71%
<CAPTION>
Since Inception of Underlying Sub-Account
5 Years Without Surrender
<S> <C> <C>
Select Emerging Markets Fund
Select International Equity Fund ((2.088780/0.956255)^(365/1825))-1 = 16.91%
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund ((3.605672/1.354613)^(365/1825))-1 = 21.63%
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Growth Fund ((3.574613/1.069721)^(365/1825))-1 = 27.29%
Select Strategic Growth Fund
Fidelity VIP Growth Portfolio
Select Growth and Income Fund ((2.676294/1.074868)^(365/1825))-1 = 20.02%
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Select Income Fund ((1.339892/1.028293)^(365/1825))-1 = 5.44%
Money Market Fund ((1.272032/1.045304)^(365/1825))-1 = 4.00%
<CAPTION>
Since Inception of Underlying Sub-Account
10 Years or Since Inception Without Surrender
<S> <C> <C>
Select Emerging Markets Fund ((1.268091/1.000000)^(365/679))-1 = 13.62%
Select International Equity Fund ((2.088780/1.000000)^(365/2068))-1 = 13.88%
T. Rowe Price International Stock Portfolio ((1.8373181/1.000000)^(365/1705))-1 = 13.91%
Select Aggressive Growth Fund ((3.605672/1.000000)^(365/2670))-1 = 19.16%
Select Capital Appreciation Fund ((2.320902/1.000000)^(365/1708))-1 = 19.71%
Select Value Opportunity Fund ((0.929109/1.000000)^(365/679))-1 = -3.88%
Select Growth Fund ((3.574613/1.000000)^(365/2670))-1 = 19.02%
Select Strategic Growth Fund ((1.102814/1.000000)^(365/679))-1 = 5.40%
Fidelity VIP Growth Portfolio ((3.170668/1.000000)^(365/1705))-1 = 28.02%
Select Growth and Income Fund ((2.676294/1.000000)^(365/2670))-1 = 14.41%
Fidelity VIP Equity-Income Portfolio ((1.956991/1.000000)^(365/1705))-1 = 15.46%
Fidelity VIP High Income Portfolio ((1.439270/1.000000)^(365/1705))-1 = 8.11%
Select Income Fund ((1.339892/1.000000)^(365/2670))-1 = 4.08%
Money Market Fund ((1.272032/1.000000)^(365/2640))-1 = 3.38%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECT RESOURCE I & II - AFLIAC Since Inception of Underlying Sub-Account
1 Year With Surrender
<S> <C> <C>
Select Emerging Markets Fund (1.268091-(0.065*0.776018))/0.776018-0.0002-1 = 56.89%
Select International Equity Fund (2.08878-(0.065*1.608341))/1.608341-0.0033-1 = 23.04%
T. Rowe Price International Stock Portfolio (1.837318-(0.065*1.397668))/1.397668-0.0017-1 = 24.79%
Select Aggressive Growth Fund (3.605672-(0.065*2.637252))/2.637252-0.0039-1 = 29.83%
Select Capital Appreciation Fund (2.320902-(0.065*1.877576))/1.877576-0.0021-1 = 16.90%
Select Value Opportunity Fund (0.929109-(0.065*0.836198))/0.988757-0.0003-1 = -11.56%
Select Growth Fund (3.574613-(0.065*2.792907))/2.792907-0.004-1 = 21.09%
Select Strategic Growth Fund (1.102814-(0.065*0.96366))/0.96366-0.0003-1 = 7.91%
Fidelity VIP Growth Portfolio (3.170668-(0.065*2.339717))/2.339717-0.0024-1 = 28.78%
Select Growth and Income Fund (2.676294-(0.065*2.291896))/2.291896-0.0037-1 = 9.90%
Fidelity VIP Equity-Income Portfolio (1.956991-(0.065*1.761292))/1.866604-0.0024-1 = -1.53%
Fidelity VIP High Income Portfolio (1.43927-(0.065*1.295343))/1.349633-0.0019-1 = 0.21%
Select Income Fund (1.339892-(0.065*1.205903))/1.370585-0.0021-1 = -8.17%
Money Market Fund (1.272032-(0.065*1.144829))/1.226503-0.001-1 = -2.46%
<CAPTION>
Since Inception of Underlying Sub-Account
5 Years With Surrender
<S> <C> <C>
Select Emerging Markets Fund
Select International Equity Fund ((2.08878-(0.03*0.956255))/0.956255)^0.2-0.0029-1 = 16.30%
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund ((3.605672-(0.03*1.354613))/1.354613)^0.2-0.003-1 = 21.05%
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Growth Fund ((3.574613-(0.03*1.069721))/1.069721)^0.2-0.0028-1 = 26.78%
Select Strategic Growth Fund
Fidelity VIP Growth Portfolio
Select Growth and Income Fund ((2.676294-(0.03*1.074868))/1.074868)^0.2-0.0027-1 = 19.45%
Fidelity VIP Equity-Income Portfolio
Fidelity VIP High Income Portfolio
Select Income Fund ((1.339892-(0.03*1.028293))/1.028293)^0.2-0.0023-1 = 4.72%
Money Market Fund ((1.272032-(0.03*1.045304))/1.045304)^0.2-0.0014-1 = 3.35%
<CAPTION>
Since Inception of Underlying Sub-Account
10 Years or Since Inception With Surrender
<S> <C> <C>
Select Emerging Markets Fund ((1.268091-(0.06*1))/1)^(365/679)-0.0004-1 = 10.66%
Select International Equity Fund ((2.08878-(0.02*1))/1)^(365/2068)-0.0031-1 = 13.38%
T. Rowe Price International Stock Portfolio ((1.837318-(0.03*1))/1)^(365/1705)-0.0013-1 = 13.38%
Select Aggressive Growth Fund ((3.605672-(0*1))/1)^(365/2670)-0.0027-1 = 18.89%
Select Capital Appreciation Fund ((2.320902-(0.03*1))/1)^(365/1708)-0.0015-1 = 19.23%
Select Value Opportunity Fund ((0.929109-(0.06*0.836198))/1)^(365/679)-0.0004-1 = -6.74%
Select Growth Fund ((3.574613-(0*1))/1)^(365/2670)-0.0031-1 = 18.71%
Select Strategic Growth Fund ((1.102814-(0.06*0.992533))/1)^(365/679)-0.0003-1 = 2.27%
Fidelity VIP Growth Portfolio ((3.170668-(0.03*1))/1)^(365/1705)-0.0014-1 = 27.62%
Select Growth and Income Fund ((2.676294-(0*1))/1)^(365/2670)-0.0032-1 = 14.09%
Fidelity VIP Equity-Income Portfolio ((1.956991-(0.03*1))/1)^(365/1705)-0.0017-1 = 14.91%
Fidelity VIP High Income Portfolio ((1.43927-(0.03*1))/1)^(365/1705)-0.0016-1 = 7.46%
Select Income Fund ((1.339892-(0*1))/1)^(365/2670)-0.0024-1 = 3.84%
Money Market Fund ((1.272032-(0*1))/1)^(365/2640)-0.0014-1 = 3.24%
</TABLE>
