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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 individual retirement annuities ("IRA Accounts") qualified under
Section 408(b) of the Internal Revenue Code ("Code") for the benefit of
Participant-Owners. For information about the tax status of IRA Accounts, see
"FEDERAL TAX CONSIDERATIONS." The Participant-Owners are employees or former
employees (or their spouses, for spousal IRAs) of the Policyholder. An
individual certificate of coverage ("Certificate") will be issued to each
Participant-Owner (hereinafter, referred to as "You") as evidence of your rights
and benefits under the Contract.
The Contracts permit You to make net contributions to each IRA Account to be
allocated among Sub-Accounts of Separate Account I. The Sub-Accounts invest in
the following funds ("Funds") of Allmerica Investment Trust ("Trust"):
ALLMERICA INVESTMENT TRUST
Select International Equity Fund
Select Aggressive Growth Fund
Growth Fund
Equity Index Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
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 May 1, 1998, as 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 ("SAI") is listed on page 2 of this Prospectus. The SAI is available
upon request and without charge. To obtain the SAI, 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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 MAY 1, 1998
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TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................ 2
SUMMARY................................................................................. 3
SPECIAL TERMS........................................................................... 6
ANNUAL AND TRANSACTION EXPENSES......................................................... 7
CONDENSED FINANCIAL INFORMATION......................................................... 9
PERFORMANCE INFORMATION................................................................. 10
WHAT IS AN INDIVIDUAL RETIREMENT ANNUITY?............................................... 12
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY........................................... 12
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE TRUST......................... 12
INVESTMENT OBJECTIVES AND POLICIES...................................................... 14
INVESTMENT ADVISORY SERVICES............................................................ 15
Investment Advisory Services to the Trust............................................. 15
Addition, Deletion or Substitution of Investments..................................... 16
VOTING RIGHTS........................................................................... 16
CHARGES AND DEDUCTIONS.................................................................. 17
Surrender and Redemption Charge....................................................... 17
Premium Taxes......................................................................... 18
IRA Account Fee....................................................................... 18
Annual Charges Against Separate Account Assets........................................ 19
Other Charges......................................................................... 19
DESCRIPTION OF THE CONTRACT............................................................. 19
Contributions......................................................................... 20
Transfer Privilege.................................................................... 21
Surrender Privilege................................................................... 21
Redemption Privilege.................................................................. 22
Death Benefit......................................................................... 22
The Spouse of the Participant-Owner as Beneficiary.................................... 23
Ownership and Non-Alienation of IRA Accounts.......................................... 23
Electing the Form of Annuity and the Annuity Date..................................... 23
Description of Annuity Options........................................................ 23
IRA Account Values and Annuity Payments............................................... 24
FEDERAL TAX CONSIDERATIONS.............................................................. 26
Taxation of the Contracts in General.................................................. 26
Tax Withholding and Penalties......................................................... 27
Individual Retirement Accounts in General............................................. 27
REPORTS................................................................................. 27
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT............................................ 27
LEGAL MATTERS........................................................................... 28
FURTHER INFORMATION..................................................................... 28
APPENDIX A -- MORE INFORMATION ABOUT THE GENERAL ACCOUNT................................ A-1
</TABLE>
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY......................................................... 2
TAXATION OF THE CONTRACTS, THE SEPARATE ACCOUNT AND THE COMPANY......................... 3
SERVICES................................................................................ 3
UNDERWRITERS............................................................................ 3
ANNUITY PAYMENTS........................................................................ 4
PERFORMANCE INFORMATION................................................................. 5
FINANCIAL STATEMENTS.................................................................... F-1
</TABLE>
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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." You may establish an IRA
Account with a rollover distribution from a qualified retirement plan maintained
by the Policyholder. You may also establish an additional IRA Account for your
spouse. Separate IRA Accounts will be maintained under the Contract for rollover
contributions and annual deductible and non-deductible contributions, unless You
request otherwise in writing. A separate Certificate will be issued for each IRA
Account maintained for You.
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, ("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 ("Trust").
The following seven underlying funds ("Funds") are offered under this
Prospectus:
ALLMERICA INVESTMENT TRUST
Select International Equity Fund
Select Aggressive Growth Fund
Growth Fund
Equity Index Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
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 your
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
Funds. Dividends or capital gains distributions received from a Fund are
reinvested in additional shares of that Fund, which are retained as assets of
the Sub-Account.
There can be no assurance that the investment objectives of the 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 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 Funds.
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."
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ANNUITY PAYMENTS
You may choose the form of annuity benefit to commence on the 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
You may revoke your IRA Account at any time between the date of the application
for the IRA Account and the date 10 days after receipt of your 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."
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 your rollover distribution. You 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 (both deductible and
nondeductible) for any taxable year to an IRA Account You establish with a
rollover distribution is the lesser of (1) $2,000, or (2) 100% of your
compensation for that taxable year. You may make an additional rollover
contribution. Additional rollover contributions are not subject to maximum
contribution limits.
If You have established an IRA Account, You 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 Sub-Account of the General Account on any
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 Sub-Account of the Separate 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
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Company deducts a daily charge of 0.25% per annum of the value of the average
net assets in the Sub-Accounts of the Separate Account.
CHARGES OF THE FUNDS. In addition to the charges described above, certain fees
and expenses are deducted from the assets of the Funds. These charges vary among
the Funds; see "Annual and Transaction Expenses" and the prospectus of the Funds
for more information.
SURRENDER AND REDEMPTION PRIVILEGE
At any time before the Annuity Date, You have 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 You die 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.
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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 begin.
FUNDS: the following investment portfolios of Allmerica Investment Trust: Select
International Equity Fund, Select Aggressive Growth Fund, Growth Fund, Equity
Index Fund, Investment Grade Income Fund, Government Bond Fund and Money Market
Fund.
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 a 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.
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 a
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.
YOU OR YOUR: refers to the Participant-Owner under the Contract.
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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 Sub-Accounts of the Separate Account, and expenses of
the Funds. In addition to the charges and expenses described below, in some
states premium taxes may be applicable.
SURRENDER AND REDEMPTION CHARGE: None on value in Sub-Accounts of the Separate
Account. (A charge may be made on surrender or partial redemption of the IRA
Account, equal to 4% of the amount withdrawn from a Sub-Account of the General
Account on other than its maturity date.)
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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>
In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Funds. For more information concerning fees and
expenses, see the prospectus of the Funds.
1997 ANNUAL FUND EXPENSES
<TABLE>
<CAPTION>
OTHER FUND TOTAL FUND
MANAGEMENT EXPENSES (AFTER ANY EXPENSES (AFTER ANY
FEE (AFTER ANY APPLICABLE WAIVERS/
FUND WAIVERS REIMBURSEMENTS) REIMBURSEMENTS)
- -------------------------------------------------------------- ----------------- ------------------- -------------------
<S> <C> <C> <C>
Select International Equity Fund.............................. 0.92%# 0.20% 1.12%(1)(2)
Select Aggressive Growth Fund................................. 0.89%# 0.09% 0.98%(1)(2)
Growth Fund................................................... 0.46%# 0.06% 0.52%(1)(2)
Equity Index Fund............................................. 0.31% 0.13% 0.44%(1)
Investment Grade Income Fund.................................. 0.44%# 0.10% 0.54%(1)
Government Bond Fund.......................................... 0.50% 0.17% 0.67%(1)
Money Market Fund............................................. 0.27% 0.08% 0.35%(1)
</TABLE>
# Effective September 1, 1997, the management fee rates for these funds were
revised. The management fee ratios shown in the table above have been adjusted
to assume that the revised rates took effect on January 1, 1997.
(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. ("Manager") has declared a voluntary expense limitation of 1.50% of average
net assets for the Select International Equity Fund, 1.35% for the Select
Aggressive Growth Fund, 1.20% for the Growth Fund, 1.00% for the Investment
Grade Income Fund and Government Bond Fund, and 0.60% for the Money Market Fund
and Equity Index Fund. The total operating expenses of the Funds of the Trust
were less than their respective expense limitations throughout 1997. The
declaration of a voluntary expense limitation in any year does not bind the
Manager to declare future expense limitations with respect to these funds.
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(2) These funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. Had these amounts been treated as reductions of
expenses, the total operating expenses would have been 1.10% for Select
International Equity Fund; 0.93% for Select Aggressive Growth Fund and 0.50% for
Growth Fund.
The following Examples demonstrate the cumulative expenses which would be paid
by You at 1-year, 3-year, 5-year and 10-year intervals, assuming a $1,000
investment in a Sub-Account of the Separate Account and a 5% annual return on
assets. Because the expenses of the Funds differ, separate Examples are used to
illustrate the expenses incurred by You 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
Sub-Account of the Separate Account. Whether or not You surrender or annuitize
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.
<TABLE>
<CAPTION>
UNDERLYING FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select International Equity Fund............... $ 26 $ 79 $ 135 $ 287
Select Aggressive Growth Fund.................. $ 24 $ 75 $ 128 $ 273
Growth Fund.................................... $ 20 $ 61 $ 105 $ 226
Equity Index Fund.............................. $ 19 $ 58 $ 101 $ 218
Investment Grade Income Fund................... $ 20 $ 62 $ 106 $ 228
Government Bond Fund........................... $ 21 $ 65 $ 112 $ 242
Money Market Fund.............................. $ 18 $ 56 $ 96 $ 208
</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 0.30%, 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.
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CONDENSED FINANCIAL INFORMATION
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
SUB-ACCOUNT 1997 1996 1995 1994 1993
- --------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
GROWTH
Unit Value:
Beginning of Period.................................... 165.955 139.674 106.389 107.455 100.000
End of Period.......................................... 20.530 165.955 139.674 106.389 107.455
Number of Units Outstanding at End of Period
(in thousands)......................................... 100 7 5 4 3
INVESTMENT GRADE INCOME
Unit Value:
Beginning of Period.................................... 119.395 116.633 100.109 104.357 100.00
End of Period.......................................... 12.917 119.395 116.633 100.109 104.357
Number of Units Outstanding at End of Period
(in thousands)......................................... 36 2 1 1 1
MONEY MARKET
Unit Value:
Beginning of Period.................................... 113.415 108.898 104.088 101.316 100.000
End of Period.......................................... 11.823 113.415 108.898 104.088 101.316
Number of Units Outstanding at End of Period
(in thousands)......................................... 74 6 3 4 1
EQUITY INDEX
Unit Value:
Beginning of Period.................................... 173.261 143.302 106.437 106.555 100.000
End of Period.......................................... 22.678 173.261 143.302 106.437 106.555
Number of Units Outstanding at End of Period
(in thousands)......................................... 50 2 1 1 1
GOVERNMENT BOND
Unit Value:
Beginning of Period.................................... 114.085 111.493 99.753 101.808 100.000
End of Period.......................................... 12.078 114.085 111.493 99.753 101.808
Number of Units Outstanding at End of Period
(in thousands)......................................... 27 2 2 1 3
SELECT AGGRESSIVE GROWTH
Unit Value:
Beginning of Period.................................... 0 N/A N/A N/A N/A
End of Period.......................................... 10.078 N/A N/A N/A N/A
Number of Units Outstanding at End of Period
(in thousands)......................................... 1 0 0 0 0
SELECT INTERNATIONAL EQUITY
Unit Value:
Beginning of Period.................................... 0 N/A N/A N/A N/A
End of Period.......................................... 9.340 N/A N/A N/A N/A
Number of Units Outstanding at End of Period
(in thousands)......................................... - 0 0 0 0
</TABLE>
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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 based on the periods that the Sub-Accounts have been in existence
(Table 1) and the period that the Funds have been in existence (Table 2). 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 and the Funds. Both
the total return and yield figures are based on historical earnings and are not
intended to indicate future performance.
The total return of a Sub-Account refers to the total of the income generated by
an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by certain charges, and expressed as a percentage of
the investment.
The average annual total return represents the average annual percentage change
in the value of an investment in the Sub-Account over a given period of time. It
represents averaged figures as opposed to the actual performance of a
Sub-Account, which will vary from year to year.
The yield of the Money Market Fund refers to the income generated by an
investment in the Sub-Account over a seven-day period (which period will be
specified in the advertisement). This income is then "annualized" by assuming
that the income generated in the specific week is generated over a 52-week
period. This annualized yield is shown as a percentage of the investment. The
"effective yield" calculation is similar, but when annualized, the income earned
by an investment in the Sub-Account is assumed to be reinvested. Thus the
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
The yield of a Sub-Account investing in a portfolio other than the Money Market
Fund refers to the annualized income generated by an investment in the
Sub-Account over a specified 30-day or one-month period. The yield is calculated
by assuming that the income generated by the investment during that 30-day or
one-month period is generated each period over a 12-month period and is shown as
a percentage of the investment.
Quotations of average annual total return as shown in Table 1 are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect the deduction of the annual Sub-Account asset charge of 1.15%, the $25
annual IRA Account fee. The performance shown in Table 2 is calculated in
exactly the same manner as in Table 1; however, the period of time is based on
the Underlying Fund's lifetime, which may predate the Sub-Account's inception
date. These performance calculations are based on the assumption that the
Sub-Account corresponding to the applicable Underlying Fund was actually in
existence throughout the stated period and that the contractual charges and
expenses during that period were equal to those currently assessed under the
Contract.
For more detailed information about these performance calculations, including
actual formulas, see the SAI.
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.
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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, RISK CHARACTERISTICS AND
QUALITY OF THE PORTFOLIO OF THE 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.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Funds.
TABLE 1
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1977
SINCE INCEPTION OF SUB-ACCOUNT
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
UNDERLYING FUND 12/31/97 SUB-ACCOUNT*
- --------------------------------------------------------- ------------ ---------------
<S> <C> <C>
Select International Equity Fund......................... N/A -6.90%
Select Aggressive Growth Fund............................ N/A 0.48 %
Growth Fund.............................................. 23.41 % 16.50 %
Equity Index Fund........................................ 30.59 % 19.03 %
Investment Grade Income Fund............................. 7.88 % 5.27 %
Government Bond Fund..................................... 5.57 % 3.87 %
Money Market Fund........................................ 3.94 % 3.30 %
</TABLE>
* The inception dates for the Sub-Accounts are: 7/1/97 for Select International
Equity Fund and Select Aggressive Growth Fund, 5/17/93 for the Government Bond
Fund, 5/14/93 for the Growth Fund and Equity Index Fund, 4/12/93 for the
Investment Grade Income Fund and 4/7/93 for the Money Market Fund.
TABLE 2
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS
ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR
ENDED 5 SINCE INCEPTION OF
UNDERLYING FUND 12/31/97 YEARS UNDERLYING FUND IF LESS*
- ----------------------------------------------- ------------ ---------- --------------------------
<S> <C> <C> <C>
Select International Equity Fund............... 3.14% N/A 9.56%
Select Aggressive Growth Fund.................. 17.04% 15.15% 17.89%
Growth Fund.................................... 23.41% 14.73% 15.47%
Equity Index Fund.............................. 30.59% 17.86% 18.00%
Investment Grade Income Fund................... 7.88% 5.97% 7.63%
Government Bond Fund........................... 5.57% 4.44% 5.36%
Money Market Fund.............................. 3.94% 3.20% 4.28%
</TABLE>
* The inception dates for the Underlying Funds are: 4/29/85 for Growth,
Investment Grade Income and Money Market; 9/28/90 for Equity Index; 8/26/91 for
Government Bond; 8/21/92 for Select Aggressive Growth; 5/2/94 for Select
International Equity.
11
<PAGE>
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."
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.
Your 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 You. 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
You may revoke your 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, You 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 your
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. 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"). As of December 31, 1997, the Company and its
subsidiaries had over $16.3 billion in combined assets and over
12
<PAGE>
$43.8 billion in life insurance in force. 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 Company is a charter member of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE SEPARATE ACCOUNT
Separate Account I ("Separate Account") is a separate investment account of the
Company. The Separate Account currently consists of seven 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 ("SEC") as a unit investment trust under the
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
SEC. The Company reserves the right, subject to compliance with applicable law,
to change the names of the Separate Account and the Sub-Accounts.
ALLMERICA INVESTMENT TRUST
Allmerica Investment Trust ("Trust") is an open-end, diversified, management
investment company registered with the SEC under the 1940 Act. Such registration
does not involve supervision by the SEC 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 fourteen investment portfolios, each issuing
a series of shares. Seven investment portfolios of the Trust are offered under
this Prospectus.
Allmerica Financial Investment Management Services, Inc. ("Manager") serves as
investment adviser of the Trust. The Manager has entered into sub-adviser
agreements with other investment managers ("Sub-Advisers"), who manage the
investments of the Funds. See "INVESTMENT ADVISORY SERVICES TO THE TRUST."
The assets of each Fund are held separate from the assets of the other Funds.
Each Fund operates as a separate investment vehicle and the income or losses of
one Fund have no effect on the investment performance of another Fund. Shares of
the Trust are not offered to the general public but solely to such separate
accounts.
13
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Funds is set forth below. The
Funds are listed by general investment risk characteristics. MORE DETAILED
INFORMATION REGARDING THE INVESTMENT OBJECTIVES, RESTRICTIONS AND RISKS,
EXPENSES PAID BY THE 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. The Statement of
Additional Information of the Trust is available upon request. There can be no
assurance that the investment objectives of the Funds can be achieved.
SELECT INTERNATIONAL EQUITY FUND -- The Select International Equity Fund of the
Trust seeks maximum long-term total return (capital appreciation and income)
primarily by investing in common stocks of established non-U.S. companies.
SELECT AGGRESSIVE GROWTH FUND -- The Select Aggressive Growth Fund of the Trust
seeks above-average capital appreciation by investing primarily in common stocks
of companies which are believed to have significant potential for capital
appreciation.
GROWTH FUND -- The Growth Fund of the Trust is invested in common stocks and
securities convertible into common stocks that are believed to represent
significant underlying value in relation to current market prices. The objective
of the Growth Fund is to achieve long-term growth of capital. Realization of
current investment income, if any, is incidental to this objective.
EQUITY INDEX FUND -- The Equity Index Fund of the Trust seeks to provide
investment results that correspond to the aggregate price and yield performance
of a representative selection of United States publicly traded common stocks.
The Equity Index Fund seeks to achieve its objective by attempting to replicate
the aggregate price and yield performance of the Standard & Poor's Composite
Index of 500 Stocks.
INVESTMENT GRADE INCOME FUND -- The Investment Grade Income Fund of the Trust 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
capital appreciation) as is consistent with prudent investment management.
GOVERNMENT BOND FUND -- The Government Bond Fund of the Trust has the investment
objectives 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.
MONEY MARKET FUND -- The Money Market Fund of the Trust is invested in a
diversified portfolio of high-quality, short-term money market instruments with
the objective of obtaining maximum current income consistent with the
preservation of capital and liquidity.
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 Fund in which it invests, the 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
Sub-Account of the General 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.
14
<PAGE>
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY SERVICES TO THE TRUST
The overall responsibility for the supervision of the affairs of the Trust vests
in the Trustees. The Trustees have entered into a Management Agreement with
Allmerica Financial Investment Management Services, 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 (the "1933 Act"), other
fees payable to the SEC, independent public accountant, legal and custodian
fees, association membership dues, taxes, interest, insurance premiums,
brokerage commission, fees and expenses of the Trustees who are not affiliated
with the Manager, expenses for proxies, prospectuses, and reports to
shareholders, and other expenses.
For providing its services under the Management Agreement, the Manager receives
a fee, computed daily at an annual rate based on the average daily net asset
value of each Underlying Fund as follows:
<TABLE>
<S> <C> <C>
Select International Equity Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Aggressive Growth Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Growth Fund First $250 million 0.60%
Next $250 million 0.40%
Over $500 million 0.35%
Equity Index Fund First $50 million 0.35%
Next $200 million 0.30%
Over $250 million 0.25%
Investment Grade Income Fund First $50 million 0.50%
Next $50 million 0.45%
Over $100 million 0.40%
Government Bond Fund * 0.50%
Money Market Fund First $50 million 0.35%
Next $200 million 0.25%
Over $250 million 0.20%
</TABLE>
* For the Government Bond Fund, the investment management fee does not vary
according to the level of assets in the Fund. The Manager's fee computed for
each Fund will be paid from the assets of such Fund.
The Manager's fee will be paid from the assets of each Fund. Pursuant to the
Management Agreement with the Trust, the Manager has entered into agreements
("Sub-Adviser Agreements") with other investment advisers ("Sub-Advisers") under
which each Sub-Adviser manages the investments of one or more of the Funds.
Under the Sub-Adviser Agreement, the Sub-Adviser is authorized to engage in
portfolio transactions on behalf of the applicable Fund, subject to such general
or specific instructions as may be given by the Trustees.
15
<PAGE>
The terms of a Sub-Adviser Agreement cannot be materially changed without the
approval of a majority in interest of the shareholders of the affected Fund. The
Manager is solely responsible for the payment of all fees for investment
management services to the Sub-Advisers.
The prospectus of the Trust contains additional information concerning the
Funds, including information about additional expenses paid by the Funds, and
should be read in conjunction with this Prospectus.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts of the Separate Account or that the Sub-Accounts may purchase. If
the shares of any Fund are no longer available for investment or if in the
Company's judgment further investment in any 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 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 You and prior approval of the SEC 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 Sub-Accounts of the
Separate Account, each of which would invest in shares corresponding to a new
Fund or in shares of another investment company having a specified investment
objective. Subject to applicable law and any required SEC approval, the Company
may, in its sole discretion, establish new Sub-Accounts or eliminate one or more
Sub-Accounts if marketing needs, tax considerations or investment conditions
warrant. Any new Sub-Accounts may be made available to existing
Participant-Owners on a basis to be determined by the Company.
Shares of the 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 Policy-Owners or variable annuity contract
owners. Although we do not currently foresee any such disadvantage to either
variable life insurance or variable annuity policy owners/participant-owners,
the Company and the Boards of the funds 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 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 You 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.
VOTING RIGHTS
The Company will vote Fund shares held by each Sub-Account in accordance with
instructions received from Participant-Owners, who will be provided with proxy
materials of the 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.
16
<PAGE>
The number of votes which You may cast will be determined by the Company as of
the record date established by the Fund. The number of Fund shares attributable
to You 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
Fund share.
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the
Sub-Accounts of the Separate Account are described below. Other deductions and
expenses paid out of the assets of the 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 Sub-Account of the General 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.
LIFE EXPECTANCY DISTRIBUTIONS. You may elect to make a series of systematic
withdrawals from your 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 You to make systematic withdrawals from the IRA Account
over your 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 You elect the LED, in each calendar year a fraction of the Accumulated Value
is withdrawn from the IRA Account based on your then life expectancy. The
numerator of the fraction is 1 (one) and the denominator of the fraction is your
remaining life expectancy, 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. You may elect monthly, bimonthly, quarterly,
semiannual or annual distributions and may terminate the LED at any time. You
may also elect to receive distributions under a LED which is determined on the
joint life expectancy of You 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:
- - does not exceed the minimum amount required to be distributed to satisfy the
requirements of Section 401(a)(9) of the Code;
- - is withdrawn from a Sub-Account of the Separate Account;
- - is withdrawn from a Sub-Account of the General Account on its maturity date;
or
- - is withdrawn from one or more Sub-Accounts of the General Account, but does
not exceed 20% of the portion of the Accumulated Value allocated to the
General Account on the preceding December 31.
If You make withdrawals under the LED distribution prior to age 59 1/2, the
withdrawals may be treated by the Internal Revenue Service ("IRS") 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 You receive is equal to the
entire Accumulated Value of Your 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."
17
<PAGE>
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 You 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 Sub-Accounts of
the Separate Account 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.
Where Accumulation Value has been allocated to more than one Sub-Account of the
General Account and/or Sub-Account of the Separate 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
Sub-Account of the Separate Account. No deduction from a Sub-Account of the
General 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."
18
<PAGE>
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 daily charge equal to an
annual rate of 0.90% of the daily value of each Sub-Account's assets to cover
the mortality and expense risk which the Company assumes in relation to the
variable portion of the 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 Sub-Account of the
Separate Account with a daily charge equal to 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 Sub-Account of the Separate 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 Sub-Accounts of the Separate Account purchase shares of the Funds,
the value of the net assets of the Sub-Accounts will reflect the investment
advisory fee and other expenses incurred by the Funds. The Prospectus and
Statement of Additional Information of the Trust contain additional information
concerning expenses of the Funds.
DESCRIPTION OF THE CONTRACT
The Contract is designed for use in connection with individual retirement
annuities. You and your 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 You attain age 70 1/2
and must be made in accordance with Section 401(a)(9) of the Code.
19
<PAGE>
The Contracts and Certificates thereunder offered by the Prospectus may be
purchased from representatives of 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"). Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653, is
indirectly wholly-owned by the Company. You 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, You may make IRA Account investment transfers, contribution allocation
instructions and other specified transactions by telephone request, if a
properly completed authorization form is 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, You must indicate in writing:
- - the type of contribution being made;
- - the taxable year for which the contribution is intended (if applicable); and
- - 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 your rollover distribution.
After an IRA Account has been established, You 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, the maximum for total
additional deductible and nondeductible contributions is the lesser of (1)
$2,000, or (2) 100% of your 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.
You 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.
You 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.
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Generally, contributions will be allocated among the Sub-Accounts according to
your 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 Sub-Account that invests in the Money Market Fund. Thereafter, all
amounts will be allocated according to your 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.
TRANSFER PRIVILEGE
Prior to the Annuity Date, You 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.
Currently, the Company makes no charge for transfers. During each calendar year,
You may make up to four transfers among Sub-Accounts of the Separate Account or
General Account, where available. In addition, You may transfer from a
Sub-Account of the General Account on the Sub-Account maturity date.
The maximum dollar amount that may be transferred during a calendar year from
Sub-Accounts of the General Account 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.
Automatic transfers may also be made from policy value allocated to the
Company's General Account (a) to one or more of the Sub-Accounts or (b) in order
to reallocate Policy value among Sub-accounts. Automatic transfers from the
General Account may be made on a monthly, bimonthly, or quarterly basis,
provided that:
- - the amount of each monthly transfer cannot exceed 10% of policy value in the
General Account as of the date of the first transfer;
- - each bimonthly transfer cannot exceed 20% of policy value in the General
Account as of the date of the first transfer;
- - 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 the 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.
SURRENDER PRIVILEGE
At any time prior to the Annuity Date, You may request surrender of the IRA
Account and receive its Surrender Value. You 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 Sub-Accounts of the General
Account. See "CHARGES AND DEDUCTIONS." The IRA Account Fee will be deducted upon
surrender of the IRA Account.
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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 Sub-Account of the
Separate 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 Sub-Account of the General 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, You may redeem a portion of the
Accumulated Value of your IRA Account, subject to the limits stated below. You
must file a signed, written request for redemption at the Company's Home Office.
The written request must indicate the dollar amount You wish to receive and, if
applicable, the Sub-Account(s) of the Separate Account from which such amount is
to be redeemed. Withdrawals from a Sub-Account of the General Account will be
made on a LIFO (last-in-first-out) basis, so that withdrawals will be made first
from the most recently established Sub-Account of the General Account. The
amount redeemed equals the amount You requested 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 Sub-Account of the Separate 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 your 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,
You 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 your 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.
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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 You die prior to the Annuity Date leaving your 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
You are the owner of your IRA Account. IRA Accounts may not be transferred by
You. No part of your interest in an IRA Account can be forfeited. You 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, You have 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, You 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.
You select the Annuity Date. 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. You 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 You do 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
Option I is 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.
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OPTION II -- LIFE ANNUITY
Option II is 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
Option III is 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
Option IV-A is 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
You or the beneficiary. There is no minimum number of payments under this
option.
OPTION IV-B -- JOINT AND TWO-THIRDS SURVIVOR LIFE ANNUITY
Option IV-B is 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 You or the beneficiary. There is
no minimum number of payments under this option.
OPTION V -- PERIOD CERTAIN ANNUITY
Option V is 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.
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.
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 You. Allocations to the Sub-Accounts of the Separate Account are
credited to the IRA Account in the form of Accumulation Units. Accumulation
Units are credited separately for each Sub-Account of the Separate 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
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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 Funds. The value of an Accumulation Unit was set at $100.0000 on the first
Valuation Date for each Sub-Account of the Separate Account.
Allocations to Sub-Accounts of the General Account are not converted into
Accumulation Units, but are credited interest at a rate periodically set by the
Company. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
The Accumulated Value of the IRA Account is determined by
- - MULTIPLYING the number of Accumulation Units in each Sub-Account of the
Separate Account by the dollar value of an Accumulation Unit of that
Sub-Account on the Valuation Date,
- - ADDING the products, and
- - ADDING the amount of the accumulations in the Sub-Accounts of the General
Account, if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Sub-Account of the Separate 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
variable accumulations for a Sub-Account of the Separate Account 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 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. The net investment factor is 1.000000 plus the applicable net
investment rate.
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.
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.
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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 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
You or the beneficiary depends upon a variety of factors. The following
discussion is based upon the Company's understanding of current federal income
tax laws as they are interpreted as of the date of this Prospectus. No
representation is made regarding the likelihood of continuation of current
federal income tax laws or of current interpretations by the IRS.
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 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 You 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 any amounts includable in
gross income 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 your death, or in
the case of your "total disability" (as defined in the Code). Furthermore, under
Section 72 of the Code, this penalty tax will not be imposed, irrespective of
age, if the amount received is one of a series of "substantially equal" periodic
payments made at least annually for the life or life expectancy of the payee.
This requirement is met when You elect to have distributions made over your life
expectancy, or over the joint life expectancy of You and the beneficiary.
In a private letter ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Policy's LED), and could be changed or terminated at any time, the
distributions failed to qualify as part of a "series of substantially equal
payments" within the meaning of Section 72 of the
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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 You have 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 IRS 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, You make a withdrawal or receive 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 You.
INDIVIDUAL RETIREMENT ACCOUNTS IN GENERAL
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity ("IRA").
The assets of an IRA may be invested in, among other things, this Contract. IRAs
are subject to limits on the amounts that may be contributed, the persons who
may be eligible, and on the time when distributions may commence. In addition,
certain distributions from other types of retirement plans may be "rolled over,"
on a tax-deferred basis, to an IRA. Purchasers of this Contract will be provided
with supplementary information as may be required by the IRS or other
appropriate agency, and will have the right to revoke the Contract as described
in this Prospectus.
REPORTS
You will be sent a report semi-annually which states certain financial
information about the Funds. The Company will also furnish an annual report to
You containing a statement of your 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:
- - 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;
- - 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,
- - to deregister the Separate Account under the 1940 Act in accordance with the
requirements of the 1940 Act; or
- - to substitute the shares of any other registered investment company for the
Fund shares held by a Sub-Account of the Separate Account, in the event that
Fund shares are unavailable for investment, or if the
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Company determines that further investment in such 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 You 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 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted from this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
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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 1933 Act or the 1940 Act. Disclosures regarding the fixed
portion of the Contract and the Sub-Accounts of the General Account may be
subject to the provisions of the 1933 Act concerning the accuracy and
completeness of statements made in the Prospectus. The disclosures in this
APPENDIX A have not been reviewed by the SEC. 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.
A portion or all of net contributions may be allocated to a Sub-Account within
the General 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 Sub-Account of the General 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, Sub-Accounts of the General Account 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 Sub-Account of the
General Account must be received by the Company no later than 1:00 p.m. Eastern
time to be applied to the Sub-Account of the General Account on the date of
receipt. Additional contributions received after 1:00 p.m. will be credited to
the Sub-Account of the General Account on the next business day.
At least 30 days prior to the maturity date of a Sub-Account of the General
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 Sub-Accounts
of the General Account is surrendered, or if a partial redemption is made from a
Sub-Account of the General Account, a withdrawal charge of 4% will be made on
any amounts withdrawn from such Sub-Accounts. The withdrawal charge will not
apply to amounts withdrawn on a maturity date or under an 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.
A-1
