<PAGE>
File Number 33-47858
811-6666
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 8
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8
SEPARATE ACCOUNT I OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Exact Name of Trust)
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
440 Lincoln Street
Worcester Massachusetts 01653
(508) 855-1000
(Registrant's telephone number including area code)
Richard J. Baker, Vice President and Secretary
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester Massachusetts 01653
(Name and complete address of agent for service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to Paragraph (b)
X on April 30, 1996 pursuant to Paragraph (b)
60 days after filing pursuant to Paragraph (a) (1)
on (date) pursuant to Paragraph (a) (1)
on (date) pursuant to Paragraph (a) (2) of Rule 485
VARIABLE ANNUITY CONTRACTS
Pursuant to Reg. Section 270.24F-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is being
registered under the Securities Act of 1933. The Rule 24f-2 Notice for the
issuer's fiscal year ended December 31, 1995 was filed on February 29, 1996.
<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
- ----------------- ---------------------
<C> <S>
1 . . . . . . . . . . . . . Cover Page
2 . . . . . . . . . . . . . "Special Terms"
3 . . . . . . . . . . . . . "Summary"; "Annual and Transaction
Expenses"
4 . . . . . . . . . . . . . Omitted
5 . . . . . . . . . . . . . "Description of the Company, the
Separate Account and the Trust"
6.. . . . . . . . . . . . . "Charges and Deductions:
7 . . . . . . . . . . . . . "Description of the Contract"
8 . . . . . . . . . . . . . Omitted
9 . . . . . . . . . . . . . "Death Benefit"
10. . . . . . . . . . . . . "Contributions"; "Computation of IRA
Account Values and Annuity Payments"
11. . . . . . . . . . . . . "Surrender Privilege"; "Redemption
Privilege"
12. . . . . . . . . . . . . "Federal Tax Considerations"
13. . . . . . . . . . . . . "Legal Matters"
14. . . . . . . . . . . . . "Table of Contents of the Statement of
Additional Information"
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ---------------- ----------------------------------------------
15. . . . . . . . . . . . . "Cover Page"
16. . . . . . . . . . . . . "Table of Contents"
17. . . . . . . . . . . . . "General Information and History"
18. . . . . . . . . . . . . "Services"
19. . . . . . . . . . . . . "Underwriters"
20. . . . . . . . . . . . . "Underwriters"
21. . . . . . . . . . . . . "Performance Information"
22. . . . . . . . . . . . . "Annuity Payments"
23. . . . . . . . . . . . . "Financial Statements"
</TABLE>
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
SEPARATE ACCOUNT I
This Prospectus describes group variable annuity contracts ("Contracts") offered
by First Allmerica Financial Life Insurance Company ("Company"). Each Contract
establishes for the benefit of Participant-Owners under the Contracts individual
retirement annuities ("IRA Accounts") qualified under Section 408(b) of the
Internal Revenue Code ("Code"). (For information about the tax status of IRA
Accounts, see "FEDERAL TAX CONSIDERATIONS.") Such Participant-Owners are
employees or former employees of the Policyholder (or spouses of such employees
or former employees, in the case of spousal IRA Accounts). An individual
certificate of coverage ("Certificate") will be issued to each Participant-Owner
as evidence of his or her rights and benefits under the Contract. The Contracts
permit net contributions to each IRA Account to be allocated among Sub-Accounts
of Separate Account I, which invest in the following funds of Allmerica
Investment Trust ("Trust"): the Growth Fund, Investment Grade Income Fund,
Money Market Fund, Equity Index Fund and Government Bond Fund (the "Underlying
Funds"). More information about the Underlying Funds can be found in the
prospectus for the Trust. The "SUMMARY" that follows provides basic information
about the Contracts. More detailed information can be found under the
referenced captions in the Prospectus.
This Prospectus generally describes only the variable accumulation aspects of
the Contracts, except where General Account interests, including fixed values
and annuity payments, are specifically mentioned. ALLOCATIONS TO AND TRANSFERS
TO AND FROM THE GENERAL ACCOUNT ARE NOT PERMITTED IN CERTAIN STATES. Certain
additional information about the Contracts is contained in a Statement of
Additional Information, dated April 30, 1996, as may be amended from time to
time, which has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Table of Contents for the Statement of
Additional Information is listed on page 5 of this Prospectus. The Statement of
Additional Information is available upon request and without charge. To obtain
the Statement of Additional Information, contact Allmerica Institutional
Services, Station C-36, First Allmerica Financial Life Insurance Company, 440
Lincoln Street, Worcester, Massachusetts 01653, 1-800-533-7865.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
ALLMERICA INVESTMENT TRUST.
INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE CONTRACTS ARE OBLIGATIONS OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY AND ARE DISTRIBUTED BY ITS SUBSIDIARY, ALLMERICA INVESTMENTS, INC. THE
CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK OR CREDIT UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY.
INVESTMENT IN THE CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE
FLUCTUATION OF VALUE AND POSSIBLE LOSS OF PRINCIPAL.
DATED APRIL 30, 1996
<PAGE>
SUMMARY
IRA ACCOUNT. Each IRA Account established under the Contract is intended to be
an individual retirement annuity qualified under Section 408(b) of the Internal
Revenue Code ("Code"). See "Individual Retirement Annuities." An IRA Account
may be established by a Participant-Owner with a rollover distribution from a
qualified retirement plan maintained by the Policyholder. Such Participant-
Owner may also establish an additional IRA Account for his or her spouse.
Separate IRA Accounts will be maintained under the Contract for rollover
contributions and annual deductible and non-deductible contributions, unless a
Participant-Owner requests otherwise in writing. A separate Certificate will be
issued for each IRA Account maintained for the Participant-Owner.
INVESTMENT OPTIONS. The Contracts permit net contributions to each IRA Account
to be allocated among Sub-Accounts of Separate Account I ("Separate Account"), a
separate account of the Company, and of the General Account, where available.
The Separate Account is registered as a unit investment trust under the
Investment Company Act of 1940, as amended, (the "1940 Act"), but such
registration does not involve the supervision of the management or investment
practices or policies of the Separate Account by the Securities and Exchange
Commission (the "SEC"). For information about the Separate Account and the
Company, see "DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE TRUST."
For more information about the General Account, see APPENDIX A, "MORE
INFORMATION ABOUT THE GENERAL ACCOUNT."
Each Sub-Account of the Separate Account invests its assets without sales
charge in a corresponding investment series of Allmerica Investment Trust
(the "Trust"). The Trust is an open-end, diversified series investment
company. The following funds of the Trust are offered under this Prospectus:
the Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity
Index Fund, Government Bond Fund, Select Aggressive Growth Fund and Select
International Equity Fund (the "Underlying Funds"). Each Underlying Fund
operates pursuant to different investment objectives, discussed below.
INVESTMENT IN THE SUB-ACCOUNTS OF THE SEPARATE ACCOUNT. Until the Valuation
Date that is 15 days from the date the IRA Account was established, all Separate
Account allocations will be held in the Money Market Sub-Account. Thereafter,
all amounts will be allocated according to the Participant-Owner's instructions.
The value of each Sub-Account of the Separate Account will vary daily depending
on the performance of the investments made by the respective Underlying Funds.
There can be no assurance that the investment objectives of the Underlying Funds
can be achieved or that the value of an IRA Account will equal or exceed the
aggregate amount of contributions made to the IRA Account. For more information
about the investments of the Underlying Funds, see "DESCRIPTION OF THE COMPANY,
THE SEPARATE ACCOUNT, AND THE TRUST." The accompanying prospectus of the Trust
describes the investment objectives and risks of each of the Underlying Funds.
Dividends or capital gains distributions received from an Underlying Fund are
reinvested in additional shares of that Underlying Fund, which are retained as
assets of the Sub-Account.
TRANSFERS AMONG SUB-ACCOUNTS. The Contracts permit amounts to be transferred
prior to the Annuity Date among the Sub-Accounts of the Separate Account and,
where available, the General Account, subject to certain limitations described
under "Transfer Privilege."
ANNUITY PAYMENTS. The Participant-Owner may choose the form of annuity benefit
to commence on the Participant-Owner's Annuity Date. All annuity benefits are
funded through the General Account and are guaranteed by the Company.
See "DESCRIPTION OF THE CONTRACT" for information about annuity payment options,
selecting the Annuity Date, and how annuity payments are calculated.
REVOCATION RIGHTS. A Participant-Owner may revoke his or her IRA Account at any
time between the date of the application for the IRA Account and the date 10
days after receipt of his or her Certificate. For more information about
revocation rights, see "RIGHT TO REVOKE IRA ACCOUNT."
CONTRIBUTION MINIMUMS AND MAXIMUMS. Under the Contracts, additional
contributions are not limited as to frequency and number, except that certain
contributions must be received by the Company by April 15 of the year following
the calendar year to which the contributions are attributable. See
"Contributions."
-2-
<PAGE>
The minimum initial contribution from a rollover distribution is the lesser of
(1) $3,500, or (2) such smaller amount as meets the Company's then current
rules. The maximum initial contribution is the amount equal to the taxable
portion of the Participant-Owner's rollover distribution.
A Participant-Owner may make additional contributions, subject to the following
requirements: The minimum additional contribution is the lesser of (1) $1,000,
or (2) such smaller amount as meets the Company's then current rules. The
maximum additional contributions, including both deductible and nondeductible
contributions, for any taxable year of the Participant-Owner to an IRA Account
established by a Participant-Owner with a rollover distribution is the lesser of
(1) $2,000, or (2) 100% of the Participant-Owner's compensation for that taxable
year. A Participant-Owner may make an additional rollover contribution.
Additional rollover contributions are not subject to maximum contribution
limits.
A Participant-Owner who has established an IRA Account may also establish a
spousal IRA Account. The maximum total contributions to both IRA accounts in
any taxable year is $2,250, of which amount no more than $2,000 may be
contributed to any one IRA Account.
CHARGES AND DEDUCTIONS. For a complete discussion of charges, see "CHARGES AND
DEDUCTIONS."
SURRENDER AND REDEMPTION CHARGE. No sales charge is deducted from contributions
at the time the contributions are made. However, a withdrawal charge of 4% will
be made on any amount withdrawn from a General Account Sub-Account on other than
its maturity date, and upon the election of an annuity for a specified number of
years, subject to certain exceptions. No sales charge is deducted upon
withdrawal from any Sub-Account of the Separate Account. In those states where
allocations to and transfers to and from the General Account are not permitted,
no withdrawal charge applies.
PREMIUM TAXES. A deduction for State and local premium taxes, if any, may be
made as described under "Premium Taxes."
ANNUAL IRA ACCOUNT FEE. Prior to the Annuity Date, an IRA Account Fee equal to
$25 will be deducted annually from each IRA Account for administrative expenses.
The fee will be deducted on the last Valuation Date of the month of the
anniversary of the establishment of the IRA Account and on the date the IRA
Account is surrendered.
SEPARATE ACCOUNT ASSET CHARGES. A daily charge, equivalent to 0.90% per annum,
is made on the value of each Separate Account Sub-Account at each Valuation
Date. The charge is retained for the mortality and expense risks the Company
assumes. In addition, to cover Separate Account administrative expenses, the
Company deducts a daily charge of 0.25% per annum of the value of the average
net assets in the Separate Account Sub-Accounts.
CHARGES OF THE UNDERLYING FUNDS. In addition to the charges described above,
certain fees and expenses are deducted from the assets of the Underlying Funds.
These charges vary among the Underlying Funds; See "Annual and Transaction
Expenses" and the prospectus for the Underlying Funds for more information.
SURRENDER AND REDEMPTION PRIVILEGE. At any time before the Annuity Date, the
Participant-Owner has the right either to surrender the IRA Account in full and
receive its Surrender Value (Accumulated Value minus the IRA Account Fee and any
applicable withdrawal charge) or to redeem a portion of the Accumulated Value of
the IRA Account subject to certain limits and any applicable withdrawal charge.
DEATH BENEFIT. If a Participant-Owner dies before the Annuity Date, a death
benefit will be paid to the beneficiary. The death benefit will be equal to the
Accumulated Value of the IRA Account.
SALES OF CONTRACTS AND CERTIFICATES. The Contracts and Certificates thereunder
are sold by agents of the Company who are registered representatives of
Allmerica Investments, Inc. ("Allmerica Investments"), a broker-dealer affiliate
of the Company.
-3-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . . 7
SPECIAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ANNUAL AND TRANSACTION EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . 9
CONDENSED FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .11
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
WHAT IS AN INDIVIDUAL RETIREMENT ANNUITY?. . . . . . . . . . . . . . . . . . .14
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY. . . . . . . . . . . . . . . . .14
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND THE TRUST . . . . . . . .15
INVESTMENT OBJECTIVES AND POLICIES. . . . . . . . . . . . . .16
INVESTMENT ADVISORY SERVICES TO THE TRUST . . . . . . . . . .17
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS . . . . . .19
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
SURRENDER AND REDEMPTION CHARGE . . . . . . . . . . . . . . .20
PREMIUM TAXES . . . . . . . . . . . . . . . . . . . . . . . .22
IRA ACCOUNT FEE . . . . . . . . . . . . . . . . . . . . . . .22
ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS. . . . . . . .22
OTHER CHARGES . . . . . . . . . . . . . . . . . . . . . . . .23
DESCRIPTION OF THE CONTRACT. . . . . . . . . . . . . . . . . . . . . . . . . .24
CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . .24
TRANSFER PRIVILEGE. . . . . . . . . . . . . . . . . . . . . .25
SURRENDER PRIVILEGE . . . . . . . . . . . . . . . . . . . . .26
REDEMPTION PRIVILEGE. . . . . . . . . . . . . . . . . . . . .26
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . .27
THE SPOUSE OF THE PARTICIPANT-OWNER AS BENEFICIARY. . . . . .27
OWNERSHIP AND NON-ALIENATION OF IRA ACCOUNTS. . . . . . . . .28
ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE . . . . . .28
DESCRIPTION OF ANNUITY OPTIONS. . . . . . . . . . . . . . . .28
COMPUTATION OF IRA ACCOUNT VALUES AND ANNUITY PAYMENTS. . . .30
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . .31
TAXATION OF THE CONTRACTS IN GENERAL. . . . . . . . . . . . .32
TAX WITHHOLDING AND PENALTIES . . . . . . . . . . . . . . . .33
INDIVIDUAL RETIREMENT ANNUITIES IN GENERAL. . . . . . . . . .33
REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT . . . . . . . . . . . . . . . . .34
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
APPENDIX A - MORE INFORMATION ABOUT THE GENERAL ACCOUNT. . . . . . . . . . . .35
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY . . . . . . . . . . . . . . 3
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
-4-
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATED VALUE: the value of an IRA Account on any Valuation Date prior to
the Annuity Date, equal to the sum of the value of all Accumulation Units in the
Sub-Accounts of the Separate Account and of the value of all accumulations in
the General Account of the Company then credited to the IRA Account.
ACCUMULATION UNIT: a measure of the Participant-Owner's interest in a
Sub-Account of the Separate Account prior to the Annuity Date.
ANNUITY DATE: the date on which annuity payments are to start.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate investment account.
PARTICIPANT-OWNER: an employee or former employee of the Policyholder who makes
contributions under the Contract in accordance with its provisions.
SEPARATE ACCOUNT: Separate Account I of the Company. Separate Account I
consists of assets segregated from other assets of the Company. The investment
performance of the assets of the Separate Account is determined separately from
the other assets of the Company. The assets of the Separate Account are not
chargeable with liabilities arising out of any other business which the Company
may conduct.
SUB-ACCOUNT: respecting the Separate Account, a subdivision offered under this
Prospectus which invests exclusively in the shares of an Underlying Fund of
Allmerica Investment Trust; respecting the General Account, an account, with a
fixed interest rate guaranteed until a specified maturity date, maintained
within the General Account for crediting interest to Participant-Owner
contributions allocable to the General Account.
SURRENDER VALUE: the Accumulated Value of an IRA Account minus any IRA Account
Fee and withdrawal charge applicable upon surrender.
UNDERLYING FUNDS: the Growth Fund, Investment Grade Income Fund, Money Market
Fund, Equity Index Fund, Government Bond Fund, Select Aggressive Growth Fund
and Select International Equity Fund of Allmerica Investment Trust.
VALUATION DATE: a day on which the Accumulated Values of all IRA 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, partial withdrawal, or surrender of a Contract or
Certificate was received) when there is a sufficient degree of trading in an
Underlying Fund's portfolio securities such that the current net asset value of
the Sub-Accounts of the Separate Account may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
-5-
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Participant-Owner in
understanding the various costs and expenses that a Participant-Owner will bear
directly or indirectly under the Contract. The tables reflect charges under the
Contract, expenses of the Separate Account Sub-Accounts, and expenses of the
Underlying Funds. In addition to the charges and expenses described below, in
some states premium taxes may be applicable.
PARTICIPANT-OWNER TRANSACTION EXPENSES
SURRENDER AND REDEMPTION CHARGE:
None on value in Separate Account Sub-Accounts. (A charge may
be made on surrender or partial redemption of the IRA Account,
equal to 4% of the amount withdrawn from a General Account
Sub-Account on other than its maturity date.)
TRANSFER CHARGE:
None.
ANNUAL IRA ACCOUNT FEE:
An annual IRA Account Fee of $25 is deducted prior to the
Annuity Date.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
MORTALITY AND EXPENSE RISK CHARGE:
0.90%
ADMINISTRATIVE EXPENSE CHARGE:
0.25%
TOTAL ANNUAL EXPENSES:
1.15%
<TABLE>
<CAPTION>
ALLMERICA INVESTMENT TRUST
Investment Monet Equity Government Select Select
Growth Grade Income Market Index Bond Aggressive International
ANNUAL FUND EXPENSES Fund Fund Fund Fund Fund Growth Fund Equity Fund
---- ---- ---- ---- ---- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.46% 0.41% 0.29% 0.34% 0.50% 1.00% 1.00%
Other Fund Expenses 0.08% 0.12% 0.07% 0.21% 0.19% 0.09% 0.24%
----- ----- ----- ----- ----- ----- -----
Total Fund Expenses 0.54% 0.53% 0.36% 0.55% 0.69% 1.09% 1.24%
</TABLE>
Under the Management Agreement with the Trust, Allmerica Investment
Management Company, Inc. ("Manager") has declared a voluntary expense
limitation of 1.20% of average net assets for the Growth Fund, 1.00% for the
Investment Grade Income Fund and Government Bond Fund, 0.60% for the Money
Market Fund and Equity Index Fund 1.50% for the Select International Equity
Fund and 1.35% for the Select Aggressive Growth Fund. The total operating
expenses of the underlying Funds were less than their respective expense
limitations throughout 1995. The declaration of a voluntary expense
limitation in any year does not bind the Manager to declare future expense
limitations with respect to any Fund. The following Examples demonstrate the
cumulative expenses which would be paid by the Participant-Owner at 1-year,
3-year, 5-year and 10-year intervals, assuming a $1,000 investment in a
Separate Account Sub-Account and a 5% annual return on assets. Because the
expenses of the Underlying Funds differ, separate Examples are used to
illustrate the expenses incurred by a Participant-Owner on an investment in
the various Sub-Accounts of the Separate Account. No withdrawal charge is
illustrated
-6-
<PAGE>
in the Examples because there is no withdrawal charge applied to investments in
a Separate Account Sub-Account. Whether or not the Participant-Owner surrenders
or annuitizes at the end of the applicable period, the illustrated expenses
would be the same.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
-7-
<PAGE>
CONDENSED FINANCIAL INFORMATION
First Allmerica Financial Life Insurance Company
Separate Account I
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Growth
Unit Value:
Beginning of 106.389 107.455 100.000 *
Period
139.674 106.389 107.455
End of Period
5 4 3
Number of Units
Outstanding at
End of Period (in
thousands)
Investment Grade Income
Unit Value:
100.109 104.357 100.000 *
Beginning of
Period 116.633 100.109 104.357
End of Period 1 1 1
Number of Units
Outstanding at
End of Period (in
thousands)
Money Market
Unit Value:
Beginning of 104.088 101.316 100.000 *
Period
108.898 104.088 101.316
End of Period
3 4 1
Number of Units
Outstanding at
End of Period (in
thousands)
Index Stock
Unit Value:
Beginning of 106.437 106.555 100.000 *
Period
143.302 106.437 106.555
End of Period
1 1 1
Number of Units
Outstanding at
End of Period (in
thousands)
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Government Bond
Unit Value:
Beginning of 99.753 101.808 100.000 *
Period
111.493 99.753 101.808
End of Period
2 1 3
Number of Units
Outstanding at
End of Period (in
thousands)
</TABLE>
* The inception date of the Sub accounts is as follows: April 6, 1993 for
Investment Grade Income and Money Market (Sub-Accounts 2 and 3); May 14,
1993 for Growth and Index Stock (Sub-Accounts 1 and 4); May 17, 1993 for
Government Bond (Sub-Account 5). No data is given for Select Aggressive
Growth and Select International Equity (Sub-Accounts 6 and 7) because these
Sub-Accounts did not begin operations until April 30, 1996.
-9-
<PAGE>
PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1993. However, the
Company may advertise "Total Return" and "Average Annual Total" Return
performance information for the Sub-Accounts and yield and effective yield
for the Money Market Sub-Account based on the periods that the Underlying
Funds have been in existence. The results for any period prior to the
Contracts being offered will be calculated as if the Contracts had been
offered during that period of time, with all charges assumed to be those
applicable to the Sub-Accounts, the Underlying Funds, and (in Table 1)
assuming that the Contract is 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 certain charges, and expressed as a percentage of
the investment.
The "yield" of the Money Market Sub-Account refers to the income generated by an
investment in the Sub-Account over a seven-day period (which period will be
specified in the advertisement). This income is then "annualized" by assuming
that the income generated in the specific week is generated over a 52-week
period. This annualized yield is shown as a percentage of the investment. The
"effective yield" calculation is similar, but when annualized, the income earned
by an investment in the Sub-Account is assumed to be reinvested. Thus the
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect the
Sub-Account's asset charges. The total return figures also reflect the $25
annual IRA Account Fee.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Sub-Account
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morning Star, Inc. who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Sub-Account. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Sub-Account reflects only the performance of a
hypothetical investment in the Sub-Account during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the portfolio of the 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.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
One-Year 10 Years or
NAME Total Return 3 Years 5 Years since Inception*
---- ------------ ------- ------- ----------------
<S> <C> <C> <C> <C>
Growth 31.29% 13.24% 22.38% 14.04%
Equity Index 34.64% 7.81% 10.95% 8.27%
Investment Grade Income 16.51% 3.13% 3.68% 4.69%
Government Bond 11.77% 15.86% 22.38% 15.57%
Money Market 4.62% 5.15% 10.00% 6.47%
Select Aggressive Growth 30.75% 14.25% n/a 18.77%
Select International Equity 18.24% n/a n/a 7.74%
</TABLE>
The dates of Inception for the Funds are as follows:
4/29/85 for Growth, Investment Grade and Money Market; 9/28/90 for Equity
Index; 8/26/91 for Government Bond; 8/21/92 for Select Aggressive Growth;
and 5/01/94 for Select International Equity.
The following Examples demonstrate the cumulative expenses which would be
paid by the Participant-Owner at 1-year, 3-year, 5-year and 10-year
intervals, assuming a $1,000 investment in a Separate Account Sub-Account and
a 5% annual return on assets. Because the expenses of the Underlying Funds
differ, separate Examples are used to illustrate the expenses incurred by a
Participant-Owner on an investment in the various Sub-Accounts of the
Separate Account. No withdrawal charge is illustrated in the Examples because
there is no withdrawal charge applied to investments in a Separate Account
Sub-Account. Whether or not the Participant-Owner surrenders or annuitizes at
the end of the applicable period, the illustrated expenses would be the same.
THE INFORMATION UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
<TABLE>
<CAPTION>
Underlying Fund 1 3 5 10
Year Years Years Years
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Fund $20 $62 $106 $228
Investment Grade Income Fund $20 $61 $105 $227
Money Market Fund $19 $56 $96 $209
Equity Index Fund $20 $62 $106 $229
Government Bond Fund $21 $66 $113 $243
Select Aggressive Growth Fund $25 $78 $133 $284
Select International Equity Fund $27 $83 $141 $298
</TABLE>
As required in rules promulgated under the 1940 Act, the IRA Account Fee has
been reflected in the Examples by a method intended to show the "average"
impact of the IRA Account Fee on an investment in the Separate Account. The
total IRA Account Fees collected under the Contracts by the Company are divided
by the total average net assets attributable to the Contracts. The resulting
percentage is .30%, and the amount of the IRA Account Fees is assumed to be
$3.00 in the Examples. After annuitization, the IRA Account Fee is not
deducted.
WHAT IS AN INDIVIDUAL RETIREMENT ANNUITY?
Each IRA Account established under the Contract is intended to be an individual
retirement annuity qualified under Section 408(b) of the Code. See "Individual
Retirement Annuities." An IRA Account may be established by a Participant-Owner
with a rollover distribution from a qualified retirement plan maintained by the
Policyholder which is eligible for rollover treatment as described in Section
402(a)(5), 402(a)(6) or 403(a)(4) of the Code. Such Participant-Owner may also
establish an additional IRA Account for his or her spouse. Separate IRA
Accounts will be maintained under the Contract for rollover contributions and
annual deductible and non-deductible contributions, unless a Participant-Owner
requests otherwise in writing. A separate Certificate will be issued for each
IRA Account maintained for the Participant-Owner.
In general, an annuity is designed to provide a retirement income in the form of
monthly payments for the lifetime of the purchaser or an individual chosen by
the purchaser. The retirement income payments are called "annuity payments."
-10-
<PAGE>
Under an annuity, the insurance company assumes a mortality risk and an expense
risk. The mortality risk arises from the insurance company's guarantee that
annuity payments will continue for the life of the payee, regardless of how long
the payee lives or how long all payees as a group live. The expense risk arises
from the insurance company's guarantee that charges will not be increased beyond
the limits specified in the contract, regardless of actual costs of operations.
The Participant-Owner's contributions, less any applicable deductions, are
invested by the insurance company. After retirement, annuity payments are paid
to the payee for life or for such other period chosen by the Participant-Owner.
Annuity payments under the Contracts are fixed and guaranteed by the insurance
company, which assumes the risk of making the investments to enable it to make
the guaranteed payments. For more information about fixed annuities, see
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
During variable accumulation, values are not guaranteed but will vary depending
on the investment performance of a portfolio of securities. Any investment
gains or losses are reflected in accumulated value. If the portfolio increases
in value, the accumulated value increases. If the portfolio decreases in value,
the accumulated value decreases.
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
The Participant-Owner may revoke his or her IRA Account at any time between the
date of the application for the IRA Account and the date 10 days after receipt
of the Certificate. Within seven days the Company will refund the greater of
(1) the entire contribution, or (2) the Accumulated Value plus any amounts
deducted from the IRA Account or by the Trust for taxes, charges or fees. In
order to revoke the IRA Account, the Participant-Owner must mail or deliver the
Certificate (if it has already been received), to the Home Office of the Company
at 440 Lincoln Street, Worcester, Massachusetts 01653, or to any local agency of
the Company. Mailing or delivery must occur on or before 10 days after receipt
of the Certificate for revocation to be effective.
The liability of the Separate Account under this provision is limited to the
Participant-Owner's Accumulated Value in the Separate Account on the date of
cancellation. Any additional amounts refunded to the Participant-Owner will be
paid by the Company.
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND THE TRUST
THE COMPANY. The Company organized under the laws of Massachusetts in 1844,
is the fifth oldest life insurance company in America. As of December 31,
1995, the company and its subsidiaries had over $11 billion in combined
assets and over $35.2 of life insurance in force. Effective October 16,
1995, the Company 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. The Company is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). The Company's
principal office is located at 440 Lincoln Street, Worcester, Massachusetts
01653, telephone 508-855-1000 ("Principal Office")
The Company 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, the Company is subject to the insurance laws and
regulations of other states and jurisdictions in which it is licensed to
operate.
THE SEPARATE ACCOUNT. Separate Account I (the "Separate Account") is a separate
investment account of the Company. The Separate Account currently consists of
five Sub-Accounts. The assets used to fund the variable portions of the
Contracts are set aside in the Sub-Accounts of the Separate Account and are kept
separate and apart from the general assets of the Company. Each Sub-Account is
administered and accounted for as part of the general business of the Company,
but the income, capital gains, or capital losses of each Sub-Account are
allocated to such Sub-Account, without regard to other income, capital gains, or
capital losses of the Company. Under Massachusetts law, as provided in the
Contracts the assets of the Separate Account cannot be charged with any
liabilities arising out of any other business of the Company.
The Separate Account was authorized by vote of the Board of Directors of the
Company on August 20, 1991. The Separate Account meets the definition of
"separate account" under federal securities laws and is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). Such registration does
not involve the supervision of management or investment practices or policies of
the Separate Account or the Company by the Commission.
-11-
<PAGE>
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account and the Sub-Accounts.
ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust (the "Trust") is an
open-end, diversified management investment company registered with the
Commission under the 1940 Act. Such registration does not involve supervision
by the Commission of the investments or investment policy of the Trust or its
separate investment funds.
The Trust was established as a Massachusetts business trust on
October 11, 1984, for the purpose of providing a vehicle for the investment of
assets of various separate accounts established by the Company or other
affiliated insurance companies. Currently, the Trust has eleven investment
portfolios, each issuing a series of shares. Five investment portfolios of the
Trust ("Underlying Funds") are offered under this Prospectus: the Growth Fund,
Investment Grade Income Fund, Money Market Fund, Equity Index Fund, and
Government Bond Fund. The assets of each Underlying Fund are held separate from
the assets of the other Underlying Funds. Each Underlying Fund operates as a
separate investment vehicle and the income or losses of one Underlying Fund have
no effect on the investment performance of another Underlying Fund. Shares of
the Trust are not offered to the general public but solely to such separate
accounts.
Allmerica Investment Management Company, Inc. ("Manager") serves as investment
adviser of the Trust. The Manager has entered into sub-adviser agreements with
Miller, Anderson & Sherrerd, One Tower Bridge, West Conshohocken, Pennsylvania,
which is the sub-adviser for the Growth Fund, and with Allmerica Asset
Management, Inc., an indirect wholly owned subsidiary of the Company, which is
the sub-adviser for the Investment Grade Income Fund, Money Market Fund, Equity
Index Fund and Government Bond 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 Funds
may be found in the prospectus of the Trust, which accompanies this Prospectus
and should be read carefully before investing. Also, the Statement of
Additional Information of the Trust is available upon request.
GROWTH SUB-ACCOUNT - invests solely in shares of the Growth Fund of the Trust.
This Fund is invested primarily in common stocks and securities convertible into
common stocks that are believed to represent significant underlying value in
relation to current market prices. The primary objective of the Growth Fund is
long-term growth of capital. Realization of current income, if any, is
incidental to this objective.
INVESTMENT GRADE INCOME SUB-ACCOUNT - invests solely in shares of the Investment
Grade Income Fund of the Trust. This Fund is invested in a diversified
portfolio of fixed income securities with the objective of seeking as high a
level of total return (including both income and realized and unrealized capital
gains) as is consistent with prudent investment management.
MONEY MARKET SUB-ACCOUNT - invests solely in shares of the Money Market Fund of
the Trust. This Fund is invested in a diversified portfolio of high-quality,
short-term debt instruments with the objective of obtaining maximum current
income consistent with the preservation of capital and liquidity.
EQUITY INDEX SUB-ACCOUNT - invests solely in shares of the Equity Index Fund of
the Trust. This Fund seeks to provide investment results that correspond
generally to the composite price and yield performance of United States publicly
traded common stocks. The Equity Index Fund seeks to achieve its objective by
attempting to replicate the composite price and yield performance of the
Standard & Poor's 500 composite Stock Index.
GOVERNMENT BOND SUB-ACCOUNT - invests solely in shares of the Government Bond
Fund of the Trust. This Fund has the investment objective of seeking high
income, preservation of capital and maintenance of liquidity, primarily through
investments in debt instruments issued or guaranteed by the U.S. Government or
its agencies or instrumentalities and in related options, futures and repurchase
agreements.
SELECT INTERNATIONAL EQUITY SUB-ACCOUNT - invests solely in shares of the
Select International Equity Fund of the Trust. The 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.
SELECT AGGRESSIVE GROWTH SUB-ACCOUNT - invests solely in shares of the Select
Aggressive Growth Fund of the Trust. 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.
IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE AVAILABILITY OF
PARTICULAR SUB-ACCOUNTS.
In the event of a material change in the investment policy of a Sub-Account or
the Underlying Fund in which it invests, the
-12-
<PAGE>
Participant-Owner will be notified of the change. If a Participant-Owner has
Accumulated Value in that Sub-Account, the Company will transfer it without
charge on written request by the Participant-Owner to another Sub-Account of the
Separate Account or to a General Account Sub-Account, if available. The Company
must receive the written request 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 Participant-Owner's right to transfer.
INVESTMENT ADVISORY SERVICES TO THE TRUST. The overall responsibility for the
supervision of the affairs of the Trust vests in the Trustees. The Trustees
have entered into a Management Agreement with Allmerica Investment Management
Company, Inc. ("Manager"), an indirect wholly-owned subsidiary of the Company,
to handle the day-to-day affairs of the Trust. The Manager, subject to review
by the Trustees, is responsible for the actual management of the Funds. The
Manager is also obligated to perform certain administrative and management
services for the Trust, furnishes to the Trust all necessary office space,
facilities, and equipment, and pays the compensation, if any, of officers and
Trustees who are affiliated with the Manager.
Other than the expenses specifically assumed by the Manager under the Management
Agreement, all expenses incurred in the operation of the Trust are borne by it,
including fees and expenses associated with the registration and qualification
of the Trust's shares under the Securities Act of 1933, other fees payable to
the Commission, independent public accountant, legal and custodian fees,
association membership dues, taxes, interest, insurance premiums, brokerage
commission, fees and expenses of the Trustees who are not affiliated with the
Manager, expenses for proxies, prospectuses, and reports to shareholders, and
other expenses.
Pursuant to the Management Agreement with the Trust, the Manager has entered
into agreements ("Sub-Adviser Agreements") with Miller, Anderson & Sherrerd
and Allmerica Asset Management, Inc. ("Sub-Advisers") under which each
Sub-Adviser manages the investments of the funds. (The Management Agreement
and the Sub-Adviser Agreements are referred to collectively as the
"Agreements.") Miller, Anderson & Sherrerd manages the Growth Fund.
Allmerica Asset Management, Inc. manages the Investment Grade Income Fund,
Money Market Fund, Equity Index Fund and Government Bond Fund. Nicholas-
Applegate Capital Management manages the Select Aggressive Growth Fund. Bank
of Ireland Asset Management Ltd. manages the Select International Equity
Fund. Under the Agreements, the Sub-Advisers are authorized to engage in
portfolio transactions on behalf of their respective funds, subject to such
general or specific instructions as may be given by the Trustees. The terms
of each Agreement cannot be changed without the approval of a majority in
interest of the shareholders of the affected Fund.
For providing the services described above, the Manager receives a fee, computed
daily at an annual rate based on the average daily net asset value of each fund
as follows:
<TABLE>
<CAPTION>
Investment Grade Money Equity Government Select Select
Growth Income Market Index Bond Aggressive International
Fund Fund Fund Fund Fund Growth Equity
---- ---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
First $50 Million 0.60% 0.50% 0.35% 0.35% 0.50% 1.00% 1.00%
Next $200 Million 0.50% 0.35% 0.25% 0.30% 0.50% 1.00% 1.00%
On the Remainder 0.35% 0.25% 0.20% 0.25% 0.50% 1.00% 1.00%
</TABLE>
The fee computed with respect to each Fund is paid from the assets of such Fund.
The Manager is solely responsible for the payment of all fees to Miller,
Anderson & Sherrerd and to the Company.
For its services to the Fund, Miller, Anderson & Sherrerd receives from the
Manager a fee based on the aggregate assets of the Growth Fund and certain other
accounts of the Company and its affiliates (collectively, the "Affiliated
Accounts") which are managed by Miller, Anderson & Sherrerd. The amount of the
annual advisory fee paid by the Manager on behalf of the Growth Fund is based on
an aggregation of all assets of the Affiliated Accounts managed by Miller,
Anderson & Sherrerd under the following schedule:
-13-
<PAGE>
Aggregate Average Assets Rate
------------------------ ----
First $50 million 0.500%
$50 - 100 million 0.375%
$100 - 500 million 0.250%
$500 - 850 million 0.200%
Over $850 million 0.150%
For its services to the Investment Grade Income Fund, Money Market Fund, Equity
Index Fund and Government Bond Fund, Allmerica Asset Management, Inc. will
receive from the Manager a fee computed daily at an annual rate based on the
average daily net assets of the respective Funds as
follows:
Investment Money Equity Government
Grade Income Market Index Bond
Fund Fund Fund Fund
---- ---- ---- ----
0.20% 0.10% 0.10% 0.20%
For its services to the Select International Equity Fund, Bank of Ireland
Asset Management Ltd. will receive from the manager a fee computed daily at
an annual rate as follows:
Average Daily Net Assets Rate
------------------------ -----
First $50 million 0.45%
Next $50 million 0.40%
Over $100 million 0.30%
For its services to the Select Aggressive Growth Fund, Nicholas-Applegate
Capital receives a flat amount fee of 0.60% of average daily net assets.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS. The Company reserves the
right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Separate Account Sub-Accounts
or that the Separate Account Sub-Accounts may purchase. If the shares of any
Underlying Fund are no longer available for investment or if in the Company's
judgment further investment in any Underlying Fund should become inappropriate
in view of the purposes of the Separate Account or the affected Sub-Account, the
Company may redeem the shares of that Underlying Fund and substitute shares of
another registered open-end management company. The Company will not
substitute any shares attributable to an IRA Account interest in a Sub-Account
without notice to the Participant-Owner and prior approval of the Commission
and state insurance authorities, to the extent required by the 1940 Act or
other applicable law. The Separate Account may, to the extent permitted by
law, purchase other securities for other contracts or certificates or permit
a conversion between certificates upon request by a Participant-Owner.
The Company also reserves the right to establish additional Separate Account
Sub-Accounts, each of which would invest in shares corresponding to a new
Underlying Fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required Commission
approval, the Company may, in its sole discretion, establish new 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 Participant-Owners on a basis to be determined by the Company.
Shares of the Underlying Funds are also issued to separate accounts of the
Company and its affiliates which issue variable life policies ("mixed funding")
and other variable annuities. It is conceivable that in the future such mixed
funding may be disadvantageous for variable life or variable annuity
policyowners/participant-owners. Although the Company and the Trust do not
currently foresee any such disadvantage to either variable life insurance or
variable annuity policyowners/participant-owners, the Company and the Trustees
of the Trust intend to monitor events in order to identify any material
conflicts and to determine what action, if any should be taken in response
thereto. If the Trustees of the Trust were to conclude that separate funds
should be established for variable life and variable annuity separate accounts,
the Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Contract and Certificate thereunder to
reflect the substitution or change and will notify Participant-Owners of all
such changes. If the Company deems it to be in the best interest of
Participant-Owners, and subject to any approvals that may be required under
applicable law, the Separate Account or any of its Sub-Accounts may be operated
as a management company under the 1940 Act, may be deregistered under the 1940
Act if registration is no longer required, or may be combined with other Sub-
Accounts or other separate accounts of the Company.
-14-
<PAGE>
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Sub-Account in
accordance with instructions received from Participant-Owners, who will be
provided with proxy materials of the Underlying Fund together with a form with
which to give voting instructions to the Company. Shares for which no timely
instructions are received will be voted in proportion to the instructions which
are received. The Company will also vote shares in a 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 Policies, the Company reserves the right to
do so.
The number of votes which a Participant-Owner may cast will be determined by the
Company as of the record date established by the Underlying Fund.
The number of Underlying Fund shares attributable to each Participant-Owner will
be determined by dividing the dollar value of the Accumulation Units of the Sub-
Account credited under the Contract by the net asset value of one Underlying
Fund share.
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the Separate
Account Sub-Accounts are described below. Other deductions and expenses paid
out of the assets of the Underlying Funds are described in the Prospectus and
Statement of Additional Information of the Trust.
SURRENDER AND REDEMPTION CHARGE. No charge for sales expenses is deducted from
contributions at the time the contributions are made. However, a withdrawal
charge of 4% will be made on any amount withdrawn from a General Account Sub-
Account on other than its maturity date, and upon election of an annuity for a
specified number of years, subject to certain exceptions described below. No
sales charge is deducted upon withdrawals from any Sub-Accounts of the Separate
Account.
LED DISTRIBUTIONS. A Participant-Owner may elect to make a series of systematic
withdrawals from his or her IRA Account according to a life expectancy
distribution ("LED"), by returning a properly signed LED request form to the
Company's Home Office. The LED permits the Participant-Owner to make systematic
withdrawals from the IRA Account over his or her lifetime. The amount withdrawn
from the IRA Account 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 6.5 years.
If a Participant-Owner elects the LED, in each calendar year a fraction of the
Accumulated Value is withdrawn from the IRA Account based on the Participant-
Owner's then life expectancy. The numerator of the fraction is 1 (one) and the
denominator of the fraction is the remaining life expectancy of the Participant-
Owner, as determined annually by the Company. The resulting fraction, expressed
as a percentage, is applied to the Accumulated Value of the IRA Account at the
beginning of the year to determine the amount to be distributed during the year.
The Participant-Owner may elect monthly, bimonthly, quarterly, semiannual or
annual distributions and may terminate the LED at any time. The Participant-
Owner may also elect to receive distributions under an LED which is determined
on the joint life expectancy of the Participant-Owner and a beneficiary. The
Company may also offer other systematic withdrawals.
The Company will impose no withdrawal charge respecting any amount received in a
calendar year as part of a series of LED distributions that:
(1) does not exceed the minimum amount required to be distributed to satisfy
the requirements of Section 401(a)(9) of the Code;
(2) is withdrawn from a Separate Account Sub-Account;
(3) is withdrawn from a General Account Sub-Account on its maturity date; or
-15-
<PAGE>
(4) is withdrawn from one or more General Account Sub-Accounts, but does not
exceed 20% of the portion of the Accumulated Value allocated to the General
Account on the preceding December 31.
If a Participant-Owner makes withdrawals under the LED distribution prior to age
59 1/2, the withdrawals may be treated by the Internal Revenue Service as
premature distributions from the IRA Account. The payments would then be taxed
on an "income first" basis and be subject to a 10% federal tax penalty. For
more information, see "FEDERAL TAX CONSIDERATIONS," " Taxation of the Contracts
in General."
SURRENDERS. In a complete surrender, the amount received by the Participant-
Owner is equal to the entire Accumulated Value of his or her IRA Account, net of
any applicable withdrawal charge, IRA Account Fee and tax withholding. For
further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining in the IRA Account for partial
redemptions, see "Surrender" and "Partial Redemption" under "THE VARIABLE
ANNUITY CONTRACTS" and see "FEDERAL TAX CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY PAYMENTS BEGIN. If a period certain option is chosen
(Option V), a withdrawal charge will be deducted from the Accumulated Value of
the IRA Account. Such charge is the same as that which would apply had the IRA
Account been surrendered on the Annuity Date.
No withdrawal charge is imposed at the time of annuitization in any Certificate
year under an option involving a life contingency (Options I, II, III, IV-A or
IV-B).
SALES EXPENSE. Currently, no commissions on the Contracts or Certificates
thereunder are paid by the Company. Sales expenses do not result in any
additional charge to Participant-Owners or to the Separate Account. The Company
intends to recoup sales expenses through a combination of anticipated withdrawal
charges, described above, and profits from the General Account. Any withdrawal
charges assessed under a Contract will be retained by the Company except for
amounts it may pay to Allmerica Investments for services it performs and
expenses it may incur as principal underwriter and general distributor.
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, where
applicable. In accordance with the laws of the state involved, the premium tax
charge usually is deducted in one of two ways:
(1) the premium tax charge is deducted at the time the contribution is received
(and the contributions allocated to the General Account or Separate Account
Sub-Accounts will be net of such charge); or
(2) the premium tax charge is deducted at the time annuity payments begin.
Where permitted by state law, it is the Company's policy to follow the practice
in (2) above. However, if no amount for premium tax was deducted at the time
the contribution 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 Accumulation Value of the IRA Account at the time such
determination is made.
IRA ACCOUNT FEE. Prior to the Annuity Date, an IRA Account Fee is deducted
annually on the last Valuation Date of the month of the anniversary of the
establishment of the IRA Account ("Anniversary Deduction") and upon full
surrender of the IRA Account. The IRA Account Fee is $25. For IRA Accounts
established after April 30, 1993, the IRA Account Fee will be waived in the
following circumstances: if the contribution establishing the IRA Account was
at least $15,000, the IRA Account Fee will be waived on the first Anniversary
Deduction; if the Accumulated Value of the IRA Account was at least $15,000 as
of December 31 of the calendar year previous to any subsequent Anniversary
Deduction, the IRA Account Fee will be waived on such subsequent Anniversary
Deduction.
-16-
<PAGE>
Where Accumulation Value has been allocated to more than one General Account or
Separate Account Sub-Account, a percentage of the total IRA Account Fee will be
deducted from the Accumulation Value in each Sub-Account. The portion of the
charge deducted from each Sub-Account will be equal to the percentage which the
Accumulation Value in that Sub-Account represents of the total Accumulated Value
of the IRA Account. The deduction of the IRA Account Fee will result in
cancellation of a number of Accumulation Units equal in value to the percentage
of the charge deducted from any Separate Account Sub-Account. No deduction from
a General Account Sub-Account will be permitted to reduce credited interest to a
rate lower than the minimum guaranteed interest rates stated in Appendix A,
"MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS. The following annual charges
are deducted against the assets of the Separate Account:
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a charge of 0.90% on an
annual basis of the daily value of each Separate Account Sub-Account's assets to
cover the mortality and expense risk which the Company assumes in relation to
the variable portion of the Contracts. The charge is imposed only during the
accumulation period. The mortality risk arises from the Company's guarantee
that it will make annuity payments in accordance with annuity rate provisions
established at the time the Certificate is issued for the life of the payee (or
in accordance with the annuity option selected), no matter how long the payee
lives and no matter how long all payees as a class live. The expense risk
arises from the Company's guarantee that the charges it makes will not exceed
the limits described in the Contracts and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results
in a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .25% for mortality risk and .65%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Separate Account Sub-
Account with a daily charge at an annual rate of 0.25% of the average daily net
assets of the Sub-Account. The charge is imposed only during the accumulation
period. The daily Administrative Expense Charge is assessed to help defray
administrative expenses actually incurred in the administration of the Separate
Account Sub-Account, without profits. However, there is no direct relationship
between the amount of administrative expenses imposed under a given Certificate
and the amount of expenses actually attributable to that Certificate.
Deductions for the IRA Account Fee (described under "IRA Account 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 Separate Account and the IRA Accounts 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 Separate Account 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 Prospectus and Statement of Additional Information of the Trust contain
additional information concerning expenses of the Underlying Funds.
DESCRIPTION OF THE CONTRACT
The Contract is designed for use in connection with individual retirement
annuities. Participant-Owners and beneficiaries are cautioned that the rights
of any person to any benefits under the Contract may be subject to the terms and
conditions of Section 408 of the Code, regardless of the terms and conditions of
the Contract. Distributions under the Contract must be made or commenced not
later than the April 1 following the taxable year in which the Participant-Owner
attains age 70 1/2 and must be made in accordance with Section 401(a)(9) of the
Code.
-17-
<PAGE>
The Contracts and Certificates thereunder offered by the Prospectus may be
purchased from representatives of 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). Allmerica Investments, 440
Lincoln Street, Worcester, Massachusetts 01653, is indirectly wholly-owned by
the Company. Participant-Owners may direct any inquiries to the Company's Home
Office, First Allmerica Financial Life Insurance Company, 440 Lincoln Street,
Worcester, Massachusetts 01653.
Written requests required under the Contract must be in a form satisfactory to
the Company and filed at its Home Office. However, with the consent of the
Company, IRA Account investment transfers, contribution allocation instructions
and other specified transactions may also be made by the Participant-Owner by
telephone request, if a properly completed authorization form is then on file at
the Company's Home Office.
CONTRIBUTIONS. Contributions are payable to the Company at its Home Office and
must be made by cash or check. For each contribution, the Participant-Owner
must indicate in writing (1) the type of contribution being made, (2) the
taxable year for which the contribution is intended (if applicable), and (3)
investment allocation instructions.
The initial contribution will be credited to an IRA Account as of the date that
the Company has at its Home Office both (1) a properly completed application for
the IRA Account, and (2) the initial contribution. If an application is
incomplete, or does not specify how payments are to be allocated among the Sub-
Accounts, the initial contribution will be returned within five business days.
For additional contributions made after an IRA Account has been established,
Accumulation Units will be credited at the unit value computed as of the
Valuation Date that the additional contribution is received at the Company's
Home Office.
Under the Contracts, additional contributions are not limited as to frequency
and number, except that deductible and nondeductible contributions and
contributions to a spousal IRA Account must be received by the Company by April
15 of the year following the calendar year to which the contributions are
attributable.
The minimum initial contribution from a rollover distribution is the lesser of
(1) $3,500, or (2) such smaller amount as meets the Company's then current
rules. The maximum initial contribution is the amount equal to the taxable
portion of the Participant-Owner's rollover distribution.
After an IRA Account has been established, a Participant-Owner may make
additional contributions, subject to the following requirements: The minimum
additional contribution is the lesser of (1) $1,000, or (2) such smaller amount
as meets the Company's then current rules. For any taxable year of the
Participant-Owner, the maximum for total additional deductible and nondeductible
contributions is the lesser of (1) $2,000, or (2) 100% of the Participant-
Owner's compensation for the taxable year as defined in Section 219(f) of the
Code. This maximum does not apply to additional rollover contributions or
spousal IRA contributions discussed below.
A Participant-Owner may make an additional rollover contribution as defined in
Section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8) or 408(d)(3) of
the Code. Additional rollover contributions are subject to the minimum
additional contribution discussed above, but not to any maximum for total
additional contributions.
A Participant-Owner may also establish and maintain a spousal IRA Account in
accordance with Sections 219(c) and 408(b) of the Code. The maximum total
contributions to both IRA Accounts in any taxable year is $2,250, of which
amount no more than $2,000 may be contributed to any one IRA Account.
Generally, contributions will be allocated among the Sub-Accounts according to
the Participant-Owner's instructions. However, until the Valuation Date that is
15 days from the date the IRA Account was established, all Separate Account
allocations will be held in the Money Market Sub-Account. Thereafter, all
amounts will be allocated according to the Participant-Owner's instructions.
If no contributions have been credited to the IRA Account for three consecutive
Certificate years and, at any time thereafter, the IRA Account's Accumulated
Value is less than $1,000, the Company reserves the right to terminate the IRA
Account for its Accumulated Value.
-18-
<PAGE>
TRANSFER PRIVILEGE. Prior to the Annuity Date, a Participant-Owner may have
amounts transferred among the Sub-Accounts, subject to the restrictions stated
below. Requests for transfers must be in writing. Transfers will be made on the
Valuation Date coincident with, or next following, the date the written request
is received by the Company.
During each calendar year, the Participant-Owner may make up to four transfers
among Separate Account or General Account Sub-Accounts, where available. In
addition, the Participant-Owner may transfer from a General Account Sub-Account
on the Sub-Account maturity date.
The maximum dollar amount that may be transferred during a calendar year from
General Account Sub-Accounts prior to their maturity date is 20% of the value on
the preceding December 31 of the portion of the Accumulated Value of the IRA
Account that was allocated to the General Account. Transfers from such Sub-
Accounts will be made on a LIFO (last-in-first-out) basis, so that transfers
will be first made from the most recently established Sub-Account.
Effective November 1, 1995, automatic transfers may also be made from policy
value allocated to the Company's General Account (a) to one or more of the
Subacconts or (b) in order to reallocate Policy value among Subaccounts.
Automatic transfers from the General Account may be made on a monthly,
bimonthly, or quarterly basis, provided that: (i) the amount of each monthly
transfer cannot exceed 10% of policy value in the General Account as of the date
of the first transfer; (ii) each bimonthly transfer cannot exceed 20% of policy
value in the General Account as of the date of the first transfer; (iii) each
quarterly transfer cannot exceed 25% of policy value in the General Account as
of the date of the first transfer.
All transfers from Sub-Accounts must involve a minimum of $500, or the entire
amount in Sub-Account, if less. If any transfer would reduce the value of the
Sub-Account from which the transfer is to be made to less than $1,000, the
Company reserves the right to include such remaining value in the amount
transferred.
The Company makes no charge for transfers.
SURRENDER PRIVILEGE. At any time prior to the Annuity Date, a Participant-Owner
may request surrender of the IRA Account and receive its Surrender Value. The
Participant-Owner must return a signed, written request for surrender and the
Certificate to the Company's Home Office. The Surrender Value will be based on
the Accumulated Value of the IRA Account as of the Valuation Date coincident
with or next following the date the Company receives the written request and
Certificate at its Home Office.
A withdrawal charge may be deducted when an IRA Account is surrendered if all or
a portion of the Accumulated Value is allocated to General Account Sub-Accounts.
See "CHARGES AND DEDUCTIONS." The IRA Account Fee will be deducted upon
surrender of the IRA Account.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Separate Account
Sub-Account during any period 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 the assets of the Separate Account is not
reasonably practicable.
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to a General Account Sub-Account for a period not to exceed
six months.
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
REDEMPTION PRIVILEGE. At any time prior to the Annuity Date, a Participant-Owner
may redeem a portion of the Accumulated Value of his or her IRA Account, subject
to the limits stated below. The Participant-Owner must file a signed, written
request for redemption at the Company's Home Office. The written request must
indicate the dollar amount the Participant-Owner wishes to receive and the
Separate Account Sub-Account from which such amount is to be redeemed.
Withdrawals from General Account Sub-Accounts will be made on a LIFO (last-in-
first-out) basis, so that withdrawals will be first made from the most recently
established General Account Sub-Account. The amount redeemed equals the amount
requested
-19-
<PAGE>
by the Participant-Owner plus any applicable withdrawal charge, as described
under "CHARGES AND DEDUCTIONS."
Where allocations have been made to more than one Sub-Account, a percentage of
the partial redemption may be allocated to each Sub-Account. A partial
redemption from a Separate Account Sub-Account will result in cancellation of a
number of units equivalent in value to the amount redeemed, computed as of the
Valuation Date coincident with or next following the date the Company receives
the written request at its Home Office.
Each partial redemption must be in a minimum amount of $500. No partial
redemption will be permitted if the Accumulated Value remaining in the IRA
Account would be reduced to less than $1,000. Partial redemptions will be paid
in accordance with the time limitations described under "Surrender." For
important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
DEATH BENEFIT. If the Participant-Owner's death occurs prior to the Annuity
Date, a death benefit will be paid to the beneficiary. The death benefit is
equal to the Accumulated Value of the IRA Account as of the Valuation Date
coincident with or next following the date of receipt of due proof of death at
the Company's Home Office.
The death benefit generally will be paid to the beneficiary in one sum. However,
the Participant-Owner may direct that all or part of the death benefit be paid
under one or more of the annuity options provided in the Contract. See
"Description of Annuity Options." The beneficiary may also request in writing to
be paid in accordance with an annuity option under the Contract.
If the Participant-Owner's death occurs on or after the Annuity Date but before
the completion of all guaranteed monthly annuity payments, any unpaid amounts or
installments will be paid to the beneficiary. If there is more than one
beneficiary, the death benefit will be paid in one sum. This sum will be the
commuted value of any unpaid payments certain, commuted on the basis of the
interest rate used in the determination of the annuity benefit as of the
Valuation Date coincident with or next following the date of receipt by the
Company at its Home Office of due proof of death.
If the beneficiary elects to receive the death benefit in one sum, the death
benefit will be paid within seven days of the date on which due proof of death
is received at the Company's Home Office. The death benefit will reflect any
earnings or losses experienced during the period and any withdrawals.
THE SPOUSE OF THE PARTICIPANT-OWNER AS BENEFICIARY. If the Participant-Owner
dies prior to the Annuity Date leaving his or her spouse as beneficiary, at the
written request of the spousal beneficiary and with the consent of the Company,
the death benefit will not be paid and the spousal beneficiary will become the
Participant-Owner of the IRA Account. However, all or a portion of the death
benefit may be withdrawn without charge within one year of the date on which
notice of death is received at the Company's Home Office. All rights and
benefits provided under the Contract will continue, except that any subsequent
spouse of such new Participant-Owner will not be entitled to continue the IRA
Account upon such new Participant-Owner's death.
OWNERSHIP AND NON-ALIENATION OF IRA ACCOUNTS. Each Participant-Owner is the
owner of his or her IRA Account. IRA Accounts may not be transferred by the
Participant-Owner. No part of the Participant-Owner's interest in an IRA Account
can be forfeited. A Participant Owner may not make any loans under an IRA
Account. An IRA Account cannot be pledged, assigned or otherwise used to secure
a loan.
ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE. Subject to certain
restrictions described below, the Participant-Owner has the right to select the
annuity option under which annuity payments are to be made. Annuity payments are
determined according to the annuity tables in the Contract and by the annuity
option selected. All annuity options are funded through the General Account. See
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT." Accumulated Value will
be transferred to the General Account of the Company, and the annuity payments
will be fixed in amount.
The annuity option selected must produce an initial payment of at least $50. If
the annuity option(s) selected does not produce initial payments which meet this
minimum, the Company will pay the Surrender Value or death benefit, as the case
may be, in one sum. Once the Company begins making annuity payments, the
Participant-Owner cannot make partial redemptions or surrender the annuity
benefit. Only beneficiaries entitled to receive remaining payments for a "period
certain" may elect to instead receive a lump sum settlement.
-20-
<PAGE>
The Annuity Date is selected by the Participant-Owner. The Annuity Date may be
the first day of any month on or after the Participant-Owner's 50th birthday but
before the Participant-Owner's 85th birthday. The Participant-Owner may elect to
change the Annuity Date by sending a written request to the Company's Home
Office at least one month before the new Annuity Date. The Code imposes
limitations on the age at which distributions may commence. See "FEDERAL TAX
CONSIDERATIONS" for further information.
If the Participant-Owner does not elect otherwise, annuity payments will be made
in accordance with Option I, a life annuity with 120 monthly payments
guaranteed. Changes in an annuity option choice can be made up to one month
prior to the Annuity Date.
DESCRIPTION OF ANNUITY OPTIONS. The Company currently provides the annuity
options described below. Other annuity options may be offered by the Company.
OPTION I -- Life Annuity with 120 Monthly Payments Guaranteed
An annuity payable monthly during the lifetime of the payee with the guarantee
that if the payee should die before 120 monthly payments have been paid, the
monthly annuity payments will continue to the beneficiary until a total of 120
monthly payments have been paid.
OPTION II -- Life Annuity
An annuity payable monthly only during the lifetime of the payee. It would be
possible under this option for the payee to receive only one annuity payment if
the payee dies prior to the due date of the second annuity payment, two annuity
payments if the payee dies before the due date of the third annuity payment, and
so on. However, payments will continue during the lifetime of the payee, no
matter how long the payee lives.
OPTION III -- Unit Refund Life Annuity
An annuity payable monthly during the lifetime of the payee with the guarantee
that if (1) exceeds (2) then monthly annuity payments will continue to the
beneficiary until the number of such payments equals the number determined in
(1).
Where: (1) is the dollar amount of the Accumulated Value divided by the
dollar amount of the first monthly payment (which determines the
greatest number of payments payable to the beneficiary), and
(2) is the number of monthly payments paid prior to the death of the
payee.
OPTION IV-A -- Joint and Survivor Life Annuity
A monthly annuity payable jointly to two payees during their joint lifetime, and
then continuing during the lifetime of the survivor. The amount of each payment
to the survivor is based on the same amount paid during the joint lifetime of
the two payees. One of the payees must be either the Participant-Owner or the
beneficiary. There is no minimum number of payments under this option.
OPTION IV-B -- Joint and Two-thirds Survivor Life Annuity
A monthly annuity payable jointly to two payees during their joint lifetime, and
then continuing thereafter during the lifetime of the survivor. However, the
amount of each monthly payment to the survivor is based upon two-thirds of the
amount which applied during the joint lifetime of the two payees. One of the
payees must be the Participant-Owner or the beneficiary. There is no minimum
number of payments under this option.
OPTION V -- Period Certain Annuity
A monthly annuity payable for a stipulated number of from one to thirty years.
The annuity value applied under this option will be the Surrender Value. If the
payee dies before the completion of the period stipulated under Option V,
payments will continue to be paid to the beneficiary.
-21-
<PAGE>
It should be noted that Option V does not involve a life contingency. In the
computation of the payments under this option (see "Determination of Annuity
Payments"), the charge for annuity rate guarantees, which includes a factor for
mortality risks, is made. See "FEDERAL TAX CONSIDERATIONS" for a discussion of
the possible adverse tax consequences of selecting Option V.
COMPUTATION OF IRA ACCOUNT VALUES AND ANNUITY PAYMENTS. IRA Account values and
annuity payments are computed as follows:
THE ACCUMULATION UNIT. Each net contribution is allocated to the Sub-Account(s)
selected by the Participant-Owner. Allocations to the Separate Account Sub-
Accounts are credited to the IRA Account in the form of Accumulation Units.
Accumulation Units are credited separately for each Separate Account Sub-
Account. The number of Accumulation Units of each Sub-Account credited to the
IRA Account is equal to the portion of the net contribution allocated to the
Sub-Account, divided by the dollar value of the applicable Accumulation Unit as
of the Valuation Date such contribution is allocated. The number of Accumulation
Units resulting from each contribution will remain fixed unless changed by a
subsequent split of Accumulation Unit value, a transfer, a partial redemption,
or surrender. The dollar value of an Accumulation Unit of each 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
$100.0000 on the first Valuation Date for each Separate Account Sub-Account.
Allocations to General Account Sub-Accounts 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 GENERAL ACCOUNT."
The Accumulated Value of the IRA Account is determined by (1) multiplying the
number of Accumulation Units in each Separate Account Sub-Account by the dollar
value of an Accumulation Unit of that Sub-Account on the Valuation Date, (2)
adding the products, and (3) adding the amount of the accumulations in the
General Account Sub-Accounts, if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Separate Account Sub-Account for the Valuation Period
then ended is determined from the investment performance of that Sub-Account.
Such rate is (1) the investment income of that Sub-Account for the Valuation
Period, plus capital gains and minus capital losses of that Sub-Account for the
Valuation Period, whether realized or unrealized, adjusted for provisions made
for taxes, if any, divided by (2) the amount of that Sub-Account's assets at the
beginning of the Valuation Period. The adjusted gross investment rate may be
either positive or negative.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR. The net investment rate for a
Separate Account Sub-Account's variable accumulations for any Valuation Period
is equal to the adjusted gross investment rate of the Sub-Account for such
Valuation Period decreased by the equivalent for such period of a charge equal
to 1.15% per annum. This charge cannot be increased.
The net investment factor is l.000000 plus the applicable net investment rate.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example, see "ANNUITY PAYMENTS" in the Statement of Additional Information.
DETERMINATION OF ANNUITY PAYMENTS. The amount of the first monthly annuity
payment is based on the annuity value applied and the annuity option selected.
The annuity value applied under an annuity option is the amount described below,
minus any applicable premium tax charge: (1) if Option V is chosen -- the
Surrender Value; (2) if any other annuity option offered by the Company is
chosen -- the Accumulated Value; and (3) if a death benefit annuity is payable
at any time -- the amount of the death benefit.
Annuity values will be based on a Valuation Date applied uniformly not more than
four weeks preceding the Annuity Date. Currently, the Valuation Date for annuity
values is the 15th date of the month preceding the Annuity Date, and annuity
payments are made on the first of the month based on unit values as of the 15th
day of the preceding month.
-22-
<PAGE>
The Contract provides annuity rates which determine the dollar amount of the
first monthly payment under each form of annuity for each $1,000 of applied
annuity value. Guaranteed life annuity rates in the Contract are based on a
modification of the 1983 Group Annuity Mortality Table on unisex rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the age of the payee and the value of the amount applied under the
annuity option. The dollar amount of each monthly annuity payment is fixed and
will not change, except under the joint and two-thirds survivor annuity option.
The Company may from time to time offer its Participant-Owners fixed annuity
rates more favorable than those contained in the Contract. Any such rates will
be applied uniformly to all Participant-Owners of the same class.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of an IRA Account, on
redemptions or surrenders, on annuity payments, and on the economic benefit to
the Participant-Owner or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the Internal
Revenue Service.
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS AND INDIVIDUAL
RETIREMENT ANNUITIES IS NOT EXHAUSTIVE, DOES NOT PURPORT TO COVER ALL SITUATIONS
AND IS NOT INTENDED AS TAX ADVICE. A QUALIFIED TAX ADVISER SHOULD ALWAYS BE
CONSULTED WITH REGARD TO THE APPLICATION OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Contracts, the Separate Account or its Sub-Accounts may have
upon the Company's tax. The Separate Account presently is not subject to tax,
but the Company reserves the right to assess a charge for taxes should the
Separate Account at any time become subject to tax. Any charge for taxes will be
assessed on a fair and equitable basis in order to preserve equity among classes
of Participant-Owners and with respect to each Separate Account as though that
Separate Account were a separate taxable entity.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Internal Revenue Code ("Code"). The Company files a
consolidated tax return with certain of its subsidiaries.
TAXATION OF THE CONTRACTS IN GENERAL. The Company believes that the Contracts
and IRA Accounts described in this Prospectus will be considered annuities under
Section 72 of the Code. This section provides for the taxation of annuities. The
following discussion concerns annuities subject to Section 72.
With certain exceptions, any increase in the Accumulated Value of the IRA
Account is not taxable to the Participant-Owner until it is withdrawn. If the
IRA Account is surrendered or amounts are withdrawn prior to the Annuity Date,
to the extent of the amount withdrawn any investment gain in value over the cost
basis of the IRA Account would be taxed as ordinary income.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59-1/2. The penalty tax will not be imposed
after age 59-1/2, or if the withdrawal follows the death of the Participant-
Owner, or in the case of the "total disability" (as defined in the Code) of the
Participant-Owner. Furthermore, under Section 72 of the Code, this penalty tax
will not be imposed, irrespective of age, if the amount received is one of a
series of "substantially equal" periodic payments made at least annually for the
life or life expectancy of the payee. This requirement is met when the
Participant-Owner elects to have distributions made over his or her life
expectancy, or over the joint life expectancy of the Participant-Owner and
beneficiary.
In a private letter ruling, the Internal Revenue Service took the position that
where distributions from a variable annuity contract were determined by
amortizing the accumulated value of the contract over the taxpayer's remaining
life expectancy (such as under the Policy's life expectancy distribution
("LED")), and could be changed or terminated at any time, the distributions
failed to
-23-
<PAGE>
qualify as part of a "series of substantially equal payments" within the meaning
of Section 72 of the Code. The distributions were therefore subject to the 10%
federal tax penalty. This private letter ruling may be applicable to a
Participant-Owner who receives distributions under the LED 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.
When annuity payments are commenced under the Contract and the Participant-Owner
has a cost basis, generally a portion of each payment may be excluded from gross
income. The excludable portion is generally determined by a formula that
establishes the ratio that the cost basis of the IRA Account bears to the
expected return under the IRA Account. The portion of the payment in excess of
this excludable amount is taxable as ordinary income. Once all cost basis in the
IRA Account is recovered, the entire payment is taxable. If the last payee dies
before cost basis is recovered, a deduction for the difference is allowed on the
payee's final tax return.
TAX WITHHOLDING AND PENALTIES. The Code requires withholding with respect to
payments or distributions from annuities, unless a taxpayer elects not to have
withholding. In addition, the Code requires reporting to the Internal Revenue
Service of the amount of income received with respect to payment or
distributions from annuities.
In certain situations, the Code provides for a tax penalty if, prior to death,
disability or attainment of age 59-1/2, a Participant-Owner makes a withdrawal
or receives any amount under the Policy, unless the distribution is in the form
of a life annuity (including life expectancy distributions). The penalty is 10%
of the amount includible in income by the Participant-Owner.
INDIVIDUAL RETIREMENT ACCOUNTS IN GENERAL. Any individual who earns
"compensation" (as defined in the Code and including alimony) from employment or
self-employment, whether or not he or she is covered by another qualified plan,
may establish an individual retirement account or annuity plan ("IRA") for the
accumulation of retirement savings on a tax-deferred basis. Income from
investments is not included in "compensation." The assets of an IRA may be
invested in, among other things, the IRA Account offered under the Contracts.
Contributions to an IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer-sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the above-described
limit on each. An individual with an IRA may establish an additional IRA for a
non-working spouse if they file a joint return. Contributions to the two IRAs
together are deductible up to the lesser of $2,250 or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70-1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be deducted,
taxes on their earnings are deferred until the earnings are distributed. The
maximum permissible non-deductible contribution is $2,000 for an individual
taxpayer and $2,250 for a taxpayer and non-working spouse. These limits are
reduced by the amount of any deductible contributions made by the taxpayer.
Contributions may be made with respect to a particular year until the due date
of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70-1/2 and must be made
in accordance with Section 401(a)(9) of the Code. Failure to make distributions
as so required may result in certain adverse tax consequences to the individual.
-24-
<PAGE>
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a non-
deductible contribution to an IRA or receives a distribution from an IRA during
the taxable year must provide certain information on the individual's tax return
to enable the Internal Revenue Service to determine the proportion of the IRA
balance which represents non-deductible contributions. If the required
information is provided, that part of the amount withdrawn which is
proportionate to the individual's aggregate non-deductible contributions over
the aggregate balance of all of the individual's IRAs, is excludable from
income.
Distributions which are a return of a non-deductible contribution are non-
taxable, as they represent a return of basis. If the required information is not
provided to the Internal Revenue Service, distributions from an IRA to which
both deductible and non-deductible contributions have been made are presumed to
be fully taxable.
REPORTS
A Participant-Owner is sent a report semi-annually which states certain
financial information about the Underlying Funds. The Company will also furnish
an annual report to the Participant-Owner containing a statement of his or her
account, including unit values and other information required by applicable law,
rules and regulations.
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from the Separate 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 Separate Account or any of its Sub-Accounts as a
management investment company under the 1940 Act or in any other form permitted
by law, (3) to deregister the Separate Account under the 1940 Act in accordance
with the requirements of the 1940 Act, and (4) to substitute the shares of any
other registered investment company for the Underlying Fund shares held by a
Separate Account 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. In no event will the changes described above be made without notice
to Participant-Owners in accordance with the 1940 Act.
The Company reserves the right, subject to compliance with applicable law, to
change the name of the Separate Account or any of its Sub-Accounts.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted from
this Prospectus pursuant to the rules and regulations of the Commission. The
omitted information may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the Commission's prescribed fees.
APPENDIX A
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account are not generally subject to regulation under
the provisions of the Securities Act of 1933 or the Investment Company Act of
1940. Disclosures regarding the fixed portion of the Contract and the General
Account Sub-Accounts may be subject to the provisions of the Securities Act of
1933 concerning the accuracy and completeness of statements made in the
Prospectus. The disclosures in this APPENDIX A have not been reviewed by the
Securities and Exchange Commission. ALLOCATIONS TO AND TRANSFERS TO AND FROM THE
GENERAL ACCOUNT ARE NOT PERMITTED IN CERTAIN STATES.
The General Account of the Company is made up of all of the general assets of
the Company other than those allocated to any separate account. Allocations to
the General Account become part of the assets of the Company and are used to
support insurance and annuity obligations.
-25-
<PAGE>
A portion or all of net contributions may be allocated to a General Account Sub-
Account to accumulate at a fixed rate of interest. Such net amounts are
guaranteed by the Company as to principal and a minimum rate of interest. Under
the Contracts, the minimum interest which may be credited on amounts allocated
to a General Account Sub-Account is 4.5% compounded annually for the first five
Certificate years, 4% compounded annually for the next five Certificate years,
and 3.5% compounded annually thereafter. Additional "excess interest" may or may
not be credited at the sole discretion of the Company. Currently, General
Account Sub-Accounts will mature at three-year intervals. In no case will excess
interest be guaranteed for periods of less than one year.
Additional contributions allocated all or in part to a General Account Sub-
Account must be received by the Company no later than 1:00 p.m. Eastern time to
be applied to the General Account Sub-Account on the date of receipt. Additional
contributions received after 1:00 p.m. will be credited to the General Account
Sub-Account the next business day.
At least 30 days prior to the maturity date of a General Account Sub-Account,
the Company will notify the Participant-Owner of the new interest rate and
maturity date that will apply to the new Sub-Account on the maturity date.
Unless the Participant-Owner directs otherwise, the Accumulated Value of the IRA
Account allocated to the matured Sub-Account will be allocated to the new Sub-
Account.
If an IRA Account with Accumulated Value allocated to one or more General
Account Sub-Accounts is surrendered, or if a partial redemption is made from a
General Account Sub-Account, a withdrawal charge of 4% will be made on any
amounts withdrawn from such General Account Sub-Accounts. The withdrawal charge
will not apply to amounts withdrawn on a maturity date or under a LED
distribution as provided in the Contract, see "LED Distributions."
If a period certain option is chosen (Option V), a withdrawal charge will be
deducted from the Accumulated Value of the IRA Account. Such charge is the same
as that which would apply had the IRA Account been surrendered on the Annuity
Date.
-26-
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
FOR
GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
SEPARATE ACCOUNT I
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS FOR THE SEPARATE ACCOUNT DATED MAY 1, 1996
("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ALLMERICA INSTITUTIONAL
SERVICES, STATION C-36, FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY, 440
LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653
DATED APRIL 30, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY.....................................2
TAXATION OF THE CONTRACT, THE SEPARATE ACCOUNT AND THE
COMPANY.............................................................3
SERVICES............................................................3
UNDERWRITERS........................................................4
ANNUITY PAYMENTS....................................................4
PERFORMANCE INFORMATION.............................................6
FINANCIAL STATEMENTS................................................7
</TABLE>
GENERAL INFORMATION AND HISTORY
Separate Account I ("Separate Account") is a separate investment account of
First Allmerica Financial Life Insurance Company ("Company") established by vote
of the Board of Directors on August 20, 1991. The Company organized under the
laws of Massachusetts in 1844, is the fifth oldest life insurance company in
America. As of December 31, 1995, the company and its subsidiaries had over
$11 billion in combined assets and over $35.2 of life insurance in force.
Effective October 16, 1995, the Company 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. The Company is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). The Company's principal
office is located at 440 Lincoln Street, Worcester, Massachusetts 01653,
telephone 508-855-1000 ("Principal Office")
The Company 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, the Company is subject to the insurance laws and
regulations of other states and jurisdictions in which it is licensed to
operate.
The Separate Account currently consists of five Sub-Accounts. Each Sub-Account
invests in a corresponding investment portfolio of Allmerica Investment Trust
("Trust"). The Trust is managed by Allmerica Investment Management Company,
Inc. ("Manager").
The Trust is an open-end, diversified series investment company. Five different
investment portfolios of the Trust are available under the Contracts: the
Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity Index Fund
and Government Bond Fund ("Funds"). Each Fund has its own investment
objectives, sub-adviser and certain attendant risks.
TAXATION OF THE CONTRACTS, SEPARATE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
Contracts, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any
other taxes that may become payable in the future in connection with the
Contracts or the Separate Account.
-2-
<PAGE>
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Code and files a consolidated tax return with its parent and
affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Policies or the Separate Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Participant-Owners. The Separate
Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Separate Account. Fund shares owned by the Sub-Accounts are held on an open
account basis. A Sub-Account's ownership of Fund shares is reflected on the
records of the Fund and not represented by any transferable stock certificates.
EXPERTS. The financial statements of the Company at December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995 and of
Separate Account I of First Allmerica at December 31, 1995 and for the
periods indicated, included in this Statement of Additional Information
constituting part of the Registration Statement, have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Contracts.
UNDERWRITERS
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD), serves as principal underwriter for the Contracts pursuant
to a contract among Allmerica Investments, Inc., the Company and the Separate
Account. Allmerica Investments, Inc. distributes the Policies on a best efforts
basis. Allmerica Investments, Inc., 440 Lincoln Street, Worcester,
Massachusetts 01653 was organized in 1969 as a wholly-owned subsidiary of the
Company and is, at present, indirectly wholly-owned by the Company.
All persons selling the Contracts and Certificates thereunder are required to be
licensed by their respective state insurance authorities for the sale of
variable annuity Contracts. Commissions are not paid by the Company on sales of
the Contracts and Certificates.
The Company intends to recoup against the fixed account of the Company's general
account, sales expense through a combination of anticipated surrender, partial
redemption, and/or annuitization charges, the investment earnings on amounts
allocated to accumulate on a fixed basis in excess of the interest credited on
fixed accumulations by the Company, and the profit, if any, from the mortality
and expense risk charge.
ANNUITY PAYMENTS
The method by which the Accumulated Value under the Policy is determined is
described in detail under "COMPUTATION OF IRA ACCOUNT VALUES AND ANNUITY
PAYMENTS" in the Prospectus.
-3-
<PAGE>
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Sub-Account at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit value at the end of the current Valuation Period would be
calculated as follows:
(1) Accumulation Unit Value - Previous Valuation Period............$ 1.135000
(2) Value of Assets - Beginning of Valuation Period................$5,000,000
(3) Excess of investment income and net gains over capital losses......$1,675
(4) Adjusted Gross Investment Rate for the valuation period (3):(2)..0.000335
(5) Annual Charge (one day equivalent of 1.15% per annum)............0.000032
(6) Net Investment Rate (4)-(5)......................................0.000303
(7) Net Investment Factor 1.000000 + (6).............................1.000303
(8) Accumulation Unit Value - Current Period (1)x(7)...............$ 1.135344
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
accumulated unit value at the end of the Valuation Period would have been
$1.134583.
The method for determining the amount of annuity payments is described in detail
under "K. Computation of Policy Values and Annuity Payments" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY PAYMENT CALCULATION USING HYPOTHETICAL EXAMPLE.
The determination of the Annuity Unit value and the variable annuity payment may
be illustrated by the following hypothetical example: Assume a Participant-
Owner has 40,000 Accumulation Units in a Separate Account, and that the value of
an Accumulation Unit on the Valuation Date used to determine the amount of the
first variable annuity payment is $1.120000. Therefore, the Accumulation Value
of the Policy is $44,800 (40,000 x $1.120000). Assume also that the Participant
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 or
redemption charge, the first monthly payment would be 44.800 multiplied by
$6.57, or $294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3-1/2% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit values
because the former reflect the 3-1/2% assumed interest rate used in the annuity
rate calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined to be 267.5818. The value of this same number of Annuity Units will
be paid in each subsequent month under most options. Assume further that the
net investment factor for the Valuation Period applicable to the next annuity
payment is 1.000190. Multiplying this factor by .999906 (the one-day adjustment
factor for the assumed interest rate of 3-1/2% per annum) produces a factor of
1.000096. This is then multiplied by the Annuity Unit value on the immediately
preceding Valuation Date (assumed here to be $1.105000). The result is an
Annuity Unit value of $1.105106 for the current monthly payment. The current
monthly payment is then determined by multiplying the number of Annuity Units by
the current Annuity Unit value, or 267.5818 times $1.105106, which produces a
current monthly payment of $295.71.
-4-
<PAGE>
PERFORMANCE INFORMATION
The following describes how performance information will be calculated with
respect to the Sub-Accounts.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment in a
Sub-Account and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Sub-Accounts asset charge and the deduction of the $25 IRA Account Fee.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission. The quotations are computed by
finding the average annual compounded rates of return over the specified periods
that would equate the initial amount invested to the ending redeemable values,
according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end of the
specified period
The calculation of Total Return includes the annual charges against the asset of
the Sub-Account. This charge is 1.15% on an annual basis. The calculation of
ending redeemable value assumes (1) the policy was issued at the beginning of
the period and (2) a complete surrender of the IRA Account at the end of the
period.
YIELD AND EFFECTIVE YIELD - MONEY MARKET SUB-ACCOUNT
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the Securities and Exchange Commission. Under those
methods, the yield quotation is computed by determining the net change
(exclusive of capital changes) in the value of a hypothetical pre-existing
account having a balance of one accumulation unit of the Sub-Account at the
beginning of the period, subtracting a charge reflecting the annual 1.15%
deduction for mortality and expense risk and the administrative charge, dividing
the difference by the value of the account at the beginning of the same period
to obtain the base period return, and then multiplying the return for a seven-
day base period by (365/7), with the resulting yield carried to the nearest
hundredth of one percent.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
(365/7)
Effective Yield = [(base period return + 1) ] - 1
The calculations of yield and effective yield do NOT reflect the $25 Annual IRA
Account Fee.
FINANCIAL STATEMENTS
Financial Statements are included for First Allmerica Financial Life Insurance
Company of America and for Separate Account I of First Allmerica Financial Life
Insurance Company.
-5-
<PAGE>
FIRST ALLMERICA
FINANCIAL LIFE
INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First Allmerica Financial Life Insurance Company
(formerly known as State Mutual Life Assurance Company of America)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholder's equity, and of cash flows
present fairly, in all material respects, the financial position of First
Allmerica Financial Life Insurance Company and its subsidiaries at December
31, 1995 and 1994, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in the accompanying notes to the consolidated financial
statements, the Company changed its method of accounting for investments
(Notes 1 and 3) and postemployment benefits (Notes 11) in 1994 and for
postretirement benefits (Note 10) in 1993.
/s/ Price Waterhouse LLP
Boston, Massachusetts
February 5, 1996
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Allmerica Financial Corporation)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions, except per share data) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $ 2,222.8 $ 2,181.8 $ 2,079.3
Universal life and investment product policy fees 170.4 156.8 143.7
Net investment income 710.1 743.1 782.8
Net realized investment gains 19.1 1.1 61.0
Realized gain on sale of subsidiary -- -- 35.7
Realized gain on sale of mutual fund processing business 20.7 -- --
Realized gain on issuance of subsidiary common stock -- -- 62.9
Other income 95.4 112.3 73.8
----------------------------------------
Total revenues 3,238.5 3,195.1 3,239.2
----------------------------------------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss adjustment expenses 2,008.3 2,047.0 1,987.2
Policy acquisition expenses 470.3 475.7 435.8
Other operating expenses 455.0 518.9 421.3
----------------------------------------
Total benefits, losses and expenses 2,933.6 3,041.6 2,844.3
----------------------------------------
Income before federal income taxes 304.9 153.5 394.9
----------------------------------------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current 119.7 45.4 95.1
Deferred (37.0) 8.0 (20.4)
----------------------------------------
Total federal income tax expense 82.7 53.4 74.7
----------------------------------------
Income before minority interest, extraordinary item, and
cumulative effect of accounting change 222.2 100.1 320.2
Minority interest (73.1) (51.0) (122.8)
----------------------------------------
Income before extraordinary item and cumulative effect of
accounting changes 149.1 49.1 197.4
Extraordinary item - demutualization expenses (12.1) (9.2) (4.6)
Cumulative effect of changes in accounting principles -- (1.9) (35.4)
----------------------------------------
Net income $ 137.0 $ 38.0 $ 157.4
----------------------------------------
----------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Allmerica Financial Corporation)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(In millions, except per share data) 1995 1994
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities-at amortized cost (fair value of $949.9 in 1994) $ -- $ 959.3
Fixed maturities-at fair value (amortized cost of $7,467.9 and $6,724.6) 7,739.3 6,512.0
Equity securities-at fair value (cost of $410.6 and $260.4) 517.2 286.4
Mortgage loans 799.5 1,106.7
Real estate 179.6 180.3
Policy loans 123.2 364.9
Other long-term investments 71.9 68.1
-------------------------------
Total investments 9,430.7 9,477.7
-------------------------------
Cash and cash equivalents 236.6 539.7
Accrued investment income 163.0 186.6
Deferred policy acquisition costs 735.7 802.8
-------------------------------
Reinsurance receivables:
Future policy benefits 97.1 59.7
Outstanding claims, losses and loss adjustment expenses 799.6 741.0
Unearned premiums 43.8 61.9
Other 58.9 62.1
-------------------------------
Total reinsurance receivables 999.4 924.7
-------------------------------
Deferred federal income taxes 81.2 189.1
Premiums, accounts and notes receivable 526.7 510.3
Other assets 361.4 324.9
Closed Block assets 818.9 --
Separate account assets 4,348.8 2,965.7
-------------------------------
Total assets $ 17,702.4 $ 15,921.5
-------------------------------
-------------------------------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits $ 2,639.3 $ 3,416.4
Outstanding claims, losses and loss adjustment expenses 3,081.3 2,991.5
Unearned premiums 800.9 796.6
Contractholder deposit funds and other policy liabilities 2,737.4 3,435.7
-------------------------------
Total policy liabilities and accruals 9,258.9 10,640.2
-------------------------------
Expenses and taxes payable 600.3 589.2
Reinsurance premiums payable 42.0 65.8
Short-term debt 28.0 32.8
Deferred federal income taxes 47.8 13.8
Long-term debt 2.8 2.7
Closed Block liabilities 902.0 --
Separate account liabilities 4,337.8 2,954.9
-------------------------------
Total liabilities 15,219.6 14,299.4
-------------------------------
Minority interest 758.5 629.7
Commitments and contingencies (Notes 14 and 19)
SHAREHOLDERS' EQUITY
Common stock, $10 par value, 1 million shares authorized, 500,000
shares issued and outstanding 5.0 --
Additional paid-in-capital 392.4 --
Unrealized appreciation (depreciation) on investments, net 153.0 (79.0)
Retained earnings 1,173.9 1,071.4
-------------------------------
Total shareholders' equity 1,724.3 992.4
-------------------------------
Total liabilities and shareholders' equity $ 17,702.4 $ 15,921.5
-------------------------------
-------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Allmerica Financial Corporation)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year $ -- $ -- $ --
Demutualization transaction 5.0 -- --
----------------------------------------
Balance at end of year 5.0 -- --
----------------------------------------
ADDITIONAL PAID-IN-CAPITAL
Balance at beginning of year -- -- --
Contributed from parent 392.4 -- --
----------------------------------------
Balance at end of year 392.4 -- --
----------------------------------------
RETAINED EARNINGS
Balance at beginning of year 1,071.4 1,033.4 876.0
Net income prior to demutualization 93.2 38.0 157.4
----------------------------------------
1,164.6 1,071.4 1,033.4
Demutualization transaction (34.5) -- --
Net income subsequent to demutualization 43.8 -- --
----------------------------------------
Balance at end of year 1,173.9 1,071.4 1,033.4
----------------------------------------
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS
Balance at beginning of year (79.0) 17.5 20.6
----------------------------------------
Cumulative effect of accounting change:
Net appreciation on available-for-sale debt securities -- 296.1 --
Provision for deferred federal income taxes and minority interest -- (149.1) --
----------------------------------------
-- 147.0 --
----------------------------------------
Effect of transfer of securities from held-to-maturity to available-for-sale:
Net appreciation on available-for-sale debt securities 22.4 -- --
Provision for deferred federal income taxes and minority interest (9.6) -- --
----------------------------------------
12.8 -- --
----------------------------------------
Appreciation (depreciation) during the period:
Net appreciation (depreciation) on available-for-sale securities 466.0 (492.1) (9.6)
(Provision) benefit for deferred federal income taxes (163.1) 171.9 2.8
Minority interest (83.7) 76.7 3.7
----------------------------------------
219.2 (243.5) (3.1)
----------------------------------------
Balance at end of year 153.0 (79.0) 17.5
----------------------------------------
Total shareholders' equity $1,724.3 $ 992.4 $ 1,050.9
----------------------------------------
----------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Allmerica Financial Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 137.0 $ 38.0 $ 157.4
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest 73.1 50.1 112.7
Net realized gains (39.8) (1.1) (159.6)
Deferred federal income taxes (benefits) (37.0) 8.0 (20.4)
Increase in deferred policy acquisition costs (38.4) (34.6) (51.8)
Increase in premiums and notes receivable, net of reinsurance payable (42.0) (25.6) (37.5)
(Increase) decrease in accrued investment income 7.0 4.6 (1.6)
Increase in policy liabilities and accruals, net 116.2 175.9 131.7
(Increase) decrease in reinsurance receivable (75.6) (31.9) 18.6
Increase in expenses and taxes payable 7.5 88.0 104.7
Separate account activity, net (0.1) 0.4 21.4
Other, net 23.9 59.9 2.7
-----------------------------------------
Net cash provided by operating activities 131.8 331.7 278.3
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities of available-for-sale
fixed maturities 2,738.4 2,097.8 --
Proceeds from disposals of held-to-maturity fixed maturities 271.3 304.4 2,094.9
Proceeds from disposals of equity securities 120.0 143.9 585.8
Proceeds from disposals of other investments 40.5 25.9 74.0
Proceeds from mortgages matured or collected 230.3 256.4 291.2
Purchase of available-for-sale fixed maturities (3,273.3) (2,150.1) --
Purchase of held-to-maturity fixed maturities -- (111.6) (2,577.1)
Purchase of equity securities (254.0) (172.2) (673.3)
Purchase of other investments (24.8) (26.6) (46.5)
Proceeds from sale of businesses 32.9 -- 79.5
Capital expenditures (14.1) (43.1) (37.5)
Other investing activities, net 4.7 2.4 1.3
-----------------------------------------
Net cash (used in) provided by investing activities (128.1) 327.2 (207.7)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder deposit funds 445.8 786.3 738.7
Withdrawals from contractholder deposit funds (1,069.9) (1,187.0) (894.0)
Change in short-term debt (4.8) (6.0) 1.4
Change in long-term debt 0.2 0.3 --
Dividends paid to minority shareholders (4.1) (4.2) (3.9)
Capital contributed from parent 392.4 -- 156.2
Payments for policyholders' membership interests (27.9) -- --
Net proceeds from issuance of long-term debt -- -- --
Other, net (20.9) -- (1.3)
-----------------------------------------
Net cash used in financing activities (289.2) (410.6) (2.9)
-----------------------------------------
Net (decrease) increase in cash and cash equivalents (285.5) 248.3 67.7
Net change in cash held in the Closed Block (17.6) -- --
Cash and cash equivalents, beginning of year 539.7 291.4 223.7
-----------------------------------------
Cash and cash equivalents, end of year $ 236.6 $ 539.7 $ 291.4
-----------------------------------------
-----------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 4.1 $ 4.3 $ 1.7
Income taxes paid $ 90.6 $ 46.1 $ 57.3
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
First Allmerica Financial Life Insurance Company ("FAFLIC" or the "Company",
formerly State Mutual Life Assurance Company of America ["State Mutual"]) was
organized as a mutual life insurance company until October 16, 1995. FAFLIC
converted to a stock life insurance company pursuant to a plan of
reorganization effective October 16, 1995 and became a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). The consolidated
financial statements have been prepared as if FAFLIC were organized as a
stock life insurance company for all periods presented. Thus, generally
accepted accounting principles for stock life insurance companies have been
applied retroactively for all periods presented.
The consolidated financial statements of FAFLIC include the accounts of
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC", formerly
SMA Life Assurance Company) its wholly owned life insurance subsidiary,
non-insurance subsidiaries (principally brokerage and investment advisory
subsidiaries), and Allmerica Property and Casualty Companies, Inc.
("Allmerica P&C", a 58.3%-owned non-insurance holding company). The Closed
Block assets and liabilities at December 31, 1995 and its results of
operations subsequent to demutualization are presented in the consolidated
financial statements as single line items. Prior to demutualization such
amounts are presented line by line in the consolidated financial statements
(see Note 6). Unless specifically stated, all disclosures contained herein
supporting the consolidated financial statements as of December 31, 1995 and
the year then ended exclude the Closed Block related amounts. All significant
intercompany accounts and transactions have been eliminated.
Minority interest relates to the Company's investment in Allmerica P&C
and its only significant subsidiary, The Hanover Insurance Company
("Hanover"). Hanover's 81.1%-owned subsidiary is Citizens Corporation, the
holding company for Citizens Insurance Company of America ("Citizens").
Minority interest also includes an amount related to the minority interest in
Citizens Corporation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
B. CLOSED BLOCK
As of October 16, 1995, the Company established and began operating a closed
block (the "Closed Block") for the benefit of the participating policies
included therein, consisting of certain individual life insurance participating
policies, individual deferred annuity contracts and supplementary contracts not
involving life contingencies which were in force on October 16, 1995; such
policies constitute the "Closed Block Business". The purpose of the Closed Block
is to protect the policy dividend expectations of such FAFLIC dividend paying
policies and contracts after the demutualization. Unless the Commissioner
consents to an earlier termination, the Closed Block will continue to be in
effect until the date none of the Closed Block policies are in force. On
October 16, 1995, FAFLIC allocated to the Closed Block assets in an amount that
is expected to produce cash flows which, together with future revenues from the
Closed Block Business, are reasonably sufficient to support the Closed Block
Business, including provision for payment of policy benefits, certain future
expenses and taxes and for continuation of policyholder dividend scales payable
in 1994 so long as the experience underlying such dividend scales continues. The
Company expects that the factors underlying such experience will fluctuate in
the future and policyholder dividend scales for Closed Block Business will be
set accordingly.
Although the assets and income allocated to the Closed Block inure solely
to the benefit of the holders of policies included in the Closed Block, the
excess of Closed Block liabilities over Closed Block assets at October 16, 1995
measured on a GAAP basis represent the expected future post-tax income from the
Closed Block which may be recognized in income over the period the policies and
contracts in the Closed Block remain in force.
If the actual income from the Closed Block in any given period equals or
exceeds the expected income for such period as determined at October 16, 1995,
the expected income would be recognized in income for that period. Further, any
excess of the actual income over the expected income would also be recognized in
income to the extent that the aggregate expected income for all prior periods
exceeded the aggregate actual income. Any remaining excess of actual income over
expected income would be accrued as a liability for policyholder dividends in
the Closed Block to be paid to the Closed Block policyholders. This accrual for
future dividends effectively limits the actual Closed Block income recognized in
income to the Closed Block income expected to emerge from operation of the
Closed Block as determined as of October 16, 1995.
If, over the period the policies and contracts in the Closed Block remain
in force, the actual income from the Closed Block is less than the expected
income from the Closed Block, only such actual income
5
<PAGE>
(which could reflect a loss) would be recognized in income. If the actual income
from the Closed Block in any given period is less than the expected income for
that period and changes in dividends scales are inadequate to offset the
negative performance in relation to the expected performance, the income inuring
to shareholders of the Company will be reduced. If a policyholder dividend
liability had been previously established in the Closed Block because the actual
income to the relevant date had exceeded the expected income to such date, such
liability would be reduced by this reduction in income (but not below zero) in
any periods in which the actual income for that period is less than the expected
income for such period.
C. VALUATION OF INVESTMENTS
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). SFAS No. 115 requires that an
enterprise classify debt and equity securities into one of three categories;
held-to-maturity, available-for-sale, or trading. Investments classified as
held-to-maturity shall be investments that the enterprise has the positive
intent and ability to hold until maturity. Trading securities are investments
which are bought and held principally for the purpose of selling them in the
near term. Investments classified as neither trading securities nor
held-to-maturity shall be classified as available-for-sale securities. SFAS No.
115 also requires that unrealized holding gains and losses for trading
securities be included in earnings, while unrealized gains and losses for
available-for-sale securities be excluded from earnings and reported as a
separate component of shareholder equity until realized. SFAS No. 115 also
requires that for a decline in the fair value which is judged to be other than
temporary, the cost basis of the security should be written down to fair value,
and the amount of the write-down recognized in earnings as a realized loss.
Previously, the Company classified all of its fixed maturities and equity
securities as available-for-sale or held-to-maturity investments. Fixed
maturities held-to-maturity consist of certain bonds, presented at amortized
cost, that management intends and has the ability to hold until maturity. Fixed
maturities available-for-sale consist of certain bonds and redeemable preferred
stocks, presented at fair value, that management may not hold until maturity.
Equity securities available-for-sale are comprised of common stocks which are
carried at fair value. Prior to January 1, 1994, all fixed maturity investments,
which included bonds and redeemable preferred stocks, were principally carried
at amortized cost. Equity securities, which included common and non-redeemable
preferred stock, were carried at fair value. Unrealized gains or losses on
investments classified as available-for-sale, net of deferred federal income
taxes, minority interest, deferred policy acquisition expenses and amounts
attributable to participating contractholders, are included as a separate
component of shareholders' equity. As discussed in Note 3, the Company
transferred all securities classified as held-to-maturity to available-for-sale
on November 30, 1995.
Realized gains and losses on sales of fixed maturities and equity
securities are determined on the specific-identification basis using amortized
cost for fixed maturities and cost for equity securities. Fixed maturities and
equity securities with other than temporary declines in fair value are written
down to estimated fair value resulting in the recognition of realized losses.
Mortgage loans on real estate are stated at unpaid principal balances, net
of unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by management to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which management believes may not be collectible in
full. In establishing reserves, management considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
Real estate that has been acquired through the foreclosure of mortgage
loans is valued at the estimated fair value at the time of foreclosure. The
Company considers several methods in determining fair value at foreclosure,
using primarily third-party appraisals and discounted cash flow analyses. After
foreclosure, the Company makes a determination as to whether the asset should be
held for production of income or held for sale.
Real estate investments held for the production of income and held for sale
are carried at depreciated cost less valuation allowances, if necessary, to
reduce the carrying value to fair value. Depreciation is generally calculated
using the straight-line method.
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 and real
estate are included in realized investment gains or losses.
6
<PAGE>
D. 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, investment and loan
commitments, and interest rate futures contracts. 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.
E. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
F. 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.
Property and casualty, group life and group health insurance business
acquisition costs are deferred and amortized over the terms of the insurance
policies. Acquisition costs related to universal life products and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits over the expected life of the contracts using a revised
interest rate applied to the remaining benefit period. Acquisition costs related
to annuity and other life insurance businesses are deferred and amortized,
generally in proportion to the ratio of annual revenue to the estimated total
revenues over the contract periods based upon the same assumptions used in
estimating the liability for future policy benefits. Deferred acquisition costs
for each product are reviewed to determine if they are recoverable from future
income, including investment income. If such costs are determined to be
unrecoverable, they are expensed at the time of determination.
Although realization of deferred policy acquisition costs is not assured,
management believes it is more likely than not that all of these costs will be
realized. The amount of deferred policy acquisition costs considered realizable,
however, could be reduced in the near term if the estimates of gross profits or
total revenues discussed above are reduced. The amount of amortization of
deferred policy acquisition costs could be revised in the near term if any of
the estimates discussed above are revised.
G. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line or accelerated method over the estimated useful lives of the
related assets which generally range from 3 to 30 years. Amortization of
leasehold improvements is provided using the straight-line method over the
lesser of the term of the leases or the estimated useful life of the
improvements.
H. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains, and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholders' equity or net investment income.
I. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. The liabilities associated with
traditional life insurance products are computed using the net level premium
method for individual life and annuity policies, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits for individual life insurance and
annuity policies are computed using interest rates ranging from 2 1/2% to 6% for
life insurance and 2% to 9 1/2% for annuities. Estimated liabilities are
established for group life and health policies that contain experience rating
provisions. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life include deposits received from customers and investment earnings
on their fund balances, less administrative charges. Universal life fund
balances are also assessed mortality and surrender charges.
Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made on property and casualty and health insurance
for reported losses and estimates of losses incurred but not reported. These
liabilities are determined using case basis evaluations and statistical analyses
and represent estimates of the ultimate cost of all losses incurred but not
paid. These estimates are continually reviewed and adjusted as necessary; such
adjustments are reflected in current operations. Estimated amounts of salvage
and subrogation on unpaid property and casualty losses are deducted from the
liability for unpaid claims.
Premiums for property and casualty, group life, and accident and health
insurance are reported as earned on a pro-rata basis over the contract period.
The unexpired portion of these premiums is recorded as unearned premiums.
7
<PAGE>
Contractholder deposit funds and other policy liabilities include
investment-related products such as guaranteed investment contracts, deposit
administration funds and immediate participation guarantee funds and consist of
deposits received from customers and investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates
discussed above. Although the adequacy of these amounts cannot be assured,
management believes that it is more likely than not that policy liabilities and
accruals will be sufficient to meet future obligations of policies in force. The
amount of liabilities and accruals, however, could be revised in the near term
if the estimates discussed above are revised.
J. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and health insurance and individual and group
annuity products, excluding universal life and investment-related products, are
considered revenue when due. Property and casualty and group life, accident and
health insurance premiums are recognized as revenue over the related contract
periods. Benefits, losses and related expenses are matched with premiums,
resulting in their recognition over the lives of the contracts. This matching is
accomplished through the provision for future benefits, estimated and unpaid
losses and amortization of deferred policy acquisition costs. Revenues for
investment-related products consist of net investment income and contract
charges assessed against the fund values. Related benefit expenses primarily
consist of net investment income credited to the fund values after deduction for
investment and risk charges. Revenues for universal life products consist of net
investment income, and 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.
K. POLICYHOLDER DIVIDENDS
Prior to demutualization, certain life, health and annuity insurance policies
contained dividend payment provisions that enabled the policyholder to
participate in the earnings of the Company. The amount of policyholders'
dividends was determined annually by the Board of Directors. The aggregate
amount of policyholders' dividends was related to the actual interest,
mortality, morbidity and expense experience for the year and the Company's
judgment as to the appropriate level of statutory surplus to be retained. The
participating life insurance in force was 16.2% of the face value of total life
insurance in force at December 31, 1994. The premiums on participating life,
health and annuity policies were 11.3%, 6.4% and 6.6% of total life, health and
annuity statutory premiums prior to demutualization in 1995, 1994 and 1993,
respectively. Total policyholders' dividends were $23.3 million, $32.8 million
and $24.2 million prior to demutualization in 1995, 1994 and 1993, respectively.
L. FEDERAL INCOME TAXES
AFC, FAFLIC, AFLIAC and FAFLIC's non-insurance domestic subsidiaries file a
consolidated United States federal income tax return. Entities included within
the consolidated group are segregated into either a life insurance or non-life
insurance company subgroup. The consolidation of these subgroups is subject to
certain statutory restrictions on the percentage of eligible non-life tax losses
that can be applied to offset life company taxable income. Allmerica P&C and its
subsidiaries file a separate United States federal income tax return.
Deferred income taxes are generally recognized when assets and liabilities
have different values for financial statement and tax reporting purposes, and
for other temporary taxable and deductible differences as defined by Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). These differences result primarily from loss reserves, policy
acquisition expenses, and unrealized appreciation/depreciation on investments.
M. NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" was issued. This statement requires
companies to write down to fair value long-lived assets whose carrying value is
greater than the undiscounted cash flows of those assets. The statement also
requires that long-lived assets of which management is committed to dispose,
either by sale or abandonment, be valued at the lower of their carrying amount
or fair value less costs to sell. This statement is effective for fiscal years
beginning after December 15, 1995. Management expects that adoption of this
statement will not have a material effect on the financial statements.
N. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
8
<PAGE>
2. SIGNIFICANT TRANSACTIONS
Pursuant to the plan of reorganization effective October 16, 1995, AFC issued
37.5 million shares of its common stock to eligible policyholders. AFC also
issued 12.6 million shares of its common stock at a price of $21.00 per share in
a public offering, resulting in net proceeds of $248.0 million, and issued
Senior Debentures in the principal amount of $200.0 million which resulted in
net proceeds of $197.2 million. AFC contributed $392.4 million of these proceeds
to FAFLIC.
Effective March 31, 1995, the Company entered into an agreement with TSSG,
a division of First Data Corporation, pursuant to which the Company sold its
mutual fund processing business and agreed not to engage in this business for
four years after that date. In accordance with this agreement, the Company
received proceeds of $32.1 million. A gain of $13.5 million, net of taxes of
$7.2 million, was recorded in March 1995.
In March and April, 1993, Citizens Corporation, a newly formed holding
company for Citizens, issued approximately 19.35% of its common stock in an
initial public offering, generating net proceeds of $156.2 million (7.0 million
shares at $24.00 per share). Proceeds to Citizens Corporation were reduced by
underwriting and other stock issuance costs. A non-taxable gain of $62.9 million
was recorded in 1993 in connection with this initial public offering. This gain
is non-taxable because only newly-issued shares of Citizens Corporation were
issued to the public.
Effective December 31, 1992, Hanover entered into a definitive agreement to
sell its wholly owned subsidiary, Beacon Insurance Company of America, and its
wholly owned subsidiary, American Select Insurance Company, for $89.7 million. A
gain of $20.7 million, net of taxes of $15.0 million, was recorded in 1993.
3. INVESTMENTS
A. FIXED MATURITIES AND EQUITY SECURITIES
Effective January 1, 1994, the Company adopted SFAS No. 115, which requires that
investments be classified into one of three categories: held-to-maturity,
available-for-sale, or trading.
The effect of implementing SFAS No. 115 as of January 1, 1994 was an
increase in the carrying value of fixed maturity investments of $335.3 million,
a decrease in deferred policy acquisition costs of $20.8 million, an increase in
policyholder liabilities of $18.4 million, a net increase in deferred income tax
liabilities of $103.7 million, an increase in minority interest of $45.4
million, and an increase in shareholders' equity of $147.0 million, which
resulted from changing the carrying value of certain fixed maturities from
amortized cost to fair value and related adjustments. The implementation had no
effect on net income.
In November 1995, the Financial Accounting Standards Board issued a Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES, which permitted companies to
reclassify securities, where appropriate, based on the new guidance. As a
result, the Company transferred securities with amortized cost and fair value of
$696.4 million and $725.6 million, respectively, from the held-to-maturity
category to the available-for-sale category, which resulted in a net increase in
shareholders' equity of $12.8 million.
The amortized cost and fair value of available-for-sale and
held-to-maturity fixed maturities and equity securities were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE Gross Gross
Amortized Unrealized Unrealized Fair
Cost (1) Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S. government and agency securities $ 377.0 $ 21.0 $ -- $ 398.0
States and political subdivisions 2,110.6 60.7 4.0 2,167.3
Foreign governments 60.6 3.4 0.6 63.4
Corporate fixed maturities 4,582.1 200.8 16.4 4,766.5
U.S. government mortgage-backed securities 337.6 8.6 2.1 344.1
Total fixed maturities available-for-sale $ 7,467.9 $ 294.5 $ 23.1 $ 7,739.3
---------------------------------------------------------
Equity securities $ 410.6 $ 111.7 $ 5.1 $ 517.2
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
December 31
(In millions) 1994
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE Gross Gross
Amortized Unrealized Unrealized Fair
Cost (1) Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S. government and agency securities $ 280.2 $ 4.8 $ 9.1 $ 275.9
States and political subdivisions 2,011.3 14.9 76.2 1,950.0
Foreign governments 96.8 1.8 12.8 85.8
Corporate fixed maturities 4,201.4 24.7 157.4 4,068.7
U.S. government mortgage-backed securities 134.9 0.4 3.7 131.6
----------------------------------------------------------
Total fixed maturities available-for-sale $ 6,724.6 $ 46.6 $ 259.2 $ 6,512.0
----------------------------------------------------------
----------------------------------------------------------
Equity securities $ 260.4 $ 35.3 $ 9.3 $ 286.4
----------------------------------------------------------
----------------------------------------------------------
HELD-TO-MATURITY
State and political subdivisions $ 8.1 $ 0.1 $ 0.8 7.4
Foreign governments 20.7 0.2 0.2 20.7
Corporate fixed maturities 927.3 13.7 22.5 918.5
Corporate mortgage-backed securities 3.2 0.1 -- 3.3
----------------------------------------------------------
Total fixed maturities held-to-maturity $ 959.3 $ 14.1 $ 23.5 $ 949.9
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In March 1994, AFLIAC voluntarily withdrew its license in New York in order
to provide for certain commission arrangements prohibited by New York comparable
to AFLIAC's competitors. In connection with the withdrawal, FAFLIC, which is
licensed in New York, became qualified to sell the products previously sold by
AFLIAC 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 general
account liabilities of AFLIAC for New York policyholders, claimants and
creditors. At December 31, 1995, the amortized cost and market value of assets
on deposit were $295.0 million and $303.6 million, respectively. At December 31,
1994, the amortized cost and market value of assets on deposit were $327.9
million and $323.5 million, respectively. In addition, fixed maturities,
excluding those securities on deposit in New York, with an amortized cost of
$82.2 million and $67.0 million were on deposit with various state and
governmental authorities at December 31, 1995 and 1994, respectively.
There were approximately $21.8 million of contractual fixed maturity
investment commitments at December 31, 1994 and none at December 31, 1995.
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.
10
<PAGE>
<TABLE>
<CAPTION>
December 31
(In millions) 1995
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Available-for-Sale
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 970.8 $ 975.6
Due after one year through five years 3,507.9 3,657.1
Due after five years through ten years 1,794.0 1,866.0
Due after ten years 1,195.2 1,240.6
-----------------------------
Total $ 7,467.9 $ 7,739.3
-----------------------------
-----------------------------
</TABLE>
The proceeds from sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Proceeds from Sales
of Available-for-Sale Gross Gross
1995 Securities Gains Losses
<S> <C> <C> <C>
Fixed maturities $ 1,612.3 $ 23.7 $ 33.0
---------------------------------------
Equity securities $ 122.2 $ 23.1 $ 6.9
---------------------------------------
1994
Fixed maturities $ 1,026.2 $ 12.6 $ 21.6
---------------------------------------
Equity securities $ 124.3 $ 17.4 $ 4.5
---------------------------------------
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions)
Equity
Fixed Securities
Maturities and Other (1) Total
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995
Net appreciation (depreciation),
beginning of year $ (89.4) $ 10.4 $ (79.0)
---------------------------------------
Effect of transfer of securities
between classifications:
Net appreciation on available-
for-sale fixed maturities 29.2 -- 29.2
Effect of transfer on deferred
policy acquisition costs and
on policy liabilities (6.8) -- (6.8)
Provision for deferred federal
income taxes and minority
interest (9.6) -- (9.6)
---------------------------------------
12.8 -- 12.8
---------------------------------------
Net appreciation on available-
for-sale securities 465.4 87.5 552.9
Net depreciation from the effect
on deferred policy acquisition
costs and on policy liabilities (86.9) (86.9)
Provision for deferred federal
income taxes and minority interest (193.2) (53.6) (246.8)
---------------------------------------
185.3 33.9 219.2
---------------------------------------
Net appreciation, end of year $ 108.7 $ 44.3 $ 153.0
---------------------------------------
---------------------------------------
1994
Net appreciation, beginning of year $ -- $ 17.5 $ 17.5
---------------------------------------
Cumulative effect of accounting
change:
Net appreciation on available-
for-sale fixed maturities 335.3 -- 335.3
Net depreciation from the effect
of accounting change on
deferred policy acquisition
costs and on policy liabilities (39.2) -- (39.2)
Provision for deferred federal
income taxes and minority
interest (149.1) -- (149.1)
---------------------------------------
147.0 17.5 164.5
---------------------------------------
Net depreciation on available-
for-sale securities (547.9) (17.4) (565.3)
Net appreciation from the effect
on deferred policy acquisition
costs and on policy liabilities 73.2 -- 73.2
Benefit for deferred federal income
taxes and minority interest 238.3 10.3 248.6
---------------------------------------
Net appreciation (depreciation),
end of year $ (89.4) $ 10.4 $ (79.0)
---------------------------------------
---------------------------------------
</TABLE>
(1) Includes net appreciation on other investments of $6.9 million and $0.6
million in 1995 and 1994, respectively.
11
<PAGE>
B. MORTGAGE LOANS AND REAL ESTATE
FAFLIC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 799.5 $ 1,106.7
-----------------------
Real estate:
Held for sale 168.9 134.5
Held for production of income 10.7 45.8
-----------------------
Total real estate 179.6 180.3
-----------------------
Total mortgage loans and real estate $ 979.1 $ 1,287.0
-----------------------
-----------------------
</TABLE>
Reserves for mortgage loans were $33.8 million and $47.2 million as of
December 31, 1995 and 1994, respectively.
During 1995, 1994 and 1993, non-cash investing activities included real
estate acquired through foreclosure of mortgage loans, which had a fair value of
$26.1 million, $39.2 million and $26.7 million, respectively.
At December 31, 1995, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $8.2 million in
the Closed Block. These commitments generally expire within one year. There
are no contractual commitments to extend credit under commercial mortgage
loan agreements outside the Closed Block.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Property type:
Office building $ 435.9 $ 553.6
Residential 145.3 207.3
Retail 205.6 246.5
Industrial / warehouse 93.8 144.1
Other 151.9 205.6
Valuation allowances (53.4) (70.1)
-----------------------
Total $ 979.1 $ 1,287.0
-----------------------
-----------------------
Geographic region:
South Atlantic $ 281.4 $ 374.2
Pacific 191.9 238.7
East North Central 118.2 138.5
Middle Atlantic 148.9 151.2
West South Central 79.7 102.3
New England 94.9 103.1
Other 117.5 249.1
Valuation allowances (53.4) (70.1)
-----------------------
Total $ 979.1 $ 1,287.0
-----------------------
-----------------------
</TABLE>
At December 31, 1995, scheduled mortgage loan maturities were as follows:
1996 - $206.1 million; 1997 - $143.7 million; 1998 - $167.4 million; 1999 -
$109.9 million; 2000 - $124.2 million; and $48.2 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 1995, the Company refinanced $24.0 million of mortgage
loans based on terms which differed from those granted to new borrowers.
12
<PAGE>
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
(In millions)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
1995 Balance at Balance at
January 1 Additions Deductions December 31
<S> <C> <C> <C> <C>
Mortgage loans $ 47.2 $ 1.5 $ 14.9 $ 33.8
Real estate 22.9 (0.6) 2.7 19.6
-----------------------------------------------------
Total $ 70.1 $ 0.9 $ 17.6 $ 53.4
-----------------------------------------------------
-----------------------------------------------------
1994
Mortgage loans $ 73.8 $ 14.6 $ 41.2 $ 47.2
Real estate 21.0 3.2 1.3 22.9
-----------------------------------------------------
Total $ 94.8 $ 17.8 $ 42.5 $ 70.1
-----------------------------------------------------
-----------------------------------------------------
1993
Mortgage loans $ 86.7 $ 4.6 $ 17.5 $ 73.8
Real estate 8.3 12.7 -- 21.0
-----------------------------------------------------
Total $ 95.0 $ 17.3 $ 17.5 $ 94.8
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
D. FUTURES CONTRACTS
FAFLIC purchases and sells futures contracts on margin to hedge against interest
rate fluctuations and their effect on the net cash flows from the sales of
guaranteed investment contracts. The notional amount of such futures contracts
outstanding were $74.7 million and $126.6 million at December 31, 1995 and 1994,
respectively. Because the Company purchases and sells futures contracts through
brokers who assume the risk of loss, the Company's exposure to credit risk under
futures contracts is limited to the margin deposited with the broker. The
maturity of all futures contracts outstanding are less than one year. The fair
value of futures contracts outstanding were $75.7 million and $126.5 million at
December 31, 1995 and 1994, respectively.
Gains and losses on hedge contracts related to interest rate fluctuations
are deferred and recognized in income over the period being hedged corresponding
to related guaranteed investment contracts. Deferred hedging gains and (losses)
were $5.6 million, $(7.7) million, and $6.9 million in 1995, 1994 and 1993,
respectively. Gains and losses on hedge contracts that are deemed ineffective by
management are realized immediately.
A reconciliation of the notional amount of futures contracts is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contracts outstanding,
beginning of year $ 126.6 $ 141.7 $ 120.0
New contracts 343.5 816.0 493.3
Contracts terminated (395.4) (831.1) $ (471.6)
---------------------------------------
Contracts outstanding, end of year $ 74.7 $ 126.6 $ 141.7
---------------------------------------
---------------------------------------
</TABLE>
E. FOREIGN CURRENCY SWAP CONTRACTS
The Company enters into foreign currency swap contracts to hedge exposure to
currency risk on foreign fixed maturity investments. Interest and principal
related to foreign fixed maturity investments payable in foreign currencies, at
current exchange rates, are exchanged for the equivalent payment translated at a
specific currency exchange rate. The Company's maximum exposure to counterparty
credit risk is the difference between the foreign currency exchange rate, as
agreed
13
<PAGE>
upon in the swap contract, and the foreign currency spot rate on the date of the
exchange. The fair values of the foreign currency swap contracts outstanding
were $104.2 million and $117.5 million at December 31, 1995 and 1994,
respectively.
The difference between amounts paid and received on foreign currency swap
contracts is reflected in the net investment income related to the underlying
assets and is not material in 1995, 1994, and 1993. The Company had no deferred
gains or losses on foreign currency swap contracts.
A reconciliation of the notional amount of swap contracts is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contracts outstanding, beginning
of year $ 118.7 $ 128.8 $ 95.0
New Contracts -- 5.0 50.8
Contracts expired -- (10.1) (17.0)
Contracts terminated (14.1) (5.0) --
---------------------------------------
Contracts outstanding, end
of year $ 104.6 $ 118.7 $ 128.8
---------------------------------------
---------------------------------------
</TABLE>
Expected maturities of foreign currency swap contracts are $36.0 million in
1996, $28.8 million in 1997, and $39.8 million in 1998 and thereafter.
F. OTHER
At December 31, 1995, FAFLIC had no concentration of investments in a single
investee exceeding 10% of shareholders' 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) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ 554.0 $ 578.3 $ 601.5
Mortgage loans 97.0 119.9 155.7
Equity securities 16.8 12.1 7.1
Policy loans 20.3 23.3 23.5
Real estate 48.5 44.6 43.4
Other long-term investments 4.4 4.3 2.1
Short-term investments 21.4 9.5 7.4
---------------------------------------
Gross investment income 762.4 792.0 840.7
Less investment expenses (52.3) (48.9) (57.9)
---------------------------------------
Net investment income $ 710.1 $ 743.1 $ 782.8
---------------------------------------
---------------------------------------
</TABLE>
As of December 31, 1995, fixed maturities and mortgage loans on non-accrual
status were $1.4 million and $85.4 million, including restructured loans of
$46.8 million. The effect of non-accruals, compared with amounts that would have
been recognized in accordance with the original terms of the investments, was to
reduce net income by $0.6 million, $5.1 million and $14.0 million in 1995, 1994
and 1993, respectively.
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 $98.9 million , $126.8 million and $167.0 million at
December 31, 1995, 1994 and 1993, respectively. Interest income on restructured
mortgage loans that would have been recorded in accordance with the original
terms of such loans amounted to $11.1 million, $14.4 million and $18.1 million
in 1995, 1994 and 1993, respectively. Actual interest income on these loans
included in net investment income aggregated $7.1 million, $8.2 million and
$10.6 million in 1995, 1994 and 1993, respectively.
At December 31, 1995, fixed maturities with a carrying value of $1.4
million were non-income producing for the twelve months ended December 31, 1995.
There were no mortgage loans which were non-income producing for the twelve
months ended December 31, 1995.
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ (7.0) $ 2.4 $ 48.8
Mortgage loans 1.4 (12.1) (0.5)
Equity securities 16.2 12.4 29.8
Real estate 5.3 1.4 (14.5)
Other 3.2 (3.0) (2.6)
--------------------------------------
Net realized investment gains $ 19.1 $ 1.1 $ 61.0
--------------------------------------
--------------------------------------
</TABLE>
Proceeds from voluntary sales of investments in fixed maturities were
$1,612.3 million, $1,036.5 million and $817.5 million in 1995, 1994 and 1993,
respectively. Realized gains on such sales were $23.7 million, $12.9 million and
$38.8 million; and realized losses were $33.0 million, $21.6 million and $2.6
million for 1995, 1994 and 1993, respectively.
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about certain financial instruments
(insurance contracts, real estate, goodwill and taxes are excluded) for which it
is practicable to estimate such values, whether or not these instruments are
included in the balance sheet. The fair values presented for certain financial
instruments are estimates
14
<PAGE>
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. Fair values of interest rate futures
were not material at December 31, 1995 and 1994.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.
REINSURANCE RECEIVABLES
The carrying amount reported in the consolidated balance sheets approximates
fair value.
POLICY LOANS
The carrying amount reported in the consolidated balance sheets approximates
fair value since policy loans have no defined maturity dates and are inseparable
from the insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under guaranteed investment type
contracts are estimated using discounted cash flow calculations using current
interest rates for similar contracts with maturities consistent with those
remaining for the contracts being valued. Other liabilities are based on
surrender values.
DEBT
The carrying value of short-term debt reported in the balance sheet approximates
fair value. The fair value of long-term debt was estimated using market quotes,
when available, and, when not available, discounted cash flow analyses.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 236.6 $ 236.6 $ 539.7 $ 539.7
Fixed maturities 7,739.3 7,739.3 7,471.3 7,461.9
Equity securities 517.2 517.2 286.4 286.4
Mortgage loans 799.5 845.4 1,106.7 1,105.8
Policy loans 123.2 123.2 364.9 364.9
------------------------------------------------------------
$ 9,415.8 $ 9,461.7 $ 9,769.0 $ 9,758.7
------------------------------------------------------------
------------------------------------------------------------
FINANCIAL LIABILITIES
Guaranteed investment contracts $ 1,632.8 $ 1,677.0 $ 2,170.6 $ 2,134.0
Supplemental contracts without life contingencies 24.4 24.4 25.3 25.3
Dividend accumulations 86.2 86.2 84.5 84.5
Other individual contract deposit funds 95.7 92.8 111.3 108.0
Other group contract deposit funds 894.0 902.8 980.3 969.6
Individual annuity contracts 966.3 810.0 988.9 870.6
Short-term debt 28.0 28.0 32.8 32.8
Long-term debt 2.8 2.9 2.7 2.7
------------------------------------------------------------
$ 3,730.2 $ 3,624.1 $ 4,396.4 $ 4,227.5
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
15
<PAGE>
6. CLOSED BLOCK
Included in other income in the Consolidated Statement of Income in 1995 is a
net pre-tax contribution from the Closed Block of $2.9 million. Summarized
financial information of the Closed Block as of September 30, 1995 (date used to
estimate financial information for the date of establishment of October 16,
1995) and December 31, 1995 and for the period October 1, 1995 through December
31, 1995 is as follows:
<TABLE>
<CAPTION>
(In millions) 1995
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
December 31 September 30
<S> <C> <C>
Assets
Fixed maturities, at fair value
(amortized cost of $447.4 and
$313.3, respectively) $ 458.0 $ 318.4
Mortgage loans 57.1 61.6
Policy loans 242.4 245.3
Cash and cash equivalents 17.6 12.3
Accrued investment income 16.6 15.3
Deferred policy acquisition costs 24.5 24.8
Other assets 2.7 6.4
-----------------------
Total assets $ 818.9 $ 684.1
-----------------------
-----------------------
Liabilities
Policy liabilities and accruals $ 899.2 $ 894.3
Other liabilities 2.8 4.2
-----------------------
Total liabilities $ 902.0 $ 898.5
-----------------------
-----------------------
</TABLE>
<TABLE>
<CAPTION>
Period from October 1 through December 31
(In millions) 1995
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
<S> <C>
Revenues
Premiums $ 11.5
Net investment income 12.8
---------
Total revenues 24.3
---------
Benefits and expenses
Policy benefits 20.6
Policy acquisition expenses 0.8
---------
Total benefits and expenses 21.4
---------
Contribution from the Closed Block $ 2.9
---------
---------
Cash flows
Cash flows from operating activities:
Contribution from the Closed Block $ 2.9
Initial cash transferred to the Closed Block 139.7
Change in deferred policy acquisition costs, net 0.4
Change in premiums and other receivables (0.1)
Change in policy liabilities and accruals 2.0
Change in accrued investment income (1.3)
Other, net 0.8
---------
Net cash provided by operating activities 144.4
---------
---------
Cash flows from investing activities:
Sales, maturities and repayments of investments 29.0
Purchases of investments (158.8)
Other, net 3.0
---------
Net cash used by investing activities (126.8)
---------
Change in cash and cash equivalents and ending balance $ 17.6
---------
---------
</TABLE>
On October 16, 1995, there were no valuation allowances transferred to the
Closed Block on mortgage loans. There are no valuation allowances on mortgage
loans at December 31, 1995.
Many expenses related to Closed Block operations are charged to operations
outside the Closed Block; accordingly, the contribution from the Closed Block
does not represent the actual profitability of the Closed Block operations.
Operating costs and expenses outside of the Closed Block are, therefore,
disproportionate to the business outside the Closed Block.
16
<PAGE>
7. DEBT
Short- and long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term
Commercial paper $ 27.7 $ 32.8
Other 0.3 --
-----------------------
Total short-term debt $ 28.0 $ 32.8
-----------------------
-----------------------
Long-term debt $ 2.8 $ 2.7
-----------------------
-----------------------
</TABLE>
FAFLIC issues commercial paper primarily to manage imbalances between
operating cash flows and existing commitments. Commercial paper borrowing
arrangements are supported by various lines of credit. As of December 31, 1995,
the weighted average interest rate for outstanding commercial paper was 5.8%.
As of December 31, 1995, FAFLIC had approximately $245.0 million in
committed lines of credit provided by U.S. banks, of which $217.3 million was
available for borrowing. These lines of credit generally have terms of less than
one year, and require the Company to pay annual commitment fees ranging from
0.10% to 0.125% of the available credit. Interest that would be charged for
usage of these lines of credit is based upon negotiated arrangements.
Interest expense was $4.1 million, $4.3 million and $1.6 million in 1995,
1994 and 1993, respectively.
In October, 1995, AFC issued $200.0 million face amount of Senior
Debentures for proceeds of $197.2 million net of discounts and issuance costs.
These securities have an effective interest rate of 7.65%, and mature on October
16, 2025. Interest is payable semiannually on October 15 and April 15 of each
year. The Senior Debentures are subject to certain restrictive covenants,
including limitations on issuance of or disposition of stock of restricted
subsidiaries and limitations on liens. AFC is in compliance with all covenants.
The primary source of cash for repayment of the debt by AFC is dividends from
FAFLIC.
8. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of SFAS No. 109. A summary of the federal income tax expense
(benefit) in the consolidated statements of income is shown below:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current $ 119.7 $ 45.4 $ 95.1
Deferred (37.0) 8.0 (20.4)
---------------------------------------
Total $ 82.7 $ 53.4 $ 74.7
---------------------------------------
---------------------------------------
</TABLE>
The federal income taxes attributable to the consolidated results of
operations are different from the amounts determined by multiplying income
before federal income taxes by the expected federal income tax rate. The sources
of the difference and the tax effects of each were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected federal income tax
expense $ 105.6 $ 53.7 $ 138.2
Tax-exempt interest (32.2) (35.9) (32.8)
Differential earnings amount (7.6) 35.0 (10.9)
Non-taxable gain -- -- (22.0)
Dividend received deduction (4.0) (2.5) (1.3)
Foreign tax credit (0.7) (0.8) (0.9)
Changes in tax reserve estimates 19.3 4.0 3.5
Other, net 2.3 (0.1) 0.9
---------------------------------------
Federal income tax expense $ 82.7 $ 53.4 $ 74.7
---------------------------------------
---------------------------------------
</TABLE>
Until conversion to a stock life insurance company, FAFLIC, as a mutual
company, reduced its deduction for policyholder dividends by the differential
earnings amount. This amount was computed, for each tax year, by multiplying the
average equity base of the FAFLIC/AFLIAC consolidated group, as determined for
tax purposes, by the estimate of an excess of an imputed earnings rate over the
average mutual life insurance companies' earnings rate. The differential
earnings amount for each tax year was subsequently recomputed when actual
earnings rates were published by the Internal Revenue Service (IRS). For its
1995 federal income tax return, FAFLIC has estimated that there will be no tax
effect from a differential earnings amount, including the expected effect of
future recomputations by the IRS. As a stock life company, FAFLIC is no longer
required to reduce its policyholder dividend deduction by the differential
earnings amount.
17
<PAGE>
The deferred income tax asset represents the tax effects of temporary
differences attributable to Allmerica P&C, a separate consolidated group for
federal tax return purposes. Its components were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax (assets) liabilities
AMT carryforwards $ (9.8) $ (11.9)
Loss reserve discounting (178.3) (187.6)
Deferred acquisition costs 55.1 54.2
Employee benefit plans (25.5) (22.0)
Investments, net 77.4 (22.7)
Fixed assets 2.5 4.5
Bad debt reserve (1.8) (1.8)
Other, net (0.8) (1.8)
------------------------
Deferred tax asset, net $ (81.2) $ (189.1)
------------------------
------------------------
</TABLE>
The deferred income tax liability represents the tax effects of temporary
differences attributable to the FAFLIC/AFLIAC consolidated federal tax return
group. Its components were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax (assets) liabilities
NOL carryforwards $ -- $ (3.3)
AMT carryforwards -- (1.5)
Loss reserve discounting (129.1) (118.2)
Deferred acquisition costs 169.7 199.0
Differential earnings amount -- 27.7
Employee benefit plans (14.6) (15.4)
Investments, net 67.0 (30.9)
Fixed assets (1.7) (0.9)
Bad debt reserve (26.3) (27.9)
Other, net (17.2) (14.8)
------------------------
Deferred tax liability, net $ 47.8 $ 13.8
------------------------
------------------------
</TABLE>
Gross deferred income tax assets totaled $405.1 million and $460.7 million
at December 31, 1995 and 1994, respectively. Gross deferred income tax
liabilities totaled $371.1 million and $285.4 million at December 31, 1995 and
1994, respectively.
Management believes, based on the Company's recent earnings history and its
future expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, management considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary. At December 31, 1995, there are no available non-life
net operating loss carryforwards, and there are available alternative minimum
tax credit carryforwards of $9.8 million.
The Company's federal income tax returns are routinely audited by the IRS,
and provisions are routinely made in the financial statements in anticipation of
the results of these audits. The IRS has examined the FAFLIC/AFLIAC consolidated
group's federal income tax returns through 1988. The IRS has also examined the
Allmerica P&C consolidated group's federal income tax returns through 1988.
Deficiencies asserted with respect to tax years 1977 through 1981 have been paid
and recorded, and the Company has filed a recomputation of such years with
appeals claiming a refund with respect to certain agreed upon issues. The
Company is currently considering its response to certain adjustments proposed by
the IRS with respect to FAFLIC/AFLIAC's federal income tax returns for 1982 and
1983, and to possible adjustments under consideration by the IRS with respect to
Allmerica P&C's federal income tax returns for 1989, 1990, and 1991. If upheld,
these adjustments would result in additional payments; however, the Company will
vigorously defend its position with respect to these adjustments. In
management's opinion, adequate tax liabilities have been established for all
years. However, the amount of these tax liabilities could be revised in the near
term if estimates of the Company's ultimate liability are revised.
9. PENSION PLANS
FAFLIC provides retirement benefits to substantially all of its employees under
three separate defined benefit pension plans. Through December 31, 1994,
retirement benefits were based primarily on employees' years of service and
compensation during the highest five consecutive plan years of employment.
Benefits under this defined benefit formula were frozen for most employees (but
not for eligible agents) effective December 31, 1994. In their place, the
Company adopted a defined benefit cash balance formula, under which the Company
annually provides an allocation to each eligible employee as a percentage of
that employee's salary, similar to a defined contribution plan arrangement. The
1995 allocation was based on 7.0% of each eligible employee's salary.
Continuation of the defined benefit cash balance formula is subject to the
resolution of certain technical issues, and may be subject to receipt of a
favorable determination letter from the IRS that the Company's pension plans, as
amended to reflect the cash balance formula, will continue to satisfy the
requirements of Section 401(a) of the Internal Revenue Code. The Company's
policy for the plans is to fund at least the minimum amount required by the
Employee Retirement Income Security Act of 1974.
18
<PAGE>
Components of net pension expense were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 19.7 $ 13.0 $ 9.8
Interest accrued on projected
benefit obligations 21.1 20.0 16.9
Actual return on assets (89.3) (2.6) (15.1)
Net amortization and deferral 66.1 (16.3) (5.8)
--------------------------------------
Net pension expense $ 17.6 $ 14.1 $ 5.8
--------------------------------------
--------------------------------------
</TABLE>
The following table summarizes the combined status of the three pension
plans. At December 31, 1995 and 1994, each plan's projected benefit obligation
exceeded its assets.
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 325.6 $ 221.7
Unvested benefit obligation 5.0 3.5
-----------------------
Accumulated benefit obligation $ 330.6 $ 225.2
-----------------------
-----------------------
Pension liability included in
Consolidated Balance Sheets:
Projected benefit obligation $ 367.1 $ 254.6
Plan assets at fair value 321.2 239.7
-----------------------
Plan assets less than projected
benefit obligation (45.9) (14.9)
Unrecognized net loss from
past experience 48.8 42.3
Unrecognized prior service benefit (13.8) (17.3)
Unamortized transition asset (26.5) (28.3)
-----------------------
Net pension liability $ (37.4) $ (18.2)
-----------------------
-----------------------
</TABLE>
Determination of the projected benefit obligations was based on a weighted
average discount rate of 7.0% in 1995 and 8.5% in 1994, and the assumed
long-term rate of return on plan assets was 9%. The actuarial present value of
the projected benefit obligations was determined using assumed rates of increase
in future compensation levels ranging from 5.5% to 6.5%. The effect of changes
in actuarial assumptions, including the decrease in the weighted average
discount rate, was an increase in the Company's projected benefit obligation of
$76.7 million at December 31, 1995. Plan assets are invested primarily in
various separate accounts and the general account of FAFLIC. The plans also hold
stock of AFC.
The Company has a profit sharing and 401(k) plan for its employees.
Effective for plan years beginning after 1994, the profit sharing formula for
employees has been discontinued and a 401(k) match feature has been added to the
continuing 401(k) plan for the employees. Total plan expense in 1995, 1994 and
1993 was $5.2 million, $12.6 million and $22.6 million, respectively. In
addition to this Plan, the Company has a defined contribution plan for
substantially all of its agents. The Plan expense in 1995, 1994 and 1993 was
$3.5 million, $2.7 million and $2.4 million, respectively.
10. OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's pension plans, the Company currently provides
postretirement medical and death benefits to certain full-time employees and
dependents, under several plans sponsored by FAFLIC, Hanover and Citizens.
Generally, employees become eligible at age 55 with at least 15 years of
service. Spousal coverage is generally provided for up to two years after death
of the retiree. Benefits include hospital, major medical and a payment at death
equal to retirees' final compensation up to certain limits. Effective January 1,
1996, the Company revised these benefits so as to establish limits on future
benefit payments and to restrict eligibility to current employees. The medical
plans have varying copayments and deductibles, depending on the plan. These
plans are unfunded.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
SFAS No. 106 requires employers to recognize the costs and obligations of
postretirement benefits other than pensions over the period ending with the date
an employee is fully eligible to receive benefits. Previously, such costs were
generally recognized as expenses when paid. The adoption increased accrued
liabilities by $69.1 million. The effect on the consolidated income statement
was $35.4 million, net of tax of $23.5 million and minority interest of $10.2
million, reported as a cumulative effect of a change in accounting principle.
The ongoing effect of adopting the new standard increased 1993 net periodic
postretirement benefit expense by $6.6 million, and decreased net income by $4.3
million.
19
<PAGE>
The plans' funded status reconciled with amounts recognized in the
Company's consolidated balance sheet were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 44.9 $ 35.2
Fully eligible active plan participants 14.0 15.2
Other active plan participants 45.9 38.5
-----------------------
104.8 88.9
Plan assets at fair value -- --
-----------------------
Accumulated postretirement benefit
obligation in excess of plan assets 104.8 88.9
Unrecognized loss 13.4 4.7
-----------------------
Accrued postretirement benefit costs $ 91.4 $ 84.2
-----------------------
-----------------------
</TABLE>
The components of net periodic postretirement benefit expense were as
follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <S> <C> <C>
Service cost $ 4.2 $ 6.6 $ 3.8
Interest cost 6.9 6.9 5.7
Amortization of (gain) loss (0.5) 1.4 --
-------------------------------------
Net periodic postretirement
benefit expense $ 10.6 $ 14.9 $ 9.5
-------------------------------------
-------------------------------------
</TABLE>
For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1995, health care costs were assumed to increase 10% in 1996,
declining thereafter until the ultimate rate of 5.5% is reached in 2001 and
remains at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation at December 31, 1995
by $10.1 million, and the aggregate of the service and interest cost components
of net periodic postretirement benefit expense for 1995 by $1.2 million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at January 1, 1993 was 8.5%. The rate was 7.0%
and 8.5% at December 31, 1995 and 1994, respectively. The effect of changes in
actuarial assumptions, including the decrease in the weighted average discount
rate, was an increase in the Company's accumulated postretirement benefit
obligation of $15.1 million at December 31, 1995.
11. POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, (SFAS No. 112), "Employers' Accounting
for Postemployment Benefits", which requires employers to recognize the costs
and obligations of severance, disability and related life insurance and health
care benefits to be paid to inactive or former employees after employment but
before retirement. Prior to adoption, the Company had recognized the cost of
these benefits on an accrual or paid basis, depending on the plan.
Implementation of SFAS No. 112 resulted in a transition obligation of $1.9
million, net of federal income taxes and minority interest, and is reported as a
cumulative effect of a change in accounting principle in the consolidated
statement of income. The impact of this accounting change, after recognition of
the cumulative effect, was not significant.
12. DIVIDEND RESTRICTIONS
Massachusetts, Delaware, New Hampshire and Michigan have enacted laws governing
the payment of dividends to stockholders by insurers. These laws affect the
dividend paying ability of FAFLIC, AFLIAC, Hanover and Citizens, respectively.
Massachusetts' statute limits the dividends an insurer may pay in any
twelve month period, without the prior permission of the Commonwealth of
Massachusetts Insurance Commissioner, to the greater of (i) 10% of its statutory
policyholder surplus as of the preceding December 31 or (ii) the individual
company's statutory net gain from operations for the preceding calendar year (if
such insurer is a life company), or its net income for the preceding calendar
year (if such insurer is not a life company). In addition, under Massachusetts
law, no domestic insurer shall pay a dividend or make any distribution to its
shareholders from other than unassigned funds unless the Commissioner shall have
approved such dividend or distribution. At January 1, 1996, FAFLIC could pay
dividends of $144.9 million to AFC without prior approval of the Commissioner.
Dividends from FAFLIC to AFC will be the primary source of cash for
repayment of the debt by AFC and payment of dividends to AFC stockholders.
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
20
<PAGE>
Insurance, is limited to the greater of (i) 10% of its policyholders' surplus as
of the preceding December 31 or (ii) the individual company's statutory net gain
from operations for the preceding calendar year (if such insurer is a life
company) or its net income (not including realized capital gains) for the
preceding calendar year (if such insurer is not a life company). Any dividends
to be paid by an insurer, whether or not in excess of the aforementioned
threshold, from a source other than statutory earned surplus would also require
the prior approval of the Delaware Commissioner of Insurance. At January 1,
1996, AFLIAC could pay dividends of $4.3 million to FAFLIC without prior
approval.
Pursuant to New Hampshire's statute, the maximum dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the New Hampshire Insurance Commissioner, is limited to 10% of
such insurer's statutory policyholder surplus as of the preceding December 31.
At January 1, 1996, the maximum dividend and other distributions that could be
paid to Allmerica P&C by Hanover, without prior approval of the Insurance
Commissioner, was approximately $72.8 million.
Pursuant to Michigan's statute, the maximum dividends and other
distributions that an insurer may pay in any twelve month period, without prior
approval of the Michigan Insurance Commissioner, is limited to the greater of
10% of policyholders' surplus as of December 31 of the immediately preceding
year or the statutory net income less realized gains, for the immediately
preceding calendar year. At January 1, 1996, Citizens Insurance could pay
dividends of $45.6 million to Citizens Corporation without prior approval.
13. SEGMENT INFORMATION
The Company offers financial products and services in two major areas: Risk
Management and Retirement and Asset Management. Within these broad areas, the
Company conducts business principally in five operating segments.
The Risk Management group includes two segments: Regional Property and
Casualty and Corporate Risk Management Services. The Regional Property and
Casualty segment includes property and casualty insurance products, such as
automobile insurance, homeowners insurance, commercial multiple-peril insurance,
and workers' compensation insurance. These products are offered by Allmerica P&C
through its operating subsidiaries, Hanover and Citizens. Substantially all of
the Regional Property and Casualty segment's earnings are generated in Michigan
and the Northeast (Connecticut, Massachusetts, New York, New Jersey, New
Hampshire, Rhode Island, Vermont and Maine). The Corporate Risk Management
Services segment, formerly known as the Employee Benefit Services segment,
includes group life and health insurance products and services which assist
employers in administering employee benefit programs and in managing the related
risks.
The Retirement and Asset Management group includes three segments: Retail
Financial Services, Institutional Services and Allmerica Asset Management. The
Retail Financial Services segment, formerly known as the Individual Financial
Services segment, includes variable annuities, variable universal life-type,
traditional and health insurance products distributed via retail channels to
individuals across the country. The Institutional Services segment includes
primarily group retirement products such as 401(k) plans, tax-sheltered
annuities and GIC contracts which are distributed to institutions across the
country via work-site marketing and other arrangements. Allmerica Asset
Management, formerly included in the results of the Institutional Services
segment, is a Registered Investment Advisor which provides investment advisory
services to other institutions, such as insurance companies and pension plans.
21
<PAGE>
Summarized below is financial information with respect to business segments
for the year ended and as of December 31.
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Risk Management
Regional Property and Casualty $ 2,095.1 $ 2,004.8 $ 2,051.1
Corporate Risk Management 328.5 302.4 296.0
-----------------------------------------
Subtotal 2,423.6 2,307.2 2,347.1
-----------------------------------------
Retirement and Asset Management
Retail Financial Services 486.7 507.9 524.0
Institutional Services 344.1 397.9 382.0
Allmerica Asset Management 4.4 4.0 -
-----------------------------------------
Subtotal 835.2 909.8 906.0
Eliminations (20.3) (21.9) (13.9)
-----------------------------------------
Total $ 3,238.5 $ 3,195.1 $ 3,239.2
-----------------------------------------
-----------------------------------------
Income (loss) from continuing
operations before income taxes:
Risk Management
Regional Property and Casualty $ 206.3 $ 113.1 $ 331.3
Corporate Risk Management 18.3 19.9 18.1
-----------------------------------------
Subtotal 224.6 133.0 349.4
-----------------------------------------
-----------------------------------------
Retirement and Asset Management
Retail Financial Services 35.2 14.2 61.6
Institutional Services 42.8 4.4 (16.1)
Allmerica Asset Management 2.3 1.9 --
-----------------------------------------
Subtotal 80.3 20.5 45.5
-----------------------------------------
Total $ 304.9 $ 153.5 $ 394.9
-----------------------------------------
-----------------------------------------
Identifiable assets:
Risk Management
Regional Property and Casualty $ 5,741.8 $ 5,408.7 $ 5,198.1
Corporate Risk Management 458.9 386.3 367.6
-----------------------------------------
Subtotal 6,200.7 5,795.0 5,565.7
-----------------------------------------
Retirement and Asset Management
Retail Financial Services 7,218.7 5,639.8 5,104.5
Institutional Services 4,280.9 4,484.5 4,708.2
Allmerica Asset Management 2.1 2.2 --
-----------------------------------------
Subtotal 11,501.7 10,126.5 9,812.7
-----------------------------------------
Total $ 17,702.4 $ 15,921.5 $ 15,378.4
-----------------------------------------
-----------------------------------------
</TABLE>
14. LEASE COMMITMENTS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $36.4 million, $35.2 million and $31.9 million in 1995, 1994 and
1993, respectively. At December 31, 1995, future minimum rental payments under
non-cancelable operating leases were approximately $84.6 million, payable as
follows: 1996 - $29.4 million; 1997 - $21.5 million; 1998 - $14.6 million; 1999
- - $8.7 million; 2000 - $5.5 million; and $4.9 million thereafter.
15. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk in various areas of exposure with
other insurance enterprises or reinsurers. Reinsurance transactions are
accounted for in accordance with the provisions of SFAS No. 113.
Amounts recoverable from reinsurers are estimated in a manner consistent
with the claim liability associated with the reinsured policy. Reinsurance
contracts do not relieve the Company from its obligations to policyholders.
Failure of reinsurers to honor their obligations could result in losses to the
Company; consequently, allowances are established for amounts deemed
uncollectible. The Company determines the appropriate amount of reinsurance
based on evaluation of the risks accepted and analyses prepared by consultants
and reinsurers and on market conditions (including the availability and pricing
of reinsurance). The Company also believes that the terms of its reinsurance
contracts are consistent with industry practice in that they contain standard
terms with respect to lines of business covered, limit and retention,
arbitration and occurrence. Based on its review of its reinsurers' financial
statements and reputations in the reinsurance marketplace, the Company believes
that its reinsurers are financially sound.
The Company is subject to concentration of risk with respect to reinsurance
ceded to various residual market mechanisms. As a condition to the ability to
conduct certain business in various states, the Company is required to
participate in various residual market mechanisms and pooling arrangements which
provide various insurance coverages to individuals or other entities that are
otherwise unable to purchase such coverage voluntarily provided by private
insurers. These market mechanisms and pooling arrangements include the
Massachusetts Commonwealth Automobile Reinsurers ("CAR"), the Maine Workers'
Compensation Residual
22
<PAGE>
Market Pool ("MWCRP") and the Michigan Catastrophic Claims Association ("MCCA").
As of December 31, 1995, the MCCA and CAR were the only two reinsurers which
represented 10% or more of the Company's reinsurance business. As a servicing
carrier in Massachusetts, the Company cedes a significant portion of its private
passenger and commercial automobile premiums to CAR. Net premiums earned and
losses and loss adjustment expenses ceded to CAR in 1995, 1994 and 1993 were
$49.1 million and $37.9 million, $50.0 million and $34.6 million, and $45.0
million and $31.7 million, respectively.
From 1988 through 1992, the Company was a servicing carrier in Maine, and
ceded a significant portion of its workers' compensation premiums to the Maine
Workers' Compensation Residual Market Pool, which is administered by The
National Council on Compensation Insurance ("NCCI"). The Company is currently
involved in legal proceedings regarding the MWCRP's deficit which through a
legislated settlement issued on June 23, 1995 provided for an initial funding of
$220.0 million, of which the insurance carriers were responsible for $65.0
million. Hanover paid its allocation of $4.2 million in December 1995. Some of
the small carriers are currently appealing this decision. The Company's right to
recover reinsurance balances for claims properly paid is not at issue in any
such proceedings. The Company expects to collect its reinsurance balance;
however, funding of the cash flow needs of the MWCRP may in the future be
affected by issues related to certain litigation, the outcome of which the
Company cannot predict. The Company ceded to MCCA net premiums earned and losses
and loss adjustment expenses in 1995, 1994 and 1993 of $66.8 million and $62.9
million, $80.0 million and $24.2 million, and $76.4 million and $126.8 million,
respectively. Because the MCCA is supported by assessments permitted by statute,
and all amounts billed by the Company to CAR, MWCRP and MCCA have been paid when
due, the Company believes that it has no significant exposure to uncollectible
reinsurance balances.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Life insurance premiums:
Direct $ 438.9 $ 447.2 $ 453.0
Assumed 71.0 54.3 31.3
Ceded (150.3) (111.0) (83.2)
----------------------------------------
Net premiums $ 359.6 $ 390.5 $ 401.1
----------------------------------------
----------------------------------------
Property and casualty
premiums written:
Direct $ 2,039.4 $ 1,992.4 $ 1,906.2
Assumed 125.0 128.6 106.3
Ceded (279.1) (298.1) (267.4)
----------------------------------------
Net premiums $ 1,885.3 $ 1,822.9 $ 1,745.1
----------------------------------------
----------------------------------------
Property and casualty
premiums earned:
Direct $ 2,021.7 $ 1,967.1 $ 1,870.1
Assumed 137.7 116.1 114.8
Ceded (296.2) (291.9) (306.7)
----------------------------------------
Net premiums $ 1,863.2 $ 1,791.3 $ 1,678.2
----------------------------------------
----------------------------------------
Life insurance and other individual
policy benefits, claims, losses and
loss adjustment expenses:
Direct $ 749.6 $ 773.0 $ 819.4
Assumed 38.5 28.9 6.8
Ceded (69.5) (61.6) (38.4)
----------------------------------------
Net policy benefits, claims, losses
and loss adjustment expenses $ 718.6 $ 740.3 $ 787.8
----------------------------------------
----------------------------------------
Property and casualty benefits,
claims, losses and loss
adjustment expenses:
Direct $ 1,372.7 $ 1,364.4 $ 1,310.3
Assumed 146.1 102.7 98.8
Ceded (229.1) (160.4) (209.7)
----------------------------------------
Net policy benefits, claims, losses
and loss adjustment expenses $ 1,289.7 $ 1,306.7 $ 1,199.4
----------------------------------------
----------------------------------------
</TABLE>
23
<PAGE>
16. DEFERRED POLICY ACQUISITION EXPENSES
The following reflects the amount of policy acquisition expenses deferred and
amortized:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 802.8 $ 746.9 $ 700.4
Acquisition expenses deferred 504.8 510.3 482.3
Amortized to expense
during the year (470.3) (475.7) (435.8)
Adjustment to equity
during the year (50.4) 21.3 --
Transferred to the Closed Block (24.8) -- --
Adjustment for cession of
term life insurance (26.4) -- --
---------------------------------------
Balance at end of year $ 735.7 $ 802.8 $ 746.9
---------------------------------------
---------------------------------------
</TABLE>
17. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company regularly updates its estimates at liabilities for outstanding
claims, losses and loss adjustment expenses as new information becomes available
and further events occur which may impact the resolution of unsettled claims for
its property and casualty and its accident and health lines of business. Changes
in prior estimates are reflected in results of operations in the year such
changes are determined to be needed and recorded.
The liability for outstanding claims, losses and loss adjustment expenses
related to the Company's accident and health business was $375.9 million, $305.0
million and $276.3 million at December 31, 1995, 1994 and 1993, respectively.
Accident and health claim liabilities have been re-estimated for all prior years
and were increased by $26.4 million, $6.5 million and $12.7 million in 1995,
1994 and 1993, respectively. Unfavorable development in the accident and health
business during 1995 is primarily due to reserve strengthening and adverse
experience in the Company's individual disability line of business.
The following table provides a reconciliation of the beginning and ending
property and casualty reserve for unpaid losses and loss adjustment expenses
(LAE):
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve for losses and LAE,
beginning of year $ 2,821.7 $ 2,717.3 $ 2,598.9
Incurred losses and LAE, net
of reinsurance recoverable:
Provision for insured events of
the current year 1,427.3 1,434.8 1,268.2
Decrease in provision for insured
events of prior years (137.6) (128.1) (68.8)
----------------------------------------
Total incurred losses and LAE 1,289.7 1,306.7 1,199.4
----------------------------------------
Payments, net of reinsurance
recoverable:
Losses and LAE attributable to
insured events of current year 652.2 650.2 523.5
Losses and LAE attributable to
insured events of prior years 614.3 566.9 564.3
----------------------------------------
Total payments 1,266.5 1,217.1 1,087.8
----------------------------------------
Less reserves assumed by purchaser
of Beacon -- -- (28.8)
----------------------------------------
Change in reinsurance recoverable
on unpaid losses 51.1 14.8 35.6
----------------------------------------
Reserve for losses and LAE,
end of year $ 2,896.0 $ 2,821.7 $ 2,717.3
----------------------------------------
----------------------------------------
</TABLE>
As part of an ongoing process, the property and casualty reserves have been
re-estimated for all prior accident years and were decreased by $137.6 million,
$128.1 million and $68.8 million in 1995, 1994 and 1993, respectively. The
increase in favorable development on prior years' reserves of $9.5 million in
1995 results primarily from a $34.6 million increase in favorable development at
Citizens. Favorable development in Citizens' personal automobile and workers'
compensation lines increased $16.6 million and $15.5 million, to favorable
development of $4.4 million and $32.7 million, respectively. Hanover's favorable
development, not including the effect of voluntary and involuntary pools, was
relatively unchanged at $90.2 million in 1995 compared to $91.7 million in 1994.
Favorable development in Hanover's workers' compensation line increased $27.7
million to $31.0 million during 1995. This was offset by decreases of $14.6
million and
24
<PAGE>
$12.6 million, to $45.5 million and $0.1 million, in the personal automobile
and commercial multiple peril lines, respectively. Favorable development in
Hanover's voluntary and involuntary pools decreased $23.6 million to $0.4
million during 1995.
The increase in favorable development on prior years' reserves of $59.3
million in 1994 primarily results from an increase in favorable development in
the voluntary and involuntary pools of $47.0 million in 1994. The remainder of
the favorable reserve development in 1994 is the result of favorable severity
trends, primarily in the personal automobile and commercial multiple peril
lines.
This favorable development reflects the Regional Property and Casualty
subsidiaries' reserving philosophy consistently applied over these periods.
Conditions and trends that have affected development of the loss and LAE
reserves in the past may not necessarily occur in the future.
Due to the nature of business written by the Regional Property and Casualty
subsidiaries, the exposure to environmental liabilities is relatively small.
Losses and LAE reserves related to environmental damage and toxic tort
liability, included in the total reserve for losses and LAE, were $28.6 million
and $19.4 million, net of reinsurance of $8.4 million and $8.1 million, at the
end of 1995 and 1994, respectively. During 1995, the Regional Property and
Casualty subsidiaries redefined their environmental liabilities in conformity
with new guidelines issued by the NAIC. The 1994 liability has been conformed to
the 1995 presentation. This had no impact on results of operations. Management
believes that, notwithstanding the evolution of case law expanding such
liability, recorded reserves for environmental liability are adequate, and is
not aware of any litigation or pending claims that may result in additional
material liabilities in excess of recorded reserves. During 1995, Hanover
performed an actuarial review of its environmental reserves. This resulted in
Hanover's providing additional reserves for "IBNR" (incurred but not reported)
claims, in addition to existing reserves for reported claims. At Citizens,
environmental reserves are primarily related to reported claims. Although these
claims are not material, their existence gives rise to uncertainty and is
discussed because of the possibility, however remote, that they may become
material. The environmental liability could be revised in the near term if the
estimates used in determining the liability are revised.
18. MINORITY INTEREST
The Company's interest in Allmerica P&C, is represented by ownership of 58.3%,
57.4% and 57.4% of the outstanding shares of common stock at December 31, 1995,
1994 and 1993, respectively. Earnings and shareholders' equity attributable to
minority shareholders are included in minority interest in the consolidated
financial statements.
19. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions have contributed to an increase in the number of
insurance companies that are under regulatory supervision. This is expected to
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
On June 23, 1995, the governor of Maine approved a legislative settlement for
the Maine Workers' Compensation Residual Market Pool deficit for the years 1988
through 1992. The settlement provides for an initial funding of $220.0 million
toward the deficit. The insurance carriers are liable for $65.0 million payable
on or before January 1, 1996, and employers will contribute $110.0 million
payable through surcharges on premiums over the course of the next ten years.
The major insurers are responsible for 90% of the $65.0 million. Hanover's
allocated share of the settlement is approximately $4.2 million, which was paid
in December 1995. The remainder of the deficit of $45.0 million will be paid by
the Maine Guaranty Fund Surplus payable in quarterly contributions over ten
years. The smaller carriers have recently filed litigation to appeal the
settlement. The Company believes that adequate reserves have been established
for any additional liability.
The Company has been named a defendant in various other legal proceedings
arising in the normal course of business. In the opinion of management, based on
the advice of legal counsel, the ultimate resolution of these proceedings will
not have a material effect on the Company's 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.
RESIDUAL MARKETS
The Company is required to participate in residual markets in various states.
The results of the residual markets are not subject to the predictability
associated with the Company's own managed business, and are significant to the
workers' compensation line of business and both the private passenger and
commercial automobile lines of business.
25
<PAGE>
20. STATUTORY FINANCIAL INFORMATION
The insurance subsidiaries are 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
shareholders' equity reported in accordance with generally accepted accounting
principles for stock life insurance companies primarily because policy
acquisition costs are expensed when incurred, investment reserves are based on
different assumptions, postretirement benefit costs are based on different
assumptions and reflect a different method of adoption, life insurance reserves
are based on different assumptions and income tax expense reflects only taxes
paid or currently payable. Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory net income (Unconsolidated)
Property and Casualty Companies $ 139.8 $ 74.5 $ 166.8
Life and Health Companies 134.3 40.7 114.8
----------------------------------------
Statutory Shareholders'
Surplus (Unconsolidated)
Property and Casualty Companies $ 1,151.7 $ 989.8 $ 960.1
Life and Health Companies 965.6 465.3 526.4
----------------------------------------
</TABLE>
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
For the Three Months Ended
(In millions)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 March 31 June 30 Sept. 30 Dec. 31
Total revenues $ 841.4 $ 793.4 $ 819.2 $ 784.5
------------------------------------------------------
Income before extraordinary item $ 39.2 $ 29.9 $ 34.8 $ 45.2
Extraordinary item - demutualization expenses (2.5) (3.5) (4.7) (1.4)
------------------------------------------------------
Net income $ 36.7 $ 26.4 $ 30.1 $ 43.8
------------------------------------------------------
------------------------------------------------------
1994
Total revenues $ 815.4 $ 786.8 $ 799.3 $ 793.6
------------------------------------------------------
Income (loss) before extraordinary item $ (10.9) $ 15.7 $ 26.6 $ 17.7
Extraordinary item - demutualization expenses (1.6) (2.5) (2.8) (2.3)
Cumulative effect of changes in accounting principles (1.9) -- -- --
------------------------------------------------------
Net income $ (14.4) $ 13.2 $ 23.8 $ 15.4
------------------------------------------------------
------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT I
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH INVESTMENT GRADE INCOME MONEY MARKET
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust .... $ 716,766 $ 159,683 $ 304,465
LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor).................................... 706 157 299
----------- ----------- -----------
Net assets.......................................... $ 716,060 $ 159,526 $ 304,166
=========== =========== ===========
Net asset distribution by category:
Qualified variable annuity policies................. $ 716,060 $ 159,526 $ 304,166
=========== =========== ===========
Qualified units outstanding, December 31, 1995......... 5,127 1,368 2,793
Net asset value per qualified unit, December 31, 1995.. $139.673528 $116.632734 $108.898245
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INDEX GOVERNMENT BOND
SUB-ACCOUNT SUB-ACCOUNT
4 5
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust..... $ 127,852 $ 173,087
LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor).................................... 127 169
----------- -----------
Net assets.......................................... $ 127,725 $ 172,918
=========== ===========
Net asset distribution by category:
Qualified variable annuity policies................. $ 127,725 $ 172,918
=========== ===========
Qualified units outstanding, December 31, 1995......... 891 1,551
Net asset value per qualified unit, December 31, 1995.. $143.302251 $111.492739
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT I
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH INVESTMENT GRADE INCOME MONEY MARKET
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 67,610 $ 9,156 $ 17,969
-------- -------- --------
EXPENSES:
Mortality and expense risk fees.................. 5,117 1,202 2,809
Administrative expense fees...................... 1,421 334 780
-------- -------- --------
Total expenses................................. 6,538 1,536 3,589
-------- -------- --------
Net investment income............................ 61,072 7,620 14,380
-------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss................................ (464) (149) --
Net unrealized gain.............................. 92,586 13,040 --
-------- -------- --------
Net realized and unrealized gain on investments.. 92,122 12,891
-------- -------- --------
Net increase in net assets from operations....... $153,194 $ 20,511 $ 14,380
======== ======== ========
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY INDEX GOVERNMENT BOND
SUB-ACCOUNT SUB-ACCOUNT
4 5
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................ $ 8,309 $ 8,571
-------- --------
EXPENSES:
Mortality and expense risk fees.................. 911 1,244
Administrative expense fees...................... 253 346
-------- --------
Total expenses................................. 1,164 1,590
-------- --------
Net investment income............................ 7,145 6,981
-------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss)......................... 3,196 (1,013)
Net unrealized gain.............................. 18,996 8,986
-------- --------
Net realized and unrealized gain on investments.. 22,192 7,973
-------- --------
Net increase in net assets from operations....... $ 29,337 $ 14,954
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT I
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH INVESTMENT GRADE INCOME
SUB-ACCOUNT 1 SUB-ACCOUNT 2
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income............................................ $ 61,072 $ 24,258 $ 7,620 $ 6,131
Net realized gain (loss) from security transactions.............. (464) (7,214) (149) (1,965)
Net unrealized gain (loss) on investments........................ 92,586 (19,429) 13,040 (9,199)
--------- --------- ---------- ---------
Net increase (decrease) in net assets from operations............ 153,194 (2,385) 20,511 (5,033)
--------- --------- ---------- ---------
FROM CAPITAL TRANSACTIONS:
Net deposits..................................................... 190,334 202,325 35,941 33,040
Terminations..................................................... (71,551) (156,935) (10,187) (29,798)
Other transfers from (to) the General Account of
First Allmerica Financial Life Insurance Company (Sponsor)..... 21 26,541 2,123 (4,510)
--------- --------- ---------- ---------
Net increase (decrease) in net assets from capital transactions.. 118,804 71,931 27,877 (1,268)
--------- --------- ---------- ---------
Net increase (decrease) in net assets............................ 271,998 69,546 48,388 (6,301)
NET ASSETS:
Beginning of year................................................ 444,062 374,516 111,138 117,439
--------- --------- ---------- ---------
End of year...................................................... $ 716,060 $ 444,062 $ 159,526 $ 111,138
========= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT I
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET EQUITY INDEX GOVERNMENT BOND
SUB-ACCOUNT 3 SUB-ACCOUNT 4 SUB-ACCOUNT 5
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 14,380 $ 4,133 $ 7,145 $ 2,335 $ 6,981 $ 12,206
-- -- 3,196 1,851 (1,013) (14,172)
-- -- 18,996 (3,828) 8,986 (3,709)
--------- --------- --------- --------- --------- ---------
14,380 4,133 29,337 358 14,954 (5,675)
--------- --------- --------- --------- --------- ---------
73,363 320,783 19,664 69,280 54,856 71,032
(159,752) (116,913) (28,719) (72,498) (19,947) (57,403)
(65) 132,746 2,420 87 (5) (195,292)
--------- --------- --------- --------- --------- ---------
(86,454) 336,616 (6,635) (3,131) 34,904 (181,663)
--------- --------- --------- --------- --------- ---------
(72,074) 340,749 22,702 (2,773) 49,858 (187,338)
376,240 35,491 105,023 107,796 123,060 310,398
--------- --------- --------- --------- --------- ---------
$ 304,166 $ 376,240 $ 127,725 $ 105,023 $ 172,918 $ 123,060
========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT I
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1995
NOTE 1 - ORGANIZATION
Separate Account I (SA-I) is a separate investment account of First Allmerica
Financial Life Insurance Company (the Company), established on October 1, 1992
for the purpose of separating from the general assets of the Company those
assets used to fund certain variable annuity policies issued by the Company.
Effective October 16, 1995, concurrent with the demutualization, the Company's
name was changed from State Mutual Life Assurance Company of America. Under
applicable insurance law, the assets and liabilities of SA-I are clearly
identified and distinguished from the other assets and liabilities of the
Company. SA-I cannot be charged with liabilities arising out of any other
business of the Company.
SA-I is registered as a unit investment trust under the Investment Company
Act of 1940, as amended (the 1940 Act). SA-I currently offers five Sub-Accounts.
Each Sub-Account invests exclusively in a corresponding investment portfolio of
the Allmerica Investment Trust (the Trust) managed by Allmerica Investment
Management Company, Inc., a wholly-owned subsidiary of the Company. The Trust is
an open-end, diversified series management investment company registered under
the 1940 Act.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Investments - Security transactions are recorded on the trade date.
Investments in shares of the Trust are stated at the net asset value per share
of the respective investment portfolio of the Trust. Net realized gains and
losses on securities sold are determined on the average cost method. Dividends
and capital gain distributions are recorded on the ex-dividend date and are
reinvested in additional shares of the respective investment portfolio of the
Trust at net asset value.
Federal Income Taxes - The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code and files a consolidated federal
income tax return. The Company anticipates no tax liability resulting from the
operations of SA-I. Therefore, no provision for income taxes has been charged
against SA-I.
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trust at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO INFORMATION
SUB- INVESTMENT NUMBER OF AGGREGATE NET ASSET
ACCOUNT PORTFOLIO SHARES COST VALUE PER SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Allmerica Investment Trust:
1 Growth......................... 329,396 $ 665,980 $ 2.176
2 Investment Grade Income........ 142,957 158,452 1.117
3 Money Market................... 304,465 304,465 1.000
4 Equity Index................... 69,979 110,018 1.827
5 Government Bond................ 162,983 173,433 1.062
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company makes a charge of .90% 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 .25% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account but are paid to
the Company on a monthly basis.
An IRA account fee is currently deducted on the policy anniversary date and
upon full surrender of the IRA account. The IRA account fee is $25. For IRA
accounts established after April 30, 1993, the IRA account fee will be waived in
the following circumstances: if the contribution establishing the IRA account
was at least $15,000, the IRA account fee will be waived on the first
anniversary deduction; if the accumulated value is $15,000 as of December 31 of
the calendar year previous to any subsequent anniversary deduction, the IRA
account fee will be waived on such subsequent anniversary deduction. For the
year ended December 31, 1995, there were no IRA account fees deducted from
accumulated value in the Separate Account.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of the Company, is principal underwriter and general distributor of
SA-I, and does not receive any compensation for sales of the IRA policies.
Commissions are paid to registered representatives of Allmerica Investments by
the Company.
NOTE 5 - POLICYOWNERS AND SPONSOR TRANSACTIONS
<TABLE>
<CAPTION>
Transactions from policyowners were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
UNITS AMOUNT UNITS AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sub-Account 1
Issuance of units.......... 1,560 $ 194,420 2,185 $ 232,422
Redemption of units........ (607) (75,616) (1,496) (160,491)
------ --------- ------- ----------
Net increase............... 953 $ 118,804 689 $ 71,931
====== ========= ======= ==========
Sub-Account 2
Issuance of units.......... 366 $ 40,028 321 $ 32,965
Redemption of units........ (108) (12,151) (336) (34,233)
------ --------- ------- ----------
Net increase (decrease).... 258 $ 27,877 (15) $ (1,268)
====== ========= ======= ==========
Sub-Account 3
Issuance of units.......... 699 $ 73,511 5,040 $ 518,505
Redemption of units........ (1,521) (159,965) (1,775) (181,889)
------ --------- ------- ----------
Net increase (decrease).... (822) $ (86,454) 3,265 $ 336,616
====== ========= ======= ==========
Sub-Account 4
Issuance of units.......... 173 $ 24,090 650 $ 69,367
Redemption of units........ (269) (30,725) (675) (72,498)
------ --------- ------- ----------
Net increase (decrease..... (96) $ (6,635) (25) $ (3,131)
====== ========= ======= ==========
Sub-Account 5
Issuance of units.......... 549 $ 54,856 706 $ 79,132
Redemption of units........ (232) (19,952) (2,521) (260,795)
------ --------- ------- ----------
Net increase (decrease..... 317 $ 34,904 (1,815) $ (181,663)
====== ========= ======= ==========
</TABLE>
<PAGE>
NOTE 6 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
contract for federal income tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations issued
by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that SA-I satisfies the current requirements of
the regulations, and it intends that SA-I will continue to meet such
requirements.
NOTE 7 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust shares by SA-I during
the year ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUB-
ACCOUNT INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
1 Growth..................................... $ 279,506 $ 99,346
2 Investment Grade Income.................... 50,022 14,478
3 Money Market............................... 93,194 165,306
4 Equity Index............................... 86,566 86,027
5 Government Bond............................ 65,470 23,572
--------- ---------
Totals..................................... $ 574,758 $ 388,729
========= =========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of First Allmerica Financial
Life Insurance Company and
Policyowners of Separate Account I of
First Allmerica Financial Life Insurance 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 (1, 2,
3, 4 and 5) constituting the Separate Account I of First Allmerica Financial
Life Insurance Company at December 31, 1995, the results of each of their
operations for the year then ended, and the changes in each of their net assets
for each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of First Allmerica Financial Life Insurance Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned at
December 31, 1995 by correspondence with the Trust, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 23, 1996
<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 Separate Account I of First Allmerica
Financial Life Insurance Company
Financial Statements of First Allmerica Financial Life Insurance
Company
FINANCIAL STATEMENTS INCLUDED IN PART C
None
(b) EXHIBITS
Exhibit 1 - Votes Authorizing Establishment of Registrant dated August 20,
1991 was previously filed on May 11, 1992.
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 - Specimen Sales and Administrative Services Agreement was
previously filed on May 11, 1992.
Exhibit 4 - Specimen Generic Contract and Certificate Forms was previously
filed on May 11, 1992.
Exhibit 5 - Specimen Application Form was previously filed on May 11, 1992.
Exhibit 6(a) - The Depositor's Articles of Incorporation and Bylaws were
previously filed on May 11, 1992 and are incorporated by
reference herein.
(b) - The Depositor's revised By-Laws
Exhibit 7 - Not Applicable.
Exhibit 8(a) - AUV Calculation Services Agreement with The Shareholder
Services Group dated March 31, 1995 was previously filed in
Registration Statement No.___ and is incorporated herein by
reference.
(b) - Services Agreement filed herewith.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 13 - None.
Exhibit 14 - Not Applicable.
Exhibit 15 - Power of Attorney.
Exhibit 16 - Consent of New Elected Directors
Exhibit 27 - Financial Data Schedules
Item 25. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEPOSITOR.
The principal business address of all the following Directors and Officers
is:
440 Lincoln Street
Worcester, Massachusetts 01653
Name and Position Principal Occupation(s) During Past Five Years
- ----------------- ----------------------------------------------
Bruce C. Anderson Director of First Allmerica since 1996; Vice
President, First Allmerica
Abigail M. Armstrong Secretary of First Allmerica since 1996;
Counsel, First Allmerica
<PAGE>
Mark R. Colborn Vice President and Controller, First Allmerica
Kruno Huitzingh Director of First Allmerica since 1996; Vice
President & Chief Information Officer, First
Allmerica since 1993; Executive Vice President,
Chicago Board Options Exchange, 1985 to 1993
John F. Kelly Director of First Allmerica since 1996;
Senior Vice President and General Counsel,
First Allmerica
John F. O'Brien Director, Chairman of the Board, President and
Chief Executive Officer of First Allmerica
Edward J. Parry, III Vice President and Treasurer, First Allmerica
since 1993; Assistant. Vice President to 1992
to 1993; Manager, Price Waterhouse, 1987 to 1992
Richard M. Reilly Director of First Allmerica since 1996; Vice
President, First Allmerica; Director and
President, Allmerica Investments, Inc.;
Director and President, Allmerica Investment
Management Company, Inc. since since 1992.
Larry C. Renfro Director of First Allmerica since 1996;
Vice President of First Allmerica
Theodore J. Rupley Director of First Allmerica since 1996;
Director, President, and CEO, The Hanover
Insurance Company since 1992; President,
Fountain Powerboats, 1992; President,
Metropolitan Property & Casualty Company,
1986-1992.
Phillip E. Soule Director of First Allmerica since 1996;
Vice President, First Allmerica
Eric Simonsen Director of First Allmerica since 1996;
Vice President and Chief Financial Officer,
First Allmerica
Diane E. Wood Director of First Allmerica since 1996; Vice
President, First Allmerica
Item 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT. See attached
organizational chart.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester, MA 01653
Allmerica Asset 440 Lincoln Street Investment advisory service
Management, Inc. Worcester, MA 01653
Allmerica Employees 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester, MA 01653
Allmerica Financial 440 Lincoln Street Insurance Agency
Services Insurance Worcester, MA 01653
Agency, Inc.
Allmerica Funds 440 Lincoln Street Investment Company
Worcester, MA 01653
Allmerica Institutional 440 Lincoln Street Accounting, marketing
Services, Inc. Worcester, MA 01653 and shareholder services
(formerly known as 440 for investment companies
Financial Group of
Worcester, Inc.)
Allmerica Investment 440 Lincoln Street Investment advisory
Management Company, Worcester, MA 01653 services
Inc.
Allmerica Investments, 440 Lincoln Street Securities, retail broker-
Inc. Worcester, MA 01653 dealer
Allmerica Investment 440 Lincoln Street Investment Company
Trust Worcester, MA 01653
Allmerica Property and 440 Lincoln Street Investment Company
Casualty Companies, Worcester, MA 01653
Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Allmerica Securities 440 Lincoln Street Investment Company
Trust Worcester, MA 01653
Allmerica Services, Inc. 440 Lincoln Street Service Company
Worcester, MA 01653
Allmerica Trust 440 Lincoln Street Limited purpose national
Company, N.A. Worcester, MA 01653 trust company
AMGRO, Inc. 472 Lincoln Street Premium financing
Worcester, MA 01653
APC Funding Corp. 440 Lincoln Street Special purpose funding
Worcester, MA 01653 vehicle for commercial
paper
Beltsville Drive 440 Lincoln Street Real estate partnership
Properties Limited Worcester, MA 01653
Partnership
Citizens Corporation 440 Lincoln Street Holding Company
Worcester, MA 01653
Citizens Insurance 645 West Grand River Multi-line fire & casualty
Company Howell, MI 48843 insurance
Citizens Insurance 3950 Priority Way Multi-line fire & casualty
Company of the Midwest South Drive, Suite 200 insurance
Indianapolis, IN 46280
Citizens Insurance 8101 N. High Street Multi-line fire & casualty
Company of of Ohio P.O. Box 342250 insurance
Columbus, OH 43234
Citizens Management, 645 West Grand River Services Management
Inc. Howell, MI 48843 Company
Greendale Special 440 Lincoln Street Massachusetts Grantor
Placement s Fund Worcester, MA 01653 Trust
The Hanover American 100 North Parkway Multi-line fire & casualty
Insurance Company Worcester, MA 01653 insurance
The Hanover Insurance 100 North Parkway Multi-line fire & casualty
Company Worcester, MA 01605 insurance
Hanover Texas 801 East Campbell Road Incorporated Branch Office of
Insurance Management Richardson, TX 75081 The Hanover Insurance Company
Company, Inc. Attorney-in-fact for Hanover
Lloyd's Insurance Company
Hanover Lloyd's 801 East Campbell Road Multiline fire & casualty
Insurance Company Richardson, TX 75081 insurance
Hollywood Center, Inc. 440 Lincoln Street General business
Worcester, MA 01653 corporation
Linder Skokie Real 440 Lincoln Street General business
Estate Corporation Worcester, MA 01653 corporation
Lloyds Credit 440 Lincoln Street Premium financing service
Corporation Worcester, MA 01653 franchises
Logan Wells Water 603 Heron Drive Water Company, servicing
Company Inc. Bridgeport, NJ 08014 land development investment
Massachusetts Bay 100 North Parkway Multi-line fire and
Insurance Company Worcester, MA 01653 casualty
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester, MA 01653
Allmerica Financial 440 Lincoln Street Life insurance, accident
Life Insurance Worcester, MA 01653 and health insurance,
and Annuity Company annuities, variable
annuities and variable
life insurance
Somerset Square, 440 Lincoln Street General Business
Inc. Worcester, MA 01653 Corporation
Sterling Risk 100 North Parkway Risk management services
Management Worcester, MA 01605
Services, Inc.
</TABLE>
Item 27. NUMBER OF CONTRACT OWNERS.
As of December 31, 1995, the Separate Account had ___ Policy owners.
Item 28. INDEMNIFICATION.
To the fullest extent permissible under Massachusetts General Laws, no director
shall be personally liable to the Company or any policyholder for monetary
damages for any breach of fiduciary duty as a director, notwithstanding any
provision of law to the contrary; provided, however, that this provision shall
not eliminate or limit the liability of a director:
1. for any breach of the director's duty of loyalty to the Company or its
policyholders;
2. for acts or omissions not in good faith, or which involve intentional
misconduct or a knowing violation of law;
3. for liability, if any, imposed on directors of mutual insurance companies
pursuant to M.G.L.A. c. 156B Section 61 or M.G.L.A. c.156B Section 62;
4. for any transactions from which the director derived an improper personal
benefit.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, Inheiritage Account, Separate Accounts
VA-A, VA-B, VA-C, VA-G, VA-H, VA-K, VA-P and Allmerica Select Separate
Account of Allmerica Financial Life Insurance and Annuity Company
- VEL II Account, Inheiritage Account, Separate Accounts VA-K, VA-P and
Allmerica Select Separate Account and of First Allmerica
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME POSITION OR OFFICE WITH UNDERWRITER
- ---- -----------------------------------
Abigail M. Armstrong Secretary and Counsel
Edward T. Berger Vice President and Chief Compliance Officer
Philip J. Coffey Vice President
John F. Kelly Director
John F. O'Brien Director
Stephen Parker President and Chief Executive Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director
<PAGE>
Eric A. Simonsen Director
Mark Steinberg Senior Vice President
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester, Massachusetts or on
behalf of the Company by the First Data Investor Services Group, 4400 Computor
Drive, Westboro, Massachusetts.
Item 31. MANAGEMENT SERVICES.
Effective March 31, 1995, the Company has engaged The Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts to provide daily unit value
calculations and related services for the Company's separate accounts.
Item 32. UNDERTAKINGS.
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
(b) The registrant hereby undertakes to include as part of an application to
purchase a certificate under the Contract a space that the applicant can check
to request a Statement of Additional Information.
(c) The registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the requirements
of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Directors, Officers and Controlling Persons of Registrant under any
registration statement, underwriting agreement or otherwise, Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, Officer or Controlling Person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(b)
PLANS.
Not Applicable
<PAGE>
EXHIBIT TABLE
Exhibit 6(b) - Revised By-Laws
Exhibit 8 - Services Agreement
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 10 - Price Waterhouse Consent
Exhibit 15 - Power of Attorney
Exhibit 16 - Consent of Newley Elected Directors
Exhibit 27- Financial Data Schedules
<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 Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this 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
26th. day of April, 1996.
First Allmerica Financial Life Insurance Company
Separate Account I
(Registrant)
By:/s/ Richard J. Baker
----------------------------
Richard J. Baker
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John F. O'Brien Director, President and April 26,1996
- -------------------- Chief Executive Officer -------------
John F. O'Brien
/s/ Eric A. Simonsen Vice President and April 26,1996
- -------------------- Chief Financial Officer -------------
Eric A. Simonsen
/s/ Mark R. Colborn Vice President and April 26,1996
- -------------------- Controller -------------
Mark R. Colborn
Michael P. Angelini, Esq.
Mr. David A. Barrett
Ms. Gail L. Harrison
Mr. J. Terrence Murray A majority of the Directors
Mr. Guy W. Nichols
Dr. John L. Sprague
Robert G. Stachler, Esq.
Mr. Herbert M. Varnum
Richard Manning Wall, Esq.
Richard J. Baker, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named Directors of First Allmerica Financial Life
Insurance Company pursuant to the Powers of Attorney duly executed by such
persons and attached hereto as Exhibit 15.
/s/ Richard J. Baker
- ---------------------
Richard J. Baker
Attorney-In-Fact
<PAGE>
REVISED BYLAWS
OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Section 1. ARTICLES OF ORGANIZATION
The name and purposes of the corporation shall be as set forth in the
Articles of Organization. These Bylaws, the powers of the corporation and of
its Directors and stockholders, or of any class of stockholders if there
shall be more than one class of stock, and all matters concerning the conduct
and regulation of the business and affairs of the corporation shall be
subject to such provisions in regard thereto, if any, as are set forth in the
Articles of Organization as from time to time in effect.
Section 2. STOCKHOLDERS
2.1. ANNUAL MEETING. The annual meeting of stockholders shall be held at
10:00 A.M. on the third Tuesday in March, if not a legal holiday, and if a
legal holiday, then on the next business day, at the principal offices of the
corporation in Massachusetts, or at such other time and place as may be
determined from time to time by the Board of Directors. In the event an
Annual Meeting has not been held on the date fixed by these Bylaws or
established by the Board of Directors, a special meeting in lieu of the
Annual Meeting may be held with all the force and effect of an Annual
Meeting. The purposes for which an annual meeting is to be held, in addition
to those prescribed by law or by the Articles of Organization, may be
specified by the President or by the Directors.
2.2. SPECIAL MEETINGS. A special meeting of the stockholders may be called
at any time by the President or by the Directors. Each call of a meeting
shall state the place, date, hour and purposes of the meeting.
2.3. NOTICE OF MEETINGS. A written notice of each meeting of stockholders,
stating the place, date and hour and the purposes of the meeting, shall be
given at least seven days before the meeting to each stockholder entitled to
vote at the meeting and to each stockholder who, by law, by the Articles of
Organization or by these Bylaws, is entitled to notice, by leaving such
notice with him or at his residence or usual place of business, or by mailing
it, postage prepaid, addressed to such stockholder at his address
<PAGE>
as it appears in the records of the corporation. Such notice shall be given
by the Secretary or an Assistant Secretary or by an officer designated by the
Directors. Whenever notice of a meeting is required to be given to a
stockholder under any provision of the Business Corporation or Insurance Law
of the Commonwealth of Massachusetts or of the Articles of Organization or
these Bylaws, a written waiver thereof, executed before or after the meeting
by such stockholder or his attorney thereunto authorized and filed with the
records of the meeting, or the execution by the stockholder of a written
consent, shall be deemed equivalent to such notice. Attendance at any meeting
in person or by proxy without protesting prior thereto or at its commencement
shall constitute waiver of notice, and in such case written waiver of notice
need not be executed.
2.4. QUORUM OF STOCKHOLDERS. At any meeting of the stockholders, a quorum
as to any matter shall consist of a majority of the votes entitled to be cast
on the matter, except when a larger quorum is required by law, by the
Articles of Organization or by these Bylaws. Any meeting may be adjourned
from time to time by a majority of the votes properly cast upon the question,
whether or not a quorum is present, and the meeting may be held as adjourned
without further notice.
2.5. ACTION BY VOTE. When a quorum is present at any meeting, a plurality
of the votes properly cast for election to any office shall elect to such
office, and a majority of the votes properly cast upon any question other
than an election to an office shall decide the question, except when a larger
vote is required by law or by the Articles of Organization. Stockholders
entitled to vote shall have one vote for each share of stock entitled to vote
held by them of record according to the records of the corporation, unless
otherwise provided by Articles of Organization. No ballot shall be required
for any election unless requested by a stockholder present or represented at
the meeting and entitled to vote in the election.
2.6. ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing
and the written consents are filed with the records of the meetings of
stockholders. Such consents shall
2
<PAGE>
be treated for all purposes as a vote at a meeting.
2.7. PROXIES. To the extent permitted by law, stockholders entitled to vote
may vote either in person or by proxy. Except to the extent permitted by
law, no proxy dated more than six months before the meeting named therein
shall be valid. Unless otherwise specifically limited by their terms, such
proxies shall entitle the holders thereof to vote at any adjournment of such
meeting but shall not be valid after the final adjournment of such meeting.
Section 3. BOARD OF DIRECTORS
3.1. NUMBER. The number of Directors shall be not less than seven nor more
than fifteen. Within these limits, the number of Directors shall be
determined from time to time by resolution of the stockholders or the Board
of Directors. The number of Directors may be increased at any time or from
time to time either by the stockholders or by the Directors by vote of
majority of the Directors then in office. The number of Directors may be
decreased to any number permitted by law at any time or from time to time
either by the stockholders or by the Directors by a vote of a majority of
Directors then in office. No Director need be a stockholder.
3.2. TENURE. Except as otherwise provided by law or by the Articles of
Organization, each Director shall hold office until the next annual meeting
of the stockholders and until his successor is duly elected and qualified, or
until he sooner dies, resigns, is removed or becomes disqualified.
Notwithstanding the term of office to which a Director may be elected, such
term shall be subject to reduction by the retirement policy adopted from time
to time by the Board of Directors. Any vacancy in the Board of Directors
between annual meetings of stockholders, including a vacancy resulting from
the enlargement of the Board, may be filled by the Directors by vote of a
majority of the Directors then in office.
3.3. POWERS. Except as reserved to the stockholders by law or by the
Articles of Organization, the business of the corporation shall be managed by
the Directors who shall have and may exercise all the powers of the
corporation. In particular, and without limiting the generality of the
foregoing, the Directors may at any time and from time to time issue all or
any part of the unissued capital stock of
3
<PAGE>
the corporation authorized under the Articles of Organization and may
determine, subject to any requirements of law, the consideration for which
stock is to be issued and the manner of allocating such consideration between
capital and surplus.
3.4. COMMITTEES. The Directors may, by vote of a majority of the Directors
then in office, elect from their number an executive committee and other
committees and delegate to any such committee or committees some or all of
the powers of the Directors except those which by law, by the Articles of
Organization or by these Bylaws they are prohibited from delegating. Except
as the Directors may otherwise determine, any such committee may make rules
for the conduct of its business.
3.5. REGULAR MEETINGS. Regular meetings of the Directors may be held
without call or notice at such places and at such times as the Directors may
from time to time determine, provided that reasonable notice of the first
regular meeting following any such determination shall be given to absent
Directors. A regular meeting of the Directors may be held without call or
notice immediately after and at the same place as the annual meeting of the
stockholders.
3.6. SPECIAL MEETINGS. Special meetings of the Directors may be held at any
time and at any place designated in the call of the meeting. Notice
shall be sent to a Director by mail at least forty-eight hours or by telegram
or other forms of telecommunication at least twenty-four hours before the
meeting, addressed to the Director at the Director's usual or last known
business or residence address, or by person or by telephone at least
twenty-four hours before the meeting. Notice of a meeting need not be given
to any Director if a written waiver of notice, executed by the Director
before or after the meeting, is filed with the records of the meeting, or to
any Director who attends the meeting unless attendance is for the purpose of
objecting to the transaction of business. Neither notice of a meeting nor a
waiver of a notice need specify the purposes of the meeting.
3.7. QUORUM. At any meeting of the Directors a majority of the Directors
then in office shall constitute a quorum; provided, however, that at least
five directors must be present to constitute a quorum. Any meeting may be
adjourned by a majority of the votes cast upon the question, whether or not a
quorum is present, and the
4
<PAGE>
meeting may be held as adjourned without further notice. When a quorum is
present at any meeting, a majority of the Directors present may take any
action, except when a larger vote is required by law or by the Articles of
Organization.
3.8. ACTION BY CONSENT. Unless the Articles of Organization otherwise
provide, any action required or permitted to be taken at any meeting of the
Directors may be taken without a meeting if all the Directors consent to the
action in writing and the written consents are filed with the records of the
meetings of the Directors. Such consents shall be treated for all purposes
as a vote taken at a meeting.
3.9. PRESENCE THROUGH COMMUNICATIONS EQUIPMENT. Unless otherwise provided
by law or the Articles of Organization, members of the Board of Directors may
participate in a meeting of such Board by means of a conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other at the same time and participation by such
means shall constitute presence in person at a meeting.
Section 4. OFFICERS AND AGENTS
4.1. ENUMERATION; QUALIFICATION. The officers of the corporation shall
consist of a Chairman of the Board (if such officer be deemed desirable), a
President, Vice-Presidents (including such Executive Vice Presidents, Senior
Vice-Presidents, Vice Presidents, Second Vice Presidents, and Assistant Vice
Presidents as the Directors may elect), a Treasurer, a Secretary, Assistant
Secretaries and Assistant Treasurers, and such other officers as the
Directors may from time to time in their discretion elect or appoint. The
corporation may also have such agents, if any, as the Directors may from time
to time in their discretion appoint. Any officer may be, but none need be, a
Director or stockholder. Any two or more offices may be held by the same
person; provided, however, that the same person shall not serve as President
and as Secretary of the corporation. Any officer may be required by the
Directors to give bond for the faithful performance of such officer's duties
to the corporation in such amount and with such sureties as the Directors may
determine.
5
<PAGE>
4.2. ELECTION AND TENURE. Officers may be elected by the Board of Directors
at the regular meeting following the annual stockholders meeting, or at any
Directors meeting. All officers shall hold office until the next regular
election of officers following the annual stockholders meeting, and until
their successors are elected and qualified, or in each case until such
officer sooner dies, resigns, is removed or becomes disqualified. The
Directors may in their discretion at any time remove any officer. Vacancies
in any office may be filled by the Directors.
4.3 CHAIRMAN OF THE BOARD. If a Chairman of the Board of Directors is
elected, the Chairman of the Board shall have the duties and powers specified
in these Bylaws and shall have such other duties and powers as may be
determined by the Directors. Unless the Board of Directors otherwise
specifies, the Chairman of the Board shall preside, or designate the person
who shall preside, at all meetings of the stockholders and of the Board of
Directors.
4.4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
corporation shall be the Chairman of the Board, if any, the President, or
such other officer as may be designated by the Directors and shall, subject
to the control of the Directors, have general charge and supervision of the
business of the corporation. If no such designation is made, the President
shall be the Chief Executive Officer. If there is no Chairman of the Board,
the Chief Executive Officer shall preside, or designate the person who shall
preside, at all meetings of the stockholders and of the Board of Directors,
unless the Board of Directors otherwise specifies.
4.5 PRESIDENT AND VICE PRESIDENTS. The President and Vice Presidents
(including Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, Second Vice Presidents, and Assistant Vice-Presidents, if any)
shall have the duties and powers specified in these Bylaws and such
additional duties and powers as shall be designated from time to time by the
Directors.
4.6. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall be in charge
of the funds, securities and valuable papers of the corporation, shall
collect all proceeds from investments which the corporation's records
establish to be due, shall have the duties and powers specified in these
Bylaws, and shall have such additional duties and powers as may be designated
from time to time by the Directors.
6
<PAGE>
The Treasurer or an Assistant Treasurer shall have authority to transfer
securities; to execute releases, extensions, partial releases, and
assignments without recourse of mortgages; to execute deeds and other
instruments or documents on behalf of the Corporation, and whenever necessary
to affix the seal of the Corporation to the same; and shall have power to
vote, on behalf of the Corporation, in any case where the Corporation, as
holder of any security, is entitled to vote.
If the Treasurer is absent or unable to discharge the duties of office, an
Assistant Treasurer may act. Any Assistant Treasurers shall have such
additional duties and powers as shall be designated from time to time by the
Directors.
4.7. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall keep a record
of the meetings of the corporation, the proceedings of the Board of
Directors, and any Committees of the Board. The Secretary shall keep such
other records as may be required by the Board. The Secretary shall have
custody of the seal of the corporation and the Secretary or an Assistant
Secretary may, whenever required, affix the seal of the corporation to legal
documents and when affixed, may attest such documents. The Secretary shall
perform all acts usually incident to the office of secretary, and such other
duties as are assigned by the Chief Executive Officer or the Board of
Directors.
If the Secretary is absent or unable to discharge the duties of office, an
Assistant Secretary may act. Any Assistant Secretaries shall have such
additional duties and powers as shall be designated from time to time by the
Directors.
4.8. OTHER POWERS. The Chief Executive Officer, Chairman of the Board,
President or any Vice Presidents (including any Executive Vice President,
Senior Vice President, Second Vice President or Assistant Vice President),
and such other employees of the Corporation specifically authorized by the
Chief Executive Officer shall have authority to transfer securities, to
execute releases, extensions, partial releases, and assignments without
recourse of mortgages, and to execute deeds and other instruments or
documents on behalf of the Corporation, and whenever necessary to affix the
seal of the Corporation to the same. The Chief Executive Officer, Chairman
of the Board, the President, any Vice President (including any Executive Vice
President, Senior Vice President, Vice
7
<PAGE>
President, Second Vice President, or Assistant Vice President,) or the
Treasurer may, whenever necessary, delegate authority to perform any of the
acts referred to in this paragraph to any person pursuant to a special power
of attorney.
Officers shall have, in addition to the duties and powers herein set forth,
such duties and powers as are commonly incident to their respective offices
and such duties and powers as the Directors may lawfully designate.
Section 5. RESIGNATIONS AND REMOVALS
5.1. RESIGNATIONS. Any Director or officer may resign at any time by
delivering his resignation in writing to the Chairman of the Board, if any,
the President, or the Secretary. In addition, a Director may resign by
delivering his resignation in writing to a meeting of the Directors. Such
resignation shall be effective upon receipt unless specified to be effective
at some other time.
5.2 REMOVALS. A Director may be removed from office (a) with or without
cause by the vote of the holders of a majority of the shares issued and
outstanding and entitled to vote in the election of Directors, provided that
the Directors of a class elected by a particular class of stockholders may be
removed only by the vote of the holders of a majority of the shares of such
class, or (b) with cause by the vote of a majority of the Directors then in
office. A Director may be removed for cause only after reasonable notice and
opportunity to be heard before the body proposing to remove him. The
Directors may remove any officer elected by them with or without cause by the
vote of a majority of the Directors then in office. No Director or officer
removed shall have any right to any compensation as Director or officer for
any period following removal, or any right to damages on account of such
removal, unless the body acting on the removal shall in their or its
discretion provide for compensation.
Section 6. CAPITAL STOCK
6.1. NUMBER AND PAR VALUE. The total number of shares and the par value, if
any, of each class of stock which the corporation is authorized to issue
shall be as stated in the Articles of Organization.
8
<PAGE>
6.2. SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED Shares. The
Board of Directors may provide by resolution that some or all of any or all
classes and series of shares shall be uncertificated shares. Unless such
resolution has been adopted, a stockholder shall be entitled to a certificate
stating the number and the class and the designation of the series, if any,
of the shares held by him, in such form as shall, in conformity to law, be
prescribed from time to time by the Directors. Such certificate shall be
signed by the Chairman of the Board, if any, the President or a Vice
President (including any Executive Vice President, Senior Vice President,
Vice President, Second Vice President, or Assistant Vice President) and by
the Treasurer or an Assistant Treasurer. Such signatures may be facsimiles
if the certificate is signed by a transfer agent, or by a registrar, other
than a Director, officer or employee of the corporation. In case any officer
who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he
were such officer at the time of its issue.
6.3. LOSS OF CERTIFICATES. In the case of the alleged loss or destruction
or the mutilation of a certificate of stock, a duplicate certificate may be
issued in place thereof, provided that such lost , destroyed, or mutilated
certificate is first canceled on the books of the corporation, and upon such
other conditions as the Directors may prescribe.
Section 7. TRANSFER OF SHARES OF STOCK
7.1. TRANSFER ON BOOKS. Subject to the restrictions, if any, stated or
noted on the stock certificates, shares of stock may be transferred on the
books of the corporation by the surrender to the corporation or its transfer
agent of the certificate therefor, properly endorsed or accompanied by a
written assignment and power of attorney properly executed, with necessary
transfer stamps affixed, and with such proof of the authenticity of signature
as the Directors or the transfer agent of the corporation may reasonably
require. Except as may be otherwise required by law, by the Articles or
Organization or by these By-laws, the corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock
for all purposes, including the payment of dividends and the right to receive
notice and to
9
<PAGE>
vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books
of the corporation in accordance with the requirements of these Bylaws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
7.2. RECORD DATE AND CLOSING TRANSFER BOOKS. The Directors may fix in
advance a time, which shall not be more than sixty days before the date of
any meeting of stockholders or the date for the payment of any dividend or
making of any distribution to stockholders, as the record date for
determining the stockholders having the right to notice of and to vote at
such meeting and any adjournment thereof or the right to receive such
dividend, and in such case only stockholders of record on such record date
shall have such right, notwithstanding any transfer of stock on the books of
the corporation after the record date; or without fixing such record date the
Directors may for any of such purposes close the transfer books for all or
any part of such period. If no record date is fixed and the transfer books
are not closed:
(a) The record date for determining stockholders having the right to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the date next preceding the day on which notice is given.
(b) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
acts with respect thereto.
Section 8. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the fullest extent legally permissible, indemnify
and save harmless each present and former Director, officer, and Home Office
employee against all liabilities and reasonable expenses imposed upon or
incurred by any such person as a result of a final judgment in, or as a
result of a judicially approved settlement of, any action, suit or proceeding
brought by reason of being or having been a Director, officer or Home Office
employee of the corporation or a Director, officer, trustee, employee or
fiduciary of any other corporation, trust, partnership, association or other
entity, or by reason of serving or having
10
<PAGE>
served as a fiduciary or in any other capacity with respect to any employee
benefit plan, at the request of the corporation.
To the fullest extent legally permissible, the Directors may authorize the
corporation to indemnify and save harmless any person for which
indemnification is provided in these Bylaws or in their discretion any other
person acting on behalf of the corporation, in connection with the defense or
disposition of any claim, action, suit or other proceeding in which such
person may be involved or may be threatened because of any action or omission
or alleged action or omission (including those antedating the adoption of
these Bylaws), whether or not the actual or threatened claim, action, suit or
proceeding has resulted in a final judgment or in a judicially approved
settlement. The corporation may, in advance of final disposition of any
such claim, action, suit or proceeding, pay incurred expenses upon receipt of
an undertaking by the person indemnified to repay such payment if it is
determined that indemnification is not authorized under this section, which
undertaking may be accepted without reference to the financial ability of
such person to make repayment. The Directors shall have the power to
authorize that insurance be purchased and maintained against any of the
foregoing liabilities and expenses on behalf of any or all of the foregoing
persons, whether or not the corporation would have the power to indemnify
them against such liabilities and expenses.
Notwithstanding the foregoing, no indemnification shall be provided for any
person with respect to:
(a) any matter as to which such person shall have been adjudicated not to
have acted in good faith in the reasonable belief that the action was in
the best interests of the corporation or, to the extent such matter relates
to service with respect to an employee benefit plan, in the best interests
of the participants or beneficiaries of such employee benefit plan;
(b) any matter as to which such person shall agree or be ordered by any
court of competent jurisdiction to make payment to the corporation;
(c) any matter as to which the corporation shall be prohibited by law
or by order of any court of competent jurisdiction from
11
<PAGE>
providing indemnification; or
(d) any matter as to which such person shall have been determined by a
majority of the Board of Directors not to be entitled to indemnification
under this section, provided that there has been obtained an opinion in
writing of legal counsel to the effect that, with respect to the matter in
questions, such person had not acted in good faith in the reasonable belief
that the action was in the best interests of the corporation or, to the
extent such matter relates to service with respect to an employee benefit
plan, in the best interests of the participants or beneficiaries of such
employee benefit plan.
No matter disposed of by settlement, compromise, the entry of a consent
decree or the entry of any plea in a criminal proceeding, shall of itself be
deemed an adjudication of not having acted in the reasonable belief that the
action taken or omitted was in the best interest of the corporation.
As used in this section, the terms "Director," "officer," and "Home Office
employee" includes the person's heirs, executors and administrators. "Home
Office employee" means any employee of the corporation, other than an
employee within the class of employees eligible to participate in a qualified
retirement plan maintained by the corporation for its individual insurance
sales force, including, but not limited, to career agents, field associate
middle managers and general agents. "Expenses" include but are not limited
to amounts paid in satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees.
The rights of indemnification contained in this section shall not be
exclusive of or affect any other rights to which any Director, officer, or
Home Office employee may be entitled by contract or otherwise under law.
12
<PAGE>
Section 9. CORPORATE SEAL
The seal of the corporation shall, subject to alteration by the Directors,
consist of a flat-faced circular die with the word "Massachusetts", together
with the name of the corporation and the year of its organization, cut or
engraved thereon.
Section 10. FISCAL YEAR
The fiscal year of the corporation shall end on December 31.
Section 11. AMENDMENTS
These Bylaws may be altered, amended or repealed at any annual or special
meeting of the stockholders or by vote of a majority of the Directors then in
office, except that the Directors shall not take any action which provides
for indemnification of Directors nor any action to amend this Section 11.
13
<PAGE>
EXHIBIT 8
SERVICE AGREEMENT
This Agreement is entered into and effective as of the 1st day of
November, 1995, by and between FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS
COMPANY ("FIIOC") and ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY ("Company").
WHEREAS, FIIOC provides transfer agency and other services to Fidelity's
Variable Insurance Products Fund and Variable Insurance Products Fund II
(collectively "Funds"); and
WHEREAS, the services provided by FIIOC on behalf of the Funds include
responding to inquiries about the Funds, including the provision of
information about the Funds' investment objectives, investment policies,
portfolio holdings, etc.; and
WHEREAS, Company holds shares of the Funds in order to fund certain
variable annuity contracts, group annuity contracts, and/or variable life
insurance policies, the beneficial interests in which are held by
individuals, plan trustees, or others who look to Company to provide
information about the Funds similar to the information provided by FIIOC; and
WHEREAS, the Company and one or both of the Funds have entered into one
or more Participation Agreements, under which the Company agrees not to
provide information about the Funds except for information provided by the
Funds or their designees; and
WHEREAS, FIIOC and Company desire that Company be able to respond to
inquiries about the Funds from individual variable annuity owners,
participants in group annuity contracts issued by the Company, and owners and
participants under variable life insurance policies issued by the Company,
and prospective customers for any of the above; and
WHEREAS, FIIOC and Company recognize that Company's efforts in responding
to customer inquiries will reduce the burden that such inquiries would place
on FIIOC should such inquiries be directed to FIIOC.
NOW THEREFORE, the parties do agree as follows:
1. INFORMATION TO BE PROVIDED TO COMPANY. FIIOC agrees to provide to
Company, on a periodic basis, directly or through a designee, information
about the Funds' investment objectives, investment policies, portfolio
holdings, performance, etc. The content and format of such information shall
be as FIIOC, in its sole discretion, shall choose. FIIOC may change the
format and/or content of such informational reports, and the frequency with
which such information is provided. For purposes of Section 4.2 of each of
the Company's Participation Agreement(s) with the Funds, FIIOC represents
that it is the designee of the Funds, and Company may therefore use the
information provided by FIIOC without seeking additional permission from the
Funds.
2. USE OF INFORMATION BY COMPANY. Company may use the information
provided by FIIOC in communications to individuals, plan trustees, or others
who have legal title or beneficial interest in the annuity or life insurance
products issued by Company, and to prospective purchasers of such products or
beneficial interests thereunder. If such information is contained as part of
larger pieces of sales literature, advertising, etc., such pieces shall be
furnished for review to the Funds in accordance with the terms of the
Company's Participation Agreements with the Funds. Nothing herein shall give
the Company the right to expand upon, reformat or otherwise alter the
information provided by FIIOC. Company acknowledges that the information
provided it by FIIOC may need to be supplemented with additional qualifying
information, regulatory disclaimers, or other information before it may be
conveyed to persons outside the Company.
1
<PAGE>
3. COMPENSATION TO COMPANY. In recognition of the fact that Company will
respond to inquiries that otherwise would be handled by FIIOC, FIIOC agrees
to pay Company a quarterly fee computed as follows:
At the close of each calendar quarter, FIIOC will determine the Average
Daily Assets held in the Funds by the Company. Average Daily Assets shall be
the sum of the daily assets for each calendar day in the quarter divided by
the number of calendar days in the quarter. The Average Daily Assets shall be
multiplied by 0.0002 (2 basis points) and that sum shall be divided by four.
The resulting number shall be the quarterly fee for that quarter, which shall
be paid to Company during the following month.
Should the Participation Agreement(s) between Company and the Fund(s) be
terminated effective before the last day of a quarter, Company shall be
entitled to a fee for that portion of the quarter during which the
Participation Agreement was still in effect, unless such termination is due
to misconduct on the part of the Company. For such a stub quarter, Average
Daily Assets shall be the sum of the daily assets for each calendar day in the
quarter through and including the date of termination of the Participation
Agreement(s), divided by the number of calendar days in that quarter for
which the Participation Agreement was in effect. Such Average Daily Assets
shall be multiplied by 0.0002 (2 basis points) and that number shall be
multiplied by the number of days in such quarter that the Participation
Agreement was in effect, then divided by three hundred sixty-five. The
resulting number shall be the quarterly fee for the stub quarter, which shall
be paid to Company during the following month.
4. TERMINATION. This Agreement may be terminated by Company at any time
upon written notice to FIIOC. FIIOC may terminate this Agreement at any time
upon ninety (90) days' written notice to Company. FIIOC may terminate this
Agreement immediately upon written notice to Company (1) is required by any
applicable law or regulation, (2) if so required by action of the Fund(s)
Board of Trustees, or (3) if Company engages in any material breach of this
Agreement. This Agreement shall terminate immediately and automatically upon
the termination of Company's Participation Agreement(s) with the Funds, and
in such event no notice need be given hereunder.
5. INDEMNIFICATION. Company agrees to indemnify and hold harmless FIIOC
for any misuse by Company, its affiliates, its agents, its brokers, and any
persons controlling Company, under common control with Company, or controlled
by Company, of the information provided by FIIOC under this Agreement.
6. APPLICABLE LAW. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts.
7. ASSIGNMENT. This Agreement may not be assigned, except that it shall
be assigned automatically to any successor to FIIOC as the Funds' transfer
agent, and any such successor shall be bound by the terms of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands as of the date first
written above.
FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY
By: /s/ Virginia Meany
-------------------------------
Virginia Meany
Senior Vice President
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
--------------------------------
Name: Richard M. Reilly
--------------------------------
Title: President
--------------------------------
2
<PAGE>
April 21, 1996
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of First Allmerica Financial Life Insurance Company
(the "Company"), I have participated in the preparation of the Post-Effective
Amendment to the Registration Statement for Separate Account I on Form N-4
under the Securities Act of 1933 and the Investment Company Act of 1940, with
respect to the Company's group variable annuity contracts.
I am of the following opinion:
1. Separate Account I is a separate account of the Company validly existing
pursuant to the Massachusetts Insurance Code and the regulations issued
thereunder.
2. The assets held in Separate Account I are not chargeable with liabilities
arising out of any other business the Company may conduct.
3. The group variable annuity contracts, when issued in accordance with the
Prospectus contained in the Registration Statement and upon compliance with
applicable local law, will be legal and binding obligations of the Company
in accordance with their terms and when sold will be legally issued, fully
paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the
Post-Effective Amendment to the Registration Statement filed under the
Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 8 to the Registration
Statement on Form N-4 of our report dated February 5, 1996, relating to the
consolidated financial statements of First Allmerica Financial Life Insurance
Company and our report dated February 23, 1996, relating to the financial
statements of Separate Account I of First Allmerica Financial Life Insurance
Company, both of which appear in such Statement of Additional Information. We
also consent to the reference to us under the heading "Experts" in such
Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 25, 1996
<PAGE>
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint John F.
O'Brien, Richard J. Baker and Joseph W. MacDougall, Jr., 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 (including post-effective amendments) to be
filed, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys and
each of them, acting alone, full power and authority to do and perform each
and every act and thing requisite or necessary or to be done in 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 and common seal on the date set
forth below, which signatures may be signed in counterpart.
Signature Title Date
--------- ----- ----
/s/ John F. O'Brien President, Chief Executive February 27, 1996
- ------------------------- Officer, and Director -----------------
John F. O'Brien
/s/ Michael P. Angelini Director February 27, 1996
- ------------------------- -----------------
Michael P. Angelini
/s/ David A. Barrett Director February 27, 1996
- ------------------------- -----------------
David A. Barrett
/s/ Gail L. Harrison Director February 27, 1996
- ------------------------- -----------------
Gail L. Harrison
/s/ J.Terrence Murray Director February 27, 1996
- ------------------------- -----------------
J.Terrence Murray
/s/ Guy W. Nichols Director February 27, 1996
- ------------------------- -----------------
Guy W. Nichols
/s/ John L. Sprague Director February 27, 1996
- ------------------------- -----------------
John L. Sprague
/s/ Robert G. Stachler Director February 27, 1996
- ------------------------- -----------------
Robert G. Stachler
/s/ Herbert M. Varnum Director February 27, 1996
- ------------------------- -----------------
Herbert M. Varnum
/s/ Richard M. Wall Director February 27, 1996
- ------------------------- -----------------
Richard M. Wall
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Consent of Newly Elected Director
Having been duly elected as a Director of First Allmerica Financial Life
Insurance Company ("Company"), effective April 30, 1996, each of the
undersigned hereby consents to being named as a Director of the Company in
such post-effective amendments to Registration Statements for the Company's
variable annuity and variable life contracts as will be filed with the
Securities and Exchange Commission on or before April 30, 1996, with an
effective date on or after April 30, 1996, pursuant to the requirements of
the Securities Act of 1933 and the Investment Company Act of 1940.
Signed this 25th day of April, 1996
/s/ Bruce C. Anderson /s/ Theodore J. Rupley
- ----------------------------- ------------------------------
Bruce C. Anderson Theodore J. Rupley
/s/ Kruno Huitzingh /s/ Phillip E. Soule
- ----------------------------- -----------------------------
Kruno Huitzingh Phillip E. Soule
/s/ John F. Kelly /s/ Eric A. Simonsen
- ----------------------------- ------------------------------
John F. Kelly Eric Simonsen
/s/ Richard M. Reilly /s/ Diane E. Wood
- ----------------------------- -----------------------------
Richard M. Reilly Diane E. Wood
/s/ Larry C. Renfro
- -----------------------------
Larry C. Renfro
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 164
<NAME> SIAI-001
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 665980
<INVESTMENTS-AT-VALUE> 716766
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 716766
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 706
<TOTAL-LIABILITIES> 706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 5127
<SHARES-COMMON-PRIOR> 4174
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 50786
<NET-ASSETS> 716060
<DIVIDEND-INCOME> 67610
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 6538
<NET-INVESTMENT-INCOME> 61072
<REALIZED-GAINS-CURRENT> (464)
<APPREC-INCREASE-CURRENT> 92586
<NET-CHANGE-FROM-OPS> 153194
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 271998
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 568522
<PER-SHARE-NAV-BEGIN> 106.389
<PER-SHARE-NII> 13.269
<PER-SHARE-GAIN-APPREC> 20.016
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 139.674
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 165
<NAME> SIAI-002
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 158452
<INVESTMENTS-AT-VALUE> 159683
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 159683
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 157
<TOTAL-LIABILITIES> 157
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1368
<SHARES-COMMON-PRIOR> 1110
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1231
<NET-ASSETS> 159526
<DIVIDEND-INCOME> 9156
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1536
<NET-INVESTMENT-INCOME> 7620
<REALIZED-GAINS-CURRENT> (149)
<APPREC-INCREASE-CURRENT> 13040
<NET-CHANGE-FROM-OPS> 20511
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 48388
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 133565
<PER-SHARE-NAV-BEGIN> 100.109
<PER-SHARE-NII> 6.139
<PER-SHARE-GAIN-APPREC> 10.385
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 116.633
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 166
<NAME> SIAI-003
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 304465
<INVESTMENTS-AT-VALUE> 304465
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 304465
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 299
<TOTAL-LIABILITIES> 299
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 2793
<SHARES-COMMON-PRIOR> 3615
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 304166
<DIVIDEND-INCOME> 17969
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3589
<NET-INVESTMENT-INCOME> 14380
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 14380
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (72074)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 312087
<PER-SHARE-NAV-BEGIN> 104.089
<PER-SHARE-NII> 4.809
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 108.898
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 167
<NAME> SIAI-004
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 110018
<INVESTMENTS-AT-VALUE> 127852
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127852
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 127
<TOTAL-LIABILITIES> 127
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 891
<SHARES-COMMON-PRIOR> 987
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17834
<NET-ASSETS> 127725
<DIVIDEND-INCOME> 8309
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1164
<NET-INVESTMENT-INCOME> 7145
<REALIZED-GAINS-CURRENT> 3196
<APPREC-INCREASE-CURRENT> 18996
<NET-CHANGE-FROM-OPS> 29337
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 22702
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 101217
<PER-SHARE-NAV-BEGIN> 106.437
<PER-SHARE-NII> 8.978
<PER-SHARE-GAIN-APPREC> 27.887
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 143.302
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 168
<NAME> SIAI-005
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 173433
<INVESTMENTS-AT-VALUE> 173087
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 173087
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 169
<TOTAL-LIABILITIES> 169
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1551
<SHARES-COMMON-PRIOR> 1234
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (346)
<NET-ASSETS> 172918
<DIVIDEND-INCOME> 8571
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1590
<NET-INVESTMENT-INCOME> 6981
<REALIZED-GAINS-CURRENT> (1013)
<APPREC-INCREASE-CURRENT> 8986
<NET-CHANGE-FROM-OPS> 14954
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49858
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 138261
<PER-SHARE-NAV-BEGIN> 99.754
<PER-SHARE-NII> 5.480
<PER-SHARE-GAIN-APPREC> 6.259
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 111.493
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
